[Federal Register Volume 68, Number 229 (Friday, November 28, 2003)]
[Notices]
[Pages 66910-66912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29623]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48812; File No. SR-NASD-2003-160]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Regarding Reporting of Transactions Conducted 
Through Electronic Communications Networks to the Automated 
Confirmation Transaction Service

November 20, 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 October 27, 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)(6) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission.\5\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ Nasdaq asked the Commission to waive the 5-day pre-filing 
notice requirement and the 30-day operative delay. See Rule 19b-
4(f)(6)(iii) and 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rule 6130 to further clarify the 
reporting requirements applicable to transactions conducted through 
electronic communications networks (``ECNs'') and reported to the 
Automated Confirmation Transaction Service (``ACT''). These reporting 
requirements were recently codified by SR-NASD-2003-98.\6\ Nasdaq is 
also proposing to delay until November 10, 2003 the implementation of 
rule changes effected by SR-NASD-2003-98.
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    \6\ Securities Exchange Act Release No. 48442 (September 4, 
2003), 68 FR 53767 (September 12, 2002).
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    The text of the proposed rule change is set forth. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
6100. AUTOMATED CONFIRMATION TRANSACTION SERVICE (ACT)
6130. Trade Report Input
    (a)-(b) No change.
    (c) Which Party Inputs Trade Reports to ACT
    ACT Participants shall, subject to the input requirements below, 
either input trade reports into the ACT system or utilize the Browse 
feature to accept or decline a trade within the applicable time-frames 
as specified in paragraph (b) of this Rule. Trade data input 
obligations are as follows:
    (1)-(5) No change.
    (6) in transactions conducted through two ACT ECNs or an ACT ECN 
AND an ECN that is not an ACT ECN, an ACT ENC shall be responsible for 
complying with the requirements of paragraph (5) above for reporting a 
transaction executed through its facilities, and an ECN that routed an 
order to it for execution shall be deemed to be and Order Entry Firm [a 
Market Maker] for purposes of the rules for determining reporting 
parties reflected in paragraphs (1), [(2),] (3), and (4) above; and
    (7) No change.
    (d)-(e) No change.
* * * * *

[[Page 66911]]

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
    In SR-NASD-2003-98, Nasdaq recently amended the various NASD rules 
governing trade reporting to define with greater clarity the reporting 
obligations applicable to transactions executed through ECNs that are 
reported to ACT.\7\ In general, SR-NASD-2003-98 was not intended to 
require ECNs to modify their current trade reporting practices. Rather, 
the purpose of the filing was to codify these practices in the form of 
clear, enforceable rules to provide greater guidance to market 
participants.
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    \7\ Securities Exchange Act Release No. 48442 (September 4, 
2003), 68 FR 53767 (September 12, 2002) (SR-NASD-2003-98) (approval 
order).
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    Since the approval of SR-NASD-2003-98, however, several ECNs have 
informed Nasdaq that one aspect of the rule change would result in an 
alternation of current practices (and associated programming costs), 
and Nasdaq has concluded that this alternation would not result in any 
offsetting benefit. NASD Rule 6130 provides that where one ECN routes 
an order to another ECN that executes the order, the ECN that executes 
the order would be responsible for reporting the transaction, or 
requiring a subscriber to report the transaction, in accordance with 
one of the three basic methods for trade reporting established by the 
rule. For purposes of allocating trade reporting responsibility between 
ECN subscribers, the routing ECN would be deemed to be a market maker. 
The ECNs that are affected by this rule have informed Nasdaq, however, 
that in such circumstances they have treated the routing ECN as an 
order entry firm. Thus, where an executing ECN reports trades for its 
subscribers and identifies a subscriber as the reporting party, when 
the ECN receives an order from a routing ECN that is matched against 
the order of an order entry firm or another ECN, the sell side has 
generally been identified as the reporting party. If the executing ECN 
matched the routed order against the order of a market maker, however, 
the market maker has been identified as the reporting party. The same 
priority rules would also apply when the executing ECN uses the trade 
reporting model in which it requires one of its subscribers to report 
the trade.
    The benefit sought to be gained from SR-NASD-2003-98 was to enhance 
predictability and enforceability by codifying existing practices. In 
keeping with these goals, Nasdaq believes that it is acceptable for 
executing ECNs to treat routing ECNs as order entry firms. Thus, Nasdaq 
proposes to amend NASD Rule 6130(c)(6) accordingly.
    In order to allow for adequate notice to market participants of 
this additional change, Nasdaq is also proposing to delay the effective 
date of SR-NASD-2003-98 for an additional two weeks, until November 10, 
2003. Nasdaq had previously delayed this effective date from October 6, 
2003 until October 27, 2003.\8\ Nasdaq will inform market participants 
of the delay and the rule change through a Head Trader Alert posted on 
www.nasdaqtrader.com.
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    \8\ Securities Exchange Act Release No. 48625 (October 10, 
2003), 68 FR 59961 (October 20, 2003) (SR-NASD-2003-152).
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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,\9\ in general, and with 
Section 15A(b)(6) of the Act,\10\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, and to protect investors and 
the public interest. The proposed rule change will clarify the trade 
reporting obligations associated with transactions conducted through 
ECNs but will minimize the extent to which ECNs will be required to 
implement non-substantive modifications to existing practices.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate; and the Exchange has 
given the Commission written notice of its intention to file the 
proposed rule change at least five business days prior to filing, or 
such shorter time as designated by the Commission, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) \12\ thereunder. 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the 5-day pre-filing 
notice requirement and the 30-day operative delay. The Commission 
believes waiving the 5-day pre-filing notice requirement and the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Acceleration of the operative date will allow both the 
trade reporting rules approved by the Commission in SR-NASD-2003-98 and 
the minor modification to those rules proposed in SR-NASD-2003-160 to 
take effect without undue delay, thereby lessening the extent to which 
ECNs that use ACT would be required to make non-substantive 
modifications to their existing trade reporting practices.\13\
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    \13\ 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).
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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

[[Page 66912]]

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 Nasdaq. All submissions should refer to File No. 
SR-NASD-2003-160 and should be submitted by December 19, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29623 Filed 11-26-03; 8:45 am]
BILLING CODE 8010-01-P