[Federal Register Volume 68, Number 152 (Thursday, August 7, 2003)]
[Notices]
[Pages 47119-47121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20124]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48274; File No. SR-NASD-2003-102]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the National Association of Securities Dealers, Inc. Modifying 
Interpretive Material 4613 To Provide a New Approval Process for 
Authorizing Computer Generated Quoting

August 1, 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 June 26, 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. Nasdaq filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 
19b-4(f)(1)\4\ thereunder, in that the proposed rule change constitutes 
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. Nasdaq 
amended the proposed rule change on July 17, 2003.\5\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(1).
    \5\ See July 17, 2003 letter from Mary M. Dunbar, Vice President 
and Deputy General Counsel, Nasdaq, to Katherine A. England, 
Assistant Director, Division of Market Regulation, Commission 
(``Amendment No. 1''). In Amendment No. 1, Nasdaq provided new rule 
language that completely replaces and supersedes the original 
proposed rule language, and made corresponding changes to the 
description of the rule in the notice. For purposes of calculating 
the 60-day abrogation period, the Commission considers the period to 
have commenced on July 17, 2003, the day Nasdaq filed Amendment No. 
1.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify Interpretive Material 4613 (``IM 4613''). 
The text of the proposed rule change is below. Proposed new language is 
in italics; proposed deletions are in brackets.
* * * * *

IM-4613. Autoquote Policy

    (a) No change.
    (b) No change.
    (c) Computer Generated Quoting--
    (1) Definition--``Computer Generated Quoting'' means the practice 
of effecting, without a physical entry, a quote update that is not 
designed to keep a market maker's quote away from the Nasdaq and/or 
national best bid/best offer, but does not include the activity set 
forth in subparagraph (b) of this interpretive material.
    (2) Prohibition--The prohibitions against autoquoting contained in 
paragraph (a) of this interpretative material shall also apply to the 
practice of Computer Generated Quoting unless the market maker [meets 
the conditions in]obtains Nasdaq's prior approval, pursuant to 
subparagraph (c)(3) of this interpretive material, to engage in 
Computer Generated Quoting and such approval has not been revoked or 
otherwise withdrawn.
    (3) Exception--A market maker may request approval to engage in the 
practice of Computer Generated Quoting [if the market maker: prior to 
engaging in such activity provides Nasdaq a description of its Computer 
Generated Quoting system; requests and obtains written interpretive 
relief from Nasdaq staff stating that the market maker's Computer 
Generated Quoting system is permissible under Interpretive Material 
4613; and complies with terms that are set forth in the interpretive 
relief.] by submitting to Nasdaq a completed application in the form 
prescribed by Nasdaq and by agreeing, in the form prescribed by Nasdaq, 
to notify Nasdaq at least five business days in advance of any changes 
to the information previously provided, to comply with the terms of 
this Interpretive Material 4613, and to abide by any additional 
conditions related to Computer Generated Quoting, which Nasdaq may 
impose from time to time. A properly completed application is deemed 
approved at close of business on the fifth business day after the day 
on which it is received by Nasdaq unless Nasdaq notifies the applicant 
by e-mail or fax that the application has been denied; provided, 
however, that any approval deemed granted hereunder may be withdrawn by 
Nasdaq at any time and is subject to any and all terms, conditions and 
limitations that Nasdaq may impose from time to time. [In establishing 
terms of the interpretive relief,] Nasdaq may reject an application, 
impose conditions or revoke a previously granted approval: (i) In 
furtherance of applicable laws or NASD rules, (ii) in order to protect 
the

[[Page 47120]]

integrity of Nasdaq's systems, considering [shall consider] the 
applicant's impact on Nasdaq's capacity, in conjunction with the 
overall impact on Nasdaq's capacity of existing Computer Generated 
Quoting systems authorized by Nasdaq, or (iii) in order to protect [as 
well as the protection of] investors and the public interest. [ If a 
market maker that engages in Computer Generated Quoting fails to comply 
with the terms set forth in the interpretive relief,] Furthermore, 
Nasdaq may summarily modify or revoke the approval [interpretive 
relief] and/or summarily suspend [such quoting] a firm's Computer 
Generated Quoting activity if the firm has not complied with any, some 
or all of the terms of approval and/or with any previously imposed 
conditions [necessary to preserve capacity and to protect investors and 
the public interest].
* * * * *

