[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

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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