[Federal Register Volume 68, Number 112 (Wednesday, June 11, 2003)]
[Notices]
[Pages 35043-35044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14645]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47982; File No. SR-NASD-2003-80]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. to Codify the Policy of the Nasdaq Market 
Operations Review Committee With Respect to Review Panels

June 4, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 
1934, (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on May 6, 2003, the National Association of Securities 
Dealers, Inc. (``NASD''), through its subsidiary, The Nasdaq Stock 
Market, Inc. (``Nasdaq''), submitted to the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by Nasdaq. On 
June 2, 2003, Nasdaq filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John M. Yetter, Assistant General Counsel, 
Nasdaq, to Katherine England, Assistant Director, Division of Market 
Regulation, Commission, dated May 30, 2003 (``Amendment No. 1''). In 
Amendment No. 1, Nasdaq added cross-references to proposed new IM-
11890-2 to the text of related rules. For purposes of calculating 
the 60-day abrogation period, the Commission considers the proposed 
rule change to have been filed on June 2, 2003, when Amendment No. 1 
was filed.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to codify the policy of the Nasdaq Market 
Operations Review Committee with respect to the use of review panels. 
Below is the text of the proposed rule change. New text is in italics.
* * * * *

4612. Primary Nasdaq Market Maker Standards

    (a)-(h) No change.
    Cross Reference--IM-11890-2, Review by Panels of the MORC
* * * * *

4619. Withdrawal of Quotations and Passive Market Making

    (a)-(e) No change.
    Cross Reference--IM-11890-2, Review by Panels of the MORC
* * * * *

4620. Voluntary Termination of Registration

    (a)-(d) No change.
    Cross Reference--IM-11890-2, Review by Panels of the MORC
* * * * *

4710. Participant Obligations in NNMS

    (a)-(e) No change.
    Cross Reference--IM-11890-2, Review by Panels of the MORC
* * * * *

11890. Clearly Erroneous Transactions

    (a)-(d) No change.

IM-11890-1. Refusal to Abide by Rulings of a Nasdaq Officer or the MORC

    It shall be considered conduct inconsistent with just and equitable 
principles of trade for any member to refuse to take any action that is 
necessary to effectuate a final decision of a Nasdaq officer or the 
MORC under Rule 11890.

IM-11890-2. Review by Panels of the MORC

    For purposes of Rule 11890 and other NASD rules that permit review 
of Nasdaq decisions by the MORC, a decision of the MORC may be rendered 
by a panel of three or more members of the MORC, provided that no more 
than 50 percent of the members of any panel are directly engaged in 
market making activity or employed by a member firm whose revenues from 
market making activity exceed ten percent of its total revenues.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in sections A, 
B and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule filing is to codify the existing practice 
of the Market Operations Review Committee (the ``MORC'') with respect 
to convening panels of its members to undertake reviews of Nasdaq 
decisions that are subject to review by the MORC. The MORC is a 
standing committee selected by the Nasdaq Board of Directors. Under the 
Plan of Allocation and Delegation of Functions by NASD to Subsidiaries 
(the ``Delegation Plan''), however, no more than 50 percent of the 
MORC's members may be directly engaged in market making activity or 
employed by a member firm whose revenues from market making activity 
exceed ten percent of its total revenues. At this time, five members of 
the MORC are market maker representatives under the standard 
established by the Delegation Plan, while the remaining nine members of 
the MORC are not. Currently, the MORC's primary function is to review 
Nasdaq's decisions to nullify or modify clearly erroneous

[[Page 35044]]

transactions under Rule 11890. In addition, the MORC reviews Nasdaq 
decisions (i) to deny a market maker's request for an excused 
withdrawal of quotations, or to impose conditions upon its reentry, 
under Rule 4619; and (ii) to deny a market maker's request for 
reinstatement following a voluntary termination of its registration as 
a market maker under Rule 4620 or a withdrawal of quotations under Rule 
4710(b)(5).\4\
---------------------------------------------------------------------------

