[Federal Register Volume 69, Number 17 (Tuesday, January 27, 2004)]
[Notices]
[Pages 3962-3970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1661]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49099; File No. SR-NASD-2004-07]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
National Association of Securities Dealers, Inc. To Terminate Nasdaq's 
Application of the Primex Auction System

January 16, 2004.
    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 January 14, 2004, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with the Securities and Exchange Commission 
(``SEC'' or ``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) \4\ thereunder, which renders the proposal 
effective upon filing with the Commission. On January 16, 2004, the 
Nasdaq filed Amendment No. 1 to the proposed rule change.\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)(6).
    \5\ See letter from Peter R. Geraghty, Assistant Vice President 
and Assistant General Counsel, Nasdaq to John Polise, Assistant 
Director, Division of Market Regulation, Commission, dated January 
16, 2004.
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq is filing with the Commission a proposed rule change 
concerning its decision to terminate the Nasdaq Application of the 
Primex Auction System (``Primex'' or ``System''). Nasdaq has designated 
this proposal as non-controversial and requests that the Commission 
waive the 30-day pre-operative waiting period contained in Exchange Act 
Rule 19b-4(f)(6)(iii).\6\ If the Commission grants the waiver, this 
rule proposal, which is effective upon filing with the Commission, 
shall become operative at the close of business on January 16, 2004, 
pursuant to SEC Rule 19b-4(f)(6).\7\
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    \7\ 17 CFR 240.19b-4(f)(6).
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    Proposed new language is in italics; proposed deletions are in 
[brackets].
* * * * *

[5010. NASDAQ Application of the PRIMEX AUCTION SYSTEM \tm\

5011. Definitions

    For purposes of this Rule Series, unless the context requires 
otherwise:
    (a) ``Application'' or ``Nasdaq Application'' as used in this Rule 
Series, and ``Nasdaq Application of the Primex Auction System'' as used 
throughout the NASD Rules means the voluntary Nasdaq trading service 
facility that permits NASD member firms, among other things, to submit 
orders in Primex Eligible Securities to be exposed to a Crowd of 
Participants in an electronic auction format for the purpose of 
obtaining an execution for their own account or the account of a 
customer; to have required reports of any resulting trades 
automatically disseminated to the public and the industry; and to 
``lock in'' these trades as necessary by sending both sides to the 
applicable clearing agency designated by the Participants involved for 
clearance and settlement, all in accordance with this Rule Series and 
other applicable rules and policies of Nasdaq.
    (b) ``Primex Auction System Participant,'' ``Participant,'' or 
``Participant Firm'' means a broker-dealer registered with the NASD 
that, when authorized, can access and participate in the Application 
for its customers or its own account, consistent with this Rule Series. 
Participants access the Application through one or more Subscribers 
associated with that Participant within the Application.
    (c) ``Subscriber'' means a user associated with a Participant who, 
when authorized, can access and participate in the Application on 
behalf of that Participant, consistent with this Rule Series. A user 
also can access and participate directly in the Application on its own 
behalf, but in the name of a Participant, subject to a sponsored 
arrangement with that Participant, and consistent with these Rules.
    (d) ``Firm Administrator'' means a Subscriber who, for a particular 
Participant, is authorized among other things to: (1) Monitor and 
control access to and participation in the Application by all of that 
Participant's Subscribers, including establishing Credit Limits for 
each of the Participant's Subscribers who access and participate in the 
Application on behalf or in the name of that Participant; and (2) view 
the status of the Clearing Limits applicable to the Participant 
overall.
    (e) ``Nasdaq Supervisor'' means the Nasdaq staff responsible for 
establishing and supervising certain operational functions with respect 
to the operation of the Application.
    (f) Credit Limits'' means the dollar amount of aggregated purchases 
or sales established within the Application by a Participant's Firm 
Administrator for each of the Participant's Subscribers which, when 
reached, causes the Application to: (1) Inhibit any future executions 
or the entry of future interest for that Subscriber; (2) cancel any 
orders and withdraw any Indications resident within the Application for 
that Subscriber; and (3) send a notice to that Subscriber, its Firm 
Administrator, and the Nasdaq Supervisor. Credit Limits may be 
established, monitored, and modified by the Firm Administrator on a 
real-time basis directly through the Application.
    (g) ``Clearing Limits'' means the dollar amount of aggregated 
purchases and sales (calculated separately and not netted) of all 
Subscribers, collectively for a Participant, effected through or in the 
name of that Participant, that is established within the Application 
for that Participant, which, when reached, causes the Application to: 
(1) Inhibit any future executions for all Subscribers associated with 
that Participant; (2) cancel any orders and withdraw any Indications 
resident within the Application for all Subscribers associated with 
that Participant; and (3) send a notice to that Participant's Firm 
Administrator, the Nasdaq Supervisor, and to the clearing broker for 
that Participant provided that the clearing broker also is a 
Participant. If the clearing broker is not a Participant in the 
Application, then the Nasdaq Supervisor will notify the clearing broker 
that the Clearing Limits have been reached as soon as practicable. 
Clearing Limits for a Participant may be monitored on a real-time basis 
by the Participant's Firm Administrator and can be established, 
monitored, and modified by the Firm Administrator of the Participant's 
clearing broker, provided the clearing broker also is a Participant. 
Clearing Limits also can be established and modified by the Nasdaq 
Supervisor on behalf of the clearing broker.
    (h) ``Crowd,'' ``Primex Crowd'' or ``Crowd Participant'' means 
Primex Auction System Participants that, when authorized, can access 
and participate in the Application consistent with this Rule Series by: 
(1) Submitting orders to be exposed to other Participants; (2)

