[Federal Register Volume 68, Number 131 (Wednesday, July 9, 2003)]
[Notices]
[Pages 41032-41033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17357]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48120; File No. SR-NASD-2003-83]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 by the
National Association of Securities Dealers, Inc. Relating to an
Amendment to the Automated Confirmation Transaction Service Concerning
Late Trade Reports
July 2, 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 13, 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'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by Nasdaq. On June 26,
2003, Nasdaq amended the proposal.\3\ Nasdaq filed the proposed rule
change pursuant to Section 19(b)(3)(A) of the Act,\4\ and Rule 19b-
4(f)(1) thereunder,\5\ as one constituting a stated policy, practice,
or interpretation with respect to the meaning, administration, or
enforcement of an existing rule, which renders the proposal effective
upon filing with the Commission. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See June 25, 2003 letter from Mary M. Dunbar, Vice President
and Deputy General Counsel, Nasdaq, to Katherine A. England,
Assistant Director, Division of Market Regulation, Commission, and
attachments (``Amendment No. 1''). Amendment No. 1 completely
replaces and supersedes the original proposed rule change.
\4\ 15 U.S.C. 78s(b)(3)(A). For purposes of calculating the 60-
day abrogation period, the Commission considers the period to have
commenced on June 26, 2003, the date Nasdaq filed Amendment No. 1.
\5\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposal
Nasdaq proposes to modify the Automated Confirmation Transaction
Service (``ACT'') to append the .SLD modifier, as appropriate, to trade
reports submitted to ACT. There is no proposed rule language.
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 its proposal and discussed any
comments it received regarding the proposal. 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 NASD trade reporting rules are designed to ensure timely and
accurate reports of executed trades. Timely and accurate trade
reporting is essential to the maintenance of a fair and orderly market.
Therefore, NASD rules require members to identify reports of
transactions that are not indicative of the current market for the
security.\6\ For example, the .SLD trade report modifier must be
appended to trade reports that are submitted to ACT more than 90
seconds after the trade was executed. Trade reports that do not include
the .SLD modifier are included in the last sale, high price, and low
price calculations for a security because Nasdaq's systems assume that
trades without this modifier, or any other modifier, are normal trades
indicative of the current market. Therefore, when trades are reported
late and erroneously do not include the proper modifier (and are
therefore included in these calculations), the market can be distorted
because the price being reported may be significantly different from
the contemporaneous market. The potential misinformation could cause
confusion for members, issuers, and investors and could lead to
investment decisions being made based upon inaccurate information.
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\6\ See, e.g., NASD Rule 5430(a).
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Today, ACT does not automatically append the .SLD modifier to late
trade reports. Therefore, the integrity of the information disseminated
relies on members complying with their obligation to report trades
accurately. NASD conducts surveillance of its members for compliance
with the trade reporting rules and does bring disciplinary actions
against members that fail to include the .SLD modifier on late trade
reports. Nevertheless, members occasionally fail to include the .SLD
modifier on late trade reports and the immediate result is that
potentially misleading information is disseminated.\7\ Therefore, to
prevent this result, Nasdaq is proposing to modify ACT to append the
.SLD modifier automatically for trades executed during normal market
hours that are reported late. The .SLD modifier is not used for trades
executed in the pre-market and after-hours trading sessions.
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\7\ There are few incidences in which trades are reported
without the .SLD modifier. In fact, only .03% of trades are reported
more than 90 seconds after execution and only a small number of
these late reports do not contain the .SLD modifier. However, while
this is not a widespread problem, the quality of information
disseminated can be improved by eliminating even the small number of
incidences in which late trade reports are erroneously included in
the last sale calculation.
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To append the modifiers automatically, ACT must be reprogrammed to
include a validation parameter that compares the time of execution and
trade report time to the modifier field. Once the validation parameter
is operative, if a trade report is submitted more than 90 seconds after
the time of execution, and the time of execution was during normal
market hours, ACT will append the .SLD modifier automatically.
The validation parameter relies on the time of execution to
identify improperly reported trades and append the .SLD modifier.
Today, nearly all trades reported to Nasdaq include the time of
execution, but some are still reported without this information.\8\
Therefore, a small number of improperly reported trades will not be
corrected and thus will continue to be included automatically in the
last sale, high price, and low price calculations. However, Nasdaq
staff will continue to conduct surveillance for these instances and
manually correct the calculations, as appropriate, when such errors are
discovered. To eliminate the small number of incidences in which ACT
cannot identify and correct improperly reported trades, Nasdaq soon
will file a proposal to require the time of execution on all trade
reports.
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\8\ Today, over 99% of the trades submitted to ACT include the
time of execution.
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act,\9\ in that the proposed
rule change will prevent nearly all late trade reports from being
included in the calculations designed to inform investors of the
current market for a security. As a
[[Page 41033]]
result, members and the public will possess more accurate information
when making investment decisions.
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\9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement of Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposal has become effective pursuant to section
19(b)(3)(A)(i) of the Act,\10\ and Rule 19b-4(f)(1) \11\ thereunder, in
that it constitutes a stated policy, practice, or interpretation with
respect to the meaning, administration, or enforcement of an existing
rule.
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\10\ 15 U.S.C. 78s(b)(3)(A)(i).
\11\ 17 CFR 240.19b-4(f)(1).
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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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposal 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 the NASD. All
submissions should refer to file number SR-NASD-2003-83 and should be
submitted by July 30, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17357 Filed 7-8-03; 8:45 am]
BILLING CODE 8010-01-P