    \4\ Under Rule 4612, the operation of which is currently 
suspended (see Securities Exchange Act Release No. 46999 (December 
13, 2002), 67 FR 78534 (December 24, 2002)), the MORC would also 
have authority to review denial of a request for reconsideration of 
a decision to withhold designation as a primary market maker.
---------------------------------------------------------------------------

    According to Nasdaq, the MORC has generally rendered decisions by 
convening panels of its members, usually consisting of three 
members.\5\ All panels must satisfy the same compositional requirements 
as the MORC itself (i.e., no more than 50 percent of the members of a 
panel may be directly engaged in market making activity or employed by 
a member firm whose revenues from market making activity exceed ten 
percent of its total revenues). As the Commission has noted, an 
expeditious resolution of disputes relating to transactions that are 
alleged to be clearly erroneous benefits market participants and helps 
to ensure the accuracy of transactional information disseminated to 
investors.\6\ Consistent with this view, Nasdaq and the MORC concluded 
that the use of panels was necessary for the MORC to provide an 
expeditious resolution of matters presented to it. It is not practical 
to require all members of the MORC to adjudicate each matter presented 
for its review. MORC members are generally market or legal 
professionals who must take time out of their schedules to participate 
in MORC adjudications, which may occur whenever a member requests a 
review of a staff determination by the MORC. In 2002, there were 51 
appeal hearings conducted by the MORC; hearings are scheduled as soon 
as possible, and almost always on the same day as the decision being 
appealed. It would simply not be possible to convene a meeting of all 
MORC members each time that an appeal to the MORC is made, nor would it 
be fair to MORC members to require them to participate in each 
adjudication. Accordingly, if the practice of using panels were not 
used, it is likely that appeals could only be heard at regularly 
scheduled intervals, rather than at the time of the decision being 
appealed. Under such an arrangement, timely resolution of disputed 
transactions would be impossible, and Nasdaq believes that it would 
have more difficulty in finding qualified persons to serve as members 
of the MORC.
---------------------------------------------------------------------------

    \5\ The practice of using panels to render decisions was noted 
in Securities Exchange Act Release No. 32349 (May 21, 1993), 58 FR 
30836, n.4 (May 27, 1993) (SR-NASD-93-31).
    \6\ Securities Exchange Act Release No. 39550 (January 14, 
1998), 63 FR 4333, 4336 (January 28, 1998) (SR-NASD-96-51). 
Likewise, Nasdaq believes that speedy resolution of market maker's 
disputes under Rules 4619, 4620, and 4710 concerning their rights 
and obligations with respect to posting quotes is important to 
ensure equitable treatment of market makers.
---------------------------------------------------------------------------

    Nasdaq has concluded, however, that in the interest of clarity, the 
use of MORC panels should be explicitly reflected in NASD rules. 
Accordingly, Nasdaq is submitting this filing to codify the existing 
policy with respect to the administration of Rule 11890 and all other 
rules that allow review of Nasdaq decisions by the MORC. For purposes 
of such rules, a decision of the MORC may be rendered by a panel of 
three or more members of the MORC, provided that no more than 50 
percent of the members of any panel are directly engaged in market 
making activity or employed by a member firm whose revenues from market 
making activity exceed ten percent of its total revenues.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\7\ in general, and with 
section 15A(b)(6) of the Act,\8\ in particular, in that it promotes 
just and equitable principles of trade and protects investors and the 
public interest. The proposed rule change will promote the fair and 
efficient resolution of disputes involving clearly erroneous 
transactions and other matters that are subject to review by the MORC.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78o-3.
    \8\ 15 U.S.C. 78o-3(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act,\9\ and subparagraph (f)(1) of Rule 19b-4 
thereunder because it is designated as a stated policy, practice or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule.\10\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.\11\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(1).
    \11\ See supra note 3. For purposes of calculating the 60-day 
abrogation period, the Commission considers the proposed rule change 
to have been filed on June 2, 2003, when Amendment No. 1 was filed.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of Nasdaq. All submissions should refer to File No. 
NASD-2003-80 and should be submitted by July 2, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-14645 Filed 6-10-03; 8:45 am]
BILLING CODE 8010-01-P