[[Page 3963]]

viewing orders submitted by other Participants; and (3) submitting 
Responses and Indications for the purpose of interacting with the 
orders of other Participants.
    (i) ``Watch List'' means the list of Primex Eligible Securities 
identified by a Crowd Participant for which the Crowd Participant will 
be notified by Nasdaq electronically when one or more orders in such 
securities is exposed in an Auction and made available for response by 
the Crowd.
    (j) ``Primex Auction Market Maker'' means a Participant that, when 
authorized, may participate in the Application: (1) As a Primex Auction 
Market Maker consistent with Rule 5020 with respect to those Primex 
Eligible Securities for which the Participant is registered as a Primex 
Auction Market Maker; and (2) as a Crowd Participant consistent with 
Rule 5019 with respect to any Primex Eligible Security.
    (k) ``Primex Eligible Security'' means any security listed on the 
Nasdaq Stock Market and any exchange-listed security eligible for 
participation in the Intermarket Trading System.
    (l) Reserved
    (m) ``Market Order'' means an order submitted to the Application to 
purchase or sell a security at the most advantageous price(s) 
obtainable, without a specified, fixed price.
    (n) ``Fixed Price Order'' means an order submitted to the 
Application to purchase or sell a security at a specified, fixed price 
or better.
    (o) ``Minimum Relative Price Improvement'' means a condition that a 
Participant may attach to a market order consistent with Rule 5014(a), 
expressed in terms of the minimum relative price improvement required 
to execute the order. This condition is expressed in terms relative to 
the best bid (for orders to sell) or best offer (for orders to buy) 
displayed in the NBBO at the time the order is eligible to be executed 
against within the Application. Neither the existence nor amount of any 
Minimum Relative Price Improvement condition is displayed, exposed or 
communicated to any Participant when attached to an order.
    (p) ``Response'' means an instruction submitted to the Application 
by a Participant, for the purpose of responding to an order or orders 
being exposed to the Crowd, consistent with Rule 5018.
    (q) ``Predefined Relative Indication'' or ``PRI'' means an 
instruction that a Participant can submit to the Application for the 
purpose of responding to an order(s) in an Auction, and which does not 
contain a specific, fixed price, but is expressed in terms relative to 
the best bid (for PRIs to buy) or offer (for PRIs to sell) publicly 
displayed for the security, consistent with Rule 5018. While resident 
within the Application, PRIs are ranked to respond to incoming orders 
in relative price/time priority, but are not displayed, exposed or 
communicated to any other Participant.
    (r) ``Go-Along Indication'' means an instruction that a Participant 
can submit to the Application for the purpose of responding to an 
order(s) in an Auction, and which does not contain a specific, fixed 
price, consistent with Rule 5018. A Go-Along Indication will be 
triggered to respond to an Auction at a price equal to the best bid 
(for Go-Along Indications to buy) or best offer (for Go-Along 
Indications to sell) publicly displayed whenever there has been at 
least one contemporaneous Crowd execution at such bid or offer, 
provided there are no PRIs or other orders available to execute against 
the order(s) in the Auction. While resident within the Application, Go-
Along Indications are not displayed, exposed or communicated to any 
other Participant.
    (s) ``Auction'' means the automated process through which orders in 
Primex Eligible Securities are exposed to Crowd Participants. Orders 
