[Federal Register Volume 68, Number 142 (Thursday, July 24, 2003)]
[Notices]
[Pages 43777-43779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18901]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48196; File No. SR-NASD-2003-108]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the National Association of 
Securities Dealers, Inc. to Temporarily Increase the Non-Directed Order 
Maximum Response Time for Order-Delivery ECNs in Nasdaq's SuperMontage 
System

July 17, 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 July 10, 2003, the National Association of

[[Page 43778]]

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. 
Nasdaq has designated the proposed rule change as constituting a ``non-
controversial'' rule change under section 19(b)(3)(A)(iii) of the 
Act,\3\ and paragraph (f)(6) of Rule 19b-4 under the Act,\4\ which 
renders the proposal effective upon receipt of this filing by the 
Commission.\5\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The NASD has requested that the Commission waive both the 
five-day pre-filing notification requirement and the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii). 17 CFR 
240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

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

    Nasdaq proposes to increase, from 7 seconds to 30 seconds, the 
maximum time allowed for Nasdaq's National Market Execution System 
(``NNMS'') Order-Delivery Electronic Communications Networks (``ECNs'') 
to respond to non-directed orders sent to them by Nasdaq's SuperMontage 
system (``SuperMontage''). Below is the text of the proposed rule 
change. Proposed new language is underlined; proposed deletions are in 
brackets.
* * * * *
4710. Participant Obligations in NNMS
    (a) No Change.
    (b) Non-Directed Orders
    (1) No Change.
    (A) through (B) No Change.
    (C) Decrementation Procedures--The size of a Quote/Order displayed 
in the Nasdaq Order Display Facility and/or the Nasdaq Quotation 
Montage will be decremented upon the delivery of a Liability Order or 
the delivery of an execution of a Non-Directed Order or Preferenced 
Order in an amount equal to the system-delivered order or execution.
    (i) No Change.
    (ii) If an NNMS Order-Delivery ECN declines or partially fills a 
Non-Directed Order without immediately transmitting to Nasdaq a revised 
Attributable Quote/Order that is at a price inferior to the previous 
price, or if an NNMS Order-Delivery ECN fails to respond in any manner 
within 30 [7] seconds of order delivery, the system will cancel the 
delivered order and send the order (or remaining portion thereof) back 
into the system for immediate delivery to the next Quoting Market 
Participant in queue. The system then will zero out the ECN's Quote/
Orders at that price level on that side of the market, and the ECN's 
quote on that side of the market will remain at zero until the ECN 
transmits to Nasdaq a revised Attributable Quote/Order. If both the bid 
and offer are zeroed out, the ECN will be placed into an excused 
withdrawal state until the ECN transmits to Nasdaq a revised 
Attributable Quote/Order.
    (iii) through (iv) No Change.
    (D) No Change.
    (1) through (8) No Change.
    (c) through (e) No Change.
* * * * *

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
    On June 24, 2003, the Commission approved a proposed rule change in 
which Nasdaq reduced, from 30 seconds to 7 seconds, the maximum time 
allowed for NNMS Order-Delivery ECNs to respond to non-directed orders 
sent to them by SuperMontage (``the original proposal'').\6\ Under the 
original proposal, if an Order-Delivery ECN had failed to respond 
within 7 seconds, the delivered non-directed order would be canceled by 
SuperMontage and forwarded to the next NNMS Quoting Market Participant 
in queue for execution, and the ECN's quote at the price level on the 
side of the market to which the order was delivered would be reduced to 
zero.\7\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 48078, 68 FR 39171 
(July 1, 2003) (SR-NASD-2003-72).
    \7\ Nasdaq represents that the ECN's quote on that side of the 
market will remain at zero until the ECN transmits to Nasdaq a 
revised Attributable Quote/Order. If both the bid and offer are 
zeroed out, the ECN will be placed into an excused withdrawal state 
until the ECN transmits to Nasdaq a revised Attributable Quote/
Order.
---------------------------------------------------------------------------

    Since the approval of the original proposal, and prior to its 
implementation, Nasdaq has become aware of internal system processing 
queues that, in certain circumstances, do not allow adequate time for 
ECNs to receive and respond to SuperMontage non-directed orders using a 
7-second standard. As a result, Nasdaq has determined to temporarily 
delay implementation of the 7-second maximum response time and revert 
back to previous 30-second maximum response time. Nasdaq represents 
that it is currently introducing system enhancements that are expected 
to eliminate the queuing problem and will submit a proposed rule change 
to the Commission seeking to implement a reduced ECN non-directed order 
response time parameter as soon as practicable.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act \8\ in general, and with 
section 15A(b)(6) of the Act \9\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to, and 
perfect the mechanism of, a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78o-3.
    \9\ 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 result 
in any burden on competition that is 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

    Written comments were neither solicited nor received.

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days (or such shorter time as the Commission may 
designate if consistent with the protection of investors and the

[[Page 43779]]

public interest) after the date of the filing, the proposed rule change 
has become effective pursuant to section 19(b)(3)(A) of the Act \10\ 
and Rule 19b-4(f)(6) thereunder.\11\ At any time within 60 days of the 
filing of such 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Commission has decided, consistent with the protection of 
investors and the public interest, to waive the five-day pre-filing 
notice and 30-day operative date to allow Nasdaq to immediately provide 
for a 30-second maximum time period for Order-Delivery ECNs to respond 
to non-directed orders sent to them by SuperMontage.\12\ The Commission 
believes that this should allow ECNs to continue to participate in 
SuperMontage without their quotes being zeroed out as a result of 
system queues.
---------------------------------------------------------------------------

    \12\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 
Nasdaq. All submissions should refer to file number SR-NASD-2003-108, 
and should be submitted by August 14, 2003.
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-18901 Filed 7-23-03; 8:45 am]
BILLING CODE 8010-01-P