[Federal Register Volume 68, Number 126 (Tuesday, July 1, 2003)]
[Notices]
[Page 39171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16519]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48078; File No. SR-NASD-2003-72]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 Thereto by the National Association of 
Securities Dealers, Inc. to Reduce the Non-Directed Order Maximum 
Response Time for Order-Delivery ECNs in Nasdaq's SuperMontage System

June 24, 2003.
    On April 14, 2003, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ to reduce, from 30 seconds to 7 seconds, the maximum 
time allowed for Nasdaq's National Market Execution System (``NNMS'') 
Order-Delivery Electronic Communications Networks (``Order-Delivery 
ECNs'') to respond to non-directed orders sent to them by Nasdaq's 
SuperMontage system (``SuperMontage''). On May 15, 2003, Nasdaq 
submitted Amendment No. 1 to the proposed rule change.\3\ The proposed 
rule change, as amended, was published in the Federal Register on May 
23, 2003.\4\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Thomas P. Moran, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated May 15, 2003 (``Amendment No. 
1'').
    \4\ Securities Exchange Act Release No. 47883 (May 16, 2003), 68 
FR 28312.
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    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities association.\5\ 
Specifically, the Commission believes that the proposal is consistent 
with Section 15A(b)(6) of the Act,\6\ which requires, among other 
things, that the rules of an association promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system and, in general, 
protect investors and the public interest.
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    \5\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \6\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that, given Nasdaq's recent analysis of ECN 
responsiveness, which indicates that the average response-time across 
all ECNs participating in SuperMontage is less than one quarter of a 
second, reducing the maximum time period for Order-Delivery ECNs to 
respond to non-directed orders from 30 seconds to 7 seconds should give 
market participants a sufficient amount of time to respond to orders 
sent through SuperMontage.\7\ Nasdaq noted that the current 30-second 
response time in some cases could inappropriately delay the processing 
of orders. The Commission believes that the 7-second maximum response 
time is appropriate to give ECNs ample time to execute non-directed 
orders sent to them, and to allow other market participants to more 
swiftly retrieve and execute orders originally dispatched to non-
responsive ECNs, thereby helping Nasdaq to facilitate faster executions 
in SuperMontage. Further, the Commission notes that Nasdaq has 
represented that it will continue to monitor ECN responsiveness to 
delivered orders in SuperMontage and propose additional modifications 
if warranted.
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    \7\ In its filing with the Commission, Nasdaq noted that the 30-
second time period contained in the current rule resulted, in part, 
because of concerns raised by commenters in response to Nasdaq's 
proposal to implement SuperMontage. Nasdaq had originally proposed a 
7-second response time, but commenters expressed concerns about past 
Nasdaq system issues related to the delivery of messages to market 
participants. Therefore, Nasdaq amended its proposal and extended 
the response time to thirty seconds. See Securities Exchange Act 
Release No. 43863 (January 19, 2001), 66 FR 8020 (January 26, 2001) 
(approving SR-NASD-99-53). Nasdaq now represents that, based upon 
SuperMontage's performance to date, such concerns are no longer 
valid and a 7 second response time is appropriate.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NASD-2003-72), as amended, is 
approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16519 Filed 6-30-03; 8:45 am]
BILLING CODE 8010-01-P