for the same security being exposed simultaneously (i.e. those which 
have overlapping exposure periods) are available on an aggregate basis, 
in whole or in part, for interaction with other Crowd participants, but 
only during the period of overlapping exposure. An Auction begins when 
an order is accepted by the Application and exposed to the Primex 
Crowd, and ends whenever such order(s) (including any orders that 
subsequently join the Auction in progress) are completely executed or 
their exposure ceases.
    (t) ``Public Order'' or ``Public Customer Order'' means an order 
for the account of a customer, and not for the account of a broker-
dealer, regardless of whether the customer is that of the Participant 
entering the order or another firm that has routed the customer order 
to the Participant.
    (u) ``Professional Order'' means an order for the proprietary 
account of a broker-dealer, regardless of whether the broker-dealer is 
a market maker or specialist, and regardless of whether it is the 
Participant's own order or the proprietary order of another broker-
dealer routed to the Participant.
    (v) ``Market Maker Guarantee'' means the feature within the 
Application that allows a Participant registered as a Primex Auction 
Market Maker to provide an automatic execution against public customer 
orders it submits to the Application for exposure in an Auction where 
such orders are not otherwise subject to an execution. The Application 
will automatically execute any unexecuted balance of the order against 
that Primex Auction Market Maker, after the Auction exposure period for 
the order has expired, consistent with Rule 5020. The Market Maker 
Guarantee shall be provided at a price equal to the best publicly 
quoted offer price (for orders to buy) or best publicly quoted bid 
price (for orders to sell) existing for the security at the time when 
such exposure period for the order has expired, for any amount of 
shares established by the Primex Auction Market Maker for the order.

5012. Access

    (a) The Application shall be available on a voluntary basis to any 
NASD member in good standing that chooses to register as a Participant 
in the Primex Auction System. Such registration shall be conditioned 
upon the Participant's initial and continuing compliance with the 
following requirements:
    (1) Execution of the necessary agreements with Nasdaq or its 
affiliate;
    (2) Membership in, or access arrangement with a participant of, a 
clearing agency registered with the Commission that maintains 
facilities through which Primex Auction System compared trades may be 
settled;
    (3) Compliance with all applicable rules and operating procedures 
of Nasdaq (including these rules) and the Commission;
    (4) Maintenance of the physical security of the equipment located 
on the premises of the Participant to prevent the improper use or 
access to Nasdaq systems, including unauthorized entry of information 
into the Primex Auction System; and
    (5) Acceptance and settlement of each trade that is executed 
through the facilities of the Primex Auction System, or if settlement 
is to be made through another clearing member, guarantee of the 
acceptance and settlement of such execution by the clearing member on 
the regularly scheduled clearing date.
    (b) Non-NASD members may access the Application in the name of a 
Participant by becoming a sponsored Subscriber of the Participant, 
provided the Participant and sponsored Subscriber have executed the 
necessary agreements with Nasdaq or its affiliate, and the NASD member 
Participant assumes the responsibilities set forth in paragraph (a) of 
this Rule 5012 with respect to any activity conducted by the sponsored 
Subscriber.
    (c) The Application may be made available:

