[Federal Register Volume 69, Number 15 (Friday, January 23, 2004)]
[Notices]
[Pages 3412-3413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1463]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49085; File No. SR-NASD-2003-165]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval to a Proposed Rule Change and 
Amendment Nos. 1, 2, 3, and 4 Thereto To Establish a New 
``Discretionary'' Order in Nasdaq's SuperMontage System

January 15, 2004.
    On November 7, 2003, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), through its subsidiary, 
the Nasdaq Stock Market, Inc. (``Nasdaq''), filed with the Securities 
and Exchange Commission (``Commission''), pursuant to section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt a new order type, the 
discretionary order (``DO''), in Nasdaq's National Market Execution 
System (``NNMS'' or ``SuperMontage''). Nasdaq filed Amendment Nos. 1, 
2, and 3 to the proposal on November 14, 2003,\3\ November 21, 2003,\4\ 
and November 28,

[[Page 3413]]

2003, respectively.\5\ The proposed rule change, as amended, was 
published for comment in the Federal Register on December 9, 2003.\6\ 
The Commission received no comment letters on the proposal. Nasdaq also 
submitted Amendment No. 4 to the proposed rule change on January 9, 
2004.\7\ This order approves the proposed rule change, as amended.\8\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John M. Yetter, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated November 14, 
2003 (``Amendment No. 1'').
    \4\ See letter from John M. Yetter, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated November 20, 2003 (``Amendment No. 2'').
    \5\ See letter from John M. Yetter, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated November 26, 2003 (``Amendment No. 3'').
    \6\ See Securities Exchange Act Release No. 48868 (December 3, 
2003), 68 FR 68677.
    \7\ See letter from John M. Yetter, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated January 8, 2004 (``Amendment No. 4''). In 
Amendment No. 4, Nasdaq amended the proposed rule text to reflect 
the Commission's approval of SR-NASD-2003-143. See Securities 
Exchange Act Release No. 49020 (January 5, 2004) 69 FR 1769 (January 
12, 2004). The Commission notes that this is a technical, non-
substantive amendment and not subject to notice and comment.
    \8\ Nasdaq intends to implement the DO within three weeks of 
Commission approval, and will inform market participants of the 
exact implementation date via a Head Trader alert on http://www.nasdaqtrader.com. Telephone conversation between John Yetter, 
Assistant General Counsel, Nasdaq, and Marc McKayle, Special 
Counsel, Division, Commission on January 15, 2004.
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    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities association 
\9\ and, in particular, the requirements of section 15A of the Act \10\ 
and the rules and regulations thereunder. Specifically, the Commission 
believes that the proposed rule change is consistent with section 
15A(b)(6) of the Act,\11\ which, among other things, requires that 
NASD's rules be designed to promote just and equitable principles of 
trade, to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, 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. The Commission notes Nasdaq's proposed DOs are substantially 
similar to an order type approved for the Archipelago Exchange, the 
trading facility for Pacific Exchange Equities, Inc.\12\ Further, the 
Commission believes that DOs should provide market participants 
increased flexibility in expressing their trading interest by allowing 
them to enter orders with a displayed bid or offer price and a non-
displayed discretionary price range within which the participant is 
also willing to buy or sell. This may, in turn, enhance order 
interaction in Nasdaq.
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    \9\ In approving this proposed rule change, the Commission notes 
that it has considered its impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3(b)(6).
    \12\ See Securities Exchange Act Release No. 44983 (October 25, 
2001), 66 FR 55225 (November 1, 2001) (Order approving SR-PCX-00-
25).
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    The Commission notes that DOs may be entered, but not displayed or 
executed, prior to the market open. Under the proposal, DOs entered 
prior to the market open that would create locked or crossed markets if 
they were displayed will be held in a time-priority queue (along with 
Immediate-or-Cancel orders) for processing at 9:30 a.m. If a DO locks 
or crosses the market after the opening it would be processed quickly 
and automatically pursuant to NASD Rule 4710(b)(3)(A). As a result, DOs 
entered prior to the open should not increase the frequency of locked 
and crossed markets at the open.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change and Amendment Nos. 1, 2, 3, and 
4 thereto (File No. SR-NASD-2003-165) are approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    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. 04-1463 Filed 1-22-04; 8:45 am]
BILLING CODE 8010-01-P