[Federal Register Volume 68, Number 228 (Wednesday, November 26, 2003)]
[Notices]
[Pages 66518-66520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29512]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48810: File No. SR-NASD-2003-161]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. To 
Establish a Nasdaq Official Opening Price

November 19, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 28, 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. 
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).
    \1\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is filing a proposed rule change to establish a Nasdaq 
Official Opening Price that would be made available for wholly 
voluntary use by NASD members and the public. Nasdaq represents that it 
would calculate and disseminate the Nasdaq Official Opening Price using 
its proprietary systems, and that the Nasdaq Official Opening Price 
would not affect the dissemination of last sale information pursuant to 
the national market system plan governing trading of Nasdaq securities, 
the Nasdaq UTP Plan.

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

[[Page 66519]]

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 proposes to calculate and disseminate a Nasdaq Official 
Opening Price for Nasdaq-listed securities. Nasdaq would disseminate 
the Nasdaq Official Opening Price over the Nasdaq Index Dissemination 
Service data feed (``NIDS''), a proprietary data feed of Nasdaq. 
Because the Nasdaq Official Opening Price would be neither a quotation 
nor a last sale report, it would not be disseminated over either the 
UTP Quote data feed or the UTP Trade data feed. The Nasdaq Official 
Opening Price message would contain the prevailing inside quote and the 
Nasdaq Official Opening Price value. Nasdaq states that the fees for 
the NIDS feed have previously been filed with the Commission, and that 
it is not proposing to change those fees.
    The Nasdaq Official Opening Price would be equal to the reported 
price of the first trade executed in the Nasdaq National Market 
Execution System (``SuperMontage''), which would be based upon orders 
that are in queue when SuperMontage begins trading at 9:30 a.m. ET 
(``SuperMontage Opening Match''). SuperMontage executions that are in 
queue when SuperMontage begins trading at 9:30 a.m. but that are not 
executed until after 9:30:05 (as a result of being delivered to an 
order delivery participant that has not responded) would not be 
eligible to be the SuperMontage Opening Match. SuperMontage executions 
that result from orders entered into the system after 9:30 also would 
not be eligible to be the SuperMontage Opening Match.
    If there were to be no SuperMontage Opening Match within five 
seconds after the system opens at 9:30, the Nasdaq Official Opening 
Price for that security would be based upon the first, last sale 
eligible trade (``Predicate Trade'')\3\ that is reported to Nasdaq's 
Automated Confirmation Transaction System (``ACT''). The Predicate 
Trade could be an internalized execution reported to ACT or a 
SuperMontage execution resulting from an order entered into the system 
after 9:30, and also reported to ACT. The Predicate Trade could also be 
a SuperMontage execution based on an order that was in queue in 
SuperMontage at 9:30 but not executed until after 9:30:05 as a result 
of being sent to an order delivery participant.
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    \3\ Four types of trade reports are not last sale elibible and, 
thus, would not be eligible to affect the Nasdaq Official Opening 
Price: cash sales (which include the ``C'' trade report modifier), 
next day sales (.ND), seller trades (.S), and after hours trades 
(.T).
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    If the Nasdaq Official Opening Price were to be based upon a 
Predicate Trade rather than a SuperMontage Opening Match, Nasdaq would 
be able to use the same normalization process that currently applies to 
the Nasdaq Official Closing Price.\4\ Specifically, if the price of the 
Predicate Trade were to be within the best bid and offer quote entered 
in the SuperMontage system at the time the trade is reported, the 
Nasdaq Official Opening Price would equal the reported price of the 
Predicate Trade. If the price of the Predicate Trade were to be lower 
than the Nasdaq inside bid, the Nasdaq Official Opening Price would 
equal the Nasdaq inside bid. Likewise, if the price of the Predicate 
Trade were to be higher than the Nasdaq inside ask, the Nasdaq Official 
Opening Price would be the Nasdaq inside ask.
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    \4\ See Securities Exchange Act Release No. 47517 (March 18, 
2003), 68 FR 14446 (March 25, 2003) (SR-NASD-2002-158).
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    Nasdaq believes that bounding the first ACT trade report by the 
Nasdaq inside would reduce the extent to which market participants 
could deliberately affect the Nasdaq Official Opening Price, since 
firms would need to affect not only the inside quotes but also the 
Predicate Trade. On the other hand, SuperMontage executions occur only 
at the prevailing inside bid or ask; therefore, such executions would 
not need to be bound by a SuperMontage quotation. To be consistent in 
the delivery of the opening message to market data vendors, the 
prevailing Nasdaq inside bid and ask would be disseminated with the 
Nasdaq Official Opening Price whether a SuperMontage trade or an ACT 
trade sets it.\5\
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    \5\ In the event that a security is in a trading halt prior to 
market open and that halt continues past 9:30, the Nasdaq Official 
Opening Price for that security would equal the reported trade price 
of the first last sale eligible trade reported after the trading 
halt is lifted and the inside market for the security is uncrossed.
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    To illustrate the bounding of an ACT trade report, consider the 
following example. There is no SuperMontage Opening Match. However, at 
9:30:10 a.m., the first, last sale eligible ACT trade is reported with 
a price of 19.98. The Nasdaq inside bid and ask at 9:30:10 is 20.00 to 
20.02. Under the proposal, the Nasdaq Official Opening Price would be 
equal to the Nasdaq inside bid, in this case 20.00. If the first, last 
sale eligible ACT trade price were 20.04 instead of 19.98, the Nasdaq 
Official Opening Price would equal the Nasdaq inside ask at the time of 
the trade report, in this case 20.02.
    The Nasdaq Official Opening Price value would be disseminated as 
soon as it is calculated, and changes to the underlying trade report 
would not affect the Nasdaq Official Opening Price. \6\
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    \6\ Nasdaq represents that it will make an effort to inform 
users of Nasdaq of when the Nasdaq Official Opening Price is based 
upon a trade executed in SuperMontage or a Predicate Trade that may 
have been normalized. Telephone conversation among Jeffrey S. Davis, 
Associate Vice President and Associate General Counsel, Nasdaq, 
Alton S. Harvey, Office Head, Office of Market Watch, Division of 
Market Regulation (``Division''), Commission, and Cyndi Rodriguez, 
Special Counsel, Division, Commission on November 13, 2003.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\7\ in general, and with 
section 15A(b)(6) of the Act,\8\ in particular, which requires the 
NASD's rules to be designed, among other things, to protect investors 
and the public interest. Nasdaq believes that its current proposal is 
consistent with the NASD's obligations under these provisions of the 
Act because Nasdaq believes the proposal would result in the public 
dissemination of information that more accurately reflects the trading 
in a particular security at the open. Furthermore, to the extent a 
security is a component of an index, Nasdaq believes the index would 
more accurately reflect the value of the market, or segment of the 
market, the index is designed to measure. Nasdaq believes that the 
corresponding result should be trades, or other actions, executed at 
prices more reflective of the current market when the price of an 
execution, or other action, is based on the last sale, the high price 
or low price of a security, or the value of an index.
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    \7\ 15 U.S.C. 78o-3.
    \8\ 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.

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.

[[Page 66520]]

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 the filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-2003-161 and 
should be submitted by December 17, 2003. 

    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. 03-29512 Filed 11-25-03; 8:45 am]
BILLING CODE 8010-01-P