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
    Nasdaq seeks to streamline the process of obtaining an 
authorization pursuant to IM 4613 to engage in Computer Generated 
Quoting (``CGQ''). Currently, a firm seeking such an authorization 
provides certain information about its CGQ system in a letter to 
Nasdaq. Nasdaq then grants approval by sending an appropriate response 
letter to the requesting firm; such a letter also details the 
applicable conditions of the approval.\6\
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    \6\ Firms that have already received approval to engage in CGQ 
will not need to re-apply by virtue of this proposed rule change so 
long as such firms remain in compliance with the conditions stated 
in their respective approval letters.
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    Under the proposed rule change, a firm wishing to obtain CGQ 
authorization would be required to submit to Nasdaq a standard 
application form, which seeks certain information that Nasdaq needs in 
order to ensure that the proposed CGQ activity will not degrade 
Nasdaq's systems or otherwise undermine Nasdaq's ability to protect 
investors and the public interest. The information sought in the 
application form is of the same type as the information Nasdaq has 
sought from firms requesting CGQ authorization in the past. The 
application form also contains a certification and agreement section, 
to be executed by the applicant firm, in which the firm would promise 
to notify Nasdaq of any changes to the information previously provided 
in connection with CGQ and to comply with any existing or future 
restrictions on (including termination of) the practice of CGQ with 
respect to some or all quotes. Nasdaq represents that it will notify 
approved firms of any future conditions on CGQ authorization in writing 
either individually, if the condition applies to a particular firm, or 
through a rule filing with the Commission, if it applies globally.\7\
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    \7\ Telephone conversation between Katherine A. England, 
Assistant Director, Joseph A. Morra, Special Counsel, and Leah 
Mesfin, Attorney, Commission and Alex Kogan, Associate General 
Counsel, Nasdaq on July 30, 2003.
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    Under the proposed rule change, Nasdaq will have five business days 
to reject an application. If an application is not rejected within this 
time frame, it will be deemed approved. In the case of rejection, 
Nasdaq will notify the applicant firm by e-mail or fax and, if 
possible, by telephone (one call will be made to the number listed in 
the application; if the listed contact is not available, a message will 
be left if possible).
    Nasdaq may reject an application, impose conditions (either at the 
time of initial approval or at any time thereafter), or revoke a 
previously granted approval: (a) In furtherance of applicable laws or 
NASD rules; (b) in order to protect the integrity of Nasdaq's systems, 
including preserving sufficient system capacity; or (c) in order to 
protect investors and the public interest. Furthermore, Nasdaq may 
further condition or revoke approval at any time if a firm has not 
complied with any, some, or all of its obligations contained in the 
certification and agreement section of the application (such as, but 
not limited to, the obligation to notify Nasdaq in advance of any 
changes) and/or with any previously imposed conditions.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\8\ including Section 
15A(b)(6) of the Act,\9\ which requires that the rules of the NASD 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and remove impediments to and 
perfect the mechanism of a free and open market. Nasdaq believes that 
the proposed rule change will make the process of applying for CGQ 
authorization simpler and add speed and certainty to the process. Since 
an authorization would be deemed granted five business days after a 
completed application is received by Nasdaq, applicant firms would be 
able to plan the relevant aspects of their business accordingly.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(b)(6).
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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, 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

    This proposed rule change has become effective pursuant to Section 
19(b)(3)(A) 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).
    \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,

[[Page 47121]]

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-2003-102 and should be 
submitted by August 28, 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. 03-20124 Filed 8-6-03; 8:45 am]
BILLING CODE 8010-01-P