[[Page 3964]]

    (1) Through Nasdaq-provided network(s) via Primex Auction System 
Workstation Service;
    (2) Through Nasdaq-provided network(s) via an Application 
Programming Interface (``API'');
    (3) Through Nasdaq-provided network(s) via a FIX protocol 
interface; or
    (4) Over the Internet, using Nasdaq-provided user interface. 
Certain functionality of the Application may be made available through 
Nasdaq-provided network(s) via Computer to Computer Interface (CTCI).
    (d) (1) If a member fails to maintain a clearing relationship as 
required under paragraph (a)(2), it shall be removed from the Primex 
Auction System until such time as a clearing arrangement is 
reestablished.
    (2) A member that is not in compliance with its obligations under 
paragraph (a)(2) of shall be notified when the Association exercises it 
authority under paragraph (b)(1).
    (3) The authority and procedures contained in paragraph (b) do not 
otherwise limit the Association's authority, contained in other 
provisions of the Associations rules, to enforce its rules or impose 
any fitting sanction.

5013. Order Acceptance and Exposure

(a) Order Types
    The Application shall accept the following types of orders in 
Primex Eligible Securities, subject to any conditions or match 
parameters attached thereto to the extent permitted by the Application 
and Rule 5014, and other rules applicable to Participants with respect 
to the entry of orders. Conditions and match parameters, to the extent 
attached to an order, are never communicated to any Participant:
    (1) Market Orders;
    (2) Fixed Price Orders, when the specified price is equal to or 
between the best bid or offer publicly displayed, or is a buy (sell) 
order priced higher (lower) than the best offer (bid) publicly 
displayed. Fixed Price Orders to buy (sell) priced below (above) the 
best bid (offer) publicly displayed will be rejected.
    For example: if the best bid and offer publicly displayed in Nasdaq 
is $20--$20.10, then the Application will accept orders to buy priced 
at $20.00 and higher, including orders to buy priced higher than the 
offer of $20.10 (although no execution can take place outside of the 
NBBO prevailing at the time of execution). An order submitted to buy at 
$19.95, however, would not be accepted by the Application in this 
situation and will be returned to the Participant that entered it.
(b) Order Size
    The Application will accept orders that are either round lots, or 
mixed lots. Odd lot orders will not be accepted.
(c) Exposure Times Available
    (1) The Application allows Participants to expose orders to the 
Primex Crowd. Only the size associated with an order is communicated to 
the Crowd, and only for the time during which the order is available 
for execution. Crowd Participants may monitor the availability of 
orders exposed in an auction through the use of their Watch List.
    (2) For each Market Order submitted to the Application, a 
Participant can specify a maximum exposure time of either 0 (i.e., 
immediate), 15, or 30 seconds.
    (3) Fixed Price Orders that are accepted by the Application can 
only be exposed for an immediate execution, in whole or in part).

5014. Conditions and Match Parameters

(a) For All Participants
    Subject to any other rules applicable to Crowd Participants and 
Primex Auction Market Makers with respect to the entry of orders, any 
Participant may enter an order with the following condition attached:

Minimum Relative Price Improvement

    Market Orders may be submitted with a condition for Minimum 
Relative Price Improvement. The Minimum Relative Price Improvement 
established for an order is the minimum amount of price improvement 
superior to the best bid or offer publicly displayed (as applicable) 
that the order must receive before it may be executed against in whole 
or in part by any interest from the Crowd. This condition must be 
attached before the order is entered into the Application. Such 
condition may be expressed only in terms relative to the best bid or 
offer on the opposite side of the market existing at such time when any 
Indication, Response, or other order is or becomes available to 
interact with the order in an Auction, as permitted by the Application 
and this Rule Series. Neither the existence nor amount of any Minimum 
Relative Price Improvement condition is displayed, exposed or 
communicated to any Participant when attached to an order. This 
condition shall not be available for orders submitted solely for the 
proprietary account of a Nasdaq market maker or CQS market maker 
(including Primex Auction Market Makers) and not involving a customer 
order.
    For example: an order to buy 500 shares entered into the 
Application may contain a condition for Minimum Relative Price 
Improvement requiring that any Indication or Response (or sell order 
exposed in an Auction and which is available for a match) provide to 
that order at least a certain amount (e.g., 3 cents) of price 
improvement superior to the best offer publicly displayed at such time 
the Indication, Response or sell order is available to be matched with 
the order to buy.
(b) For Primex Auction Market Makers Only
    A Participant registered as a Primex Auction Market Maker for a 
particular security is entitled, but not required, to enter customer 
orders with any of the following match parameters as discussed below. 
These allow the Primex Auction Market Maker to provide liquidity in 
addition to that which may be provided by the Crowd. The match 
parameters contained in this paragraph are only available to 
Participants who are Primex Auction Market Makers, and only for those 
securities for which they are so registered. Neither the existence nor 
type of any match parameter associated with an order is displayed, 
exposed or communicated to any other Participant:
(1) Two Cent Match
    A Participant registered as a Primex Auction Market Maker for a 
particular security may enter an order with the Two Cent Match 
parameter.
    (A) If there is interest from the Crowd that can satisfy the order, 
the order entered with the Two Cent Match will be executed against such 
interest by the Crowd during its exposure, provided that such Crowd 
interest offers to provide price improvement greater than two cents 
superior to the best quote publicly displayed in the NBBO at the time 
such Crowd interest is available.

    Note: Because the system will never execute an order at a price 
outside of the NBBO, any Crowd interest offering an amount of price 
improvement that would potentially be outside of the NBBO will be 
executed, if matched with an order, at a price bounded by the NBBO, 
in effect adjusting the execution price to allow for the maximum 
amount of price improvement within that NBBO without trading through 
the NBBO at that time. As a result, it is possible that an order 
subject to the Two Cent Match parameter may be matched with interest 
from the Crowd, and not the Primex Auction Market Maker that entered 
it, notwithstanding the fact that the actual execution price results 
in price improvement of two cents or less. This can happen, for 
example, where there is Crowd interest available that is offering 
three cents of

[[Page 3965]]

relative price improvement, but the Application causes the actual 
execution price to be equal to two cents of price improvement, due 
to a prevailing NBBO spread of two cents at the time of execution.

    (B) If there is interest from the Crowd that can satisfy the order 
but such Crowd interest would only offer price improvement of two cents 
or less in relation to the best quote publicly available, then this 
will immediately cause the Application to execute the entire order 
against the Primex Auction Market Maker that entered it, and not 
against such Crowd interest, thereby allowing the execution of that 
order to be retained by the Primex Auction Market Maker. In this 
situation, the entire order will be executed with that Primex Auction 
Market Maker at the best price the Crowd interest would have otherwise 
provided, regardless of the size associated with such Crowd interest.
    (C) Any unexecuted balance of the order remaining at the end of its 
exposure will be executed against the Primex Auction Market Maker. With 
respect to Market Orders, this execution price will be at the best 
quote then publicly displayed. With respect to Fixed Price Orders, the 
execution price will be the price specified in the Fixed Price Order, 
unless such price is outside the best quote publicly displayed, in 
which case the execution price will be at the best quote publicly 
displayed in the NBBO.
    (D) A Primex Auction Market Maker may enter customer orders of any 
size with the Two Cent Match parameter.
    (E) A Primex Auction Market Maker that enters a Market Order with 
the Two Cent Match parameter may elect immediate (``zero seconds''), 15 
or 30 second maximum exposure duration for that order. A Fixed Price 
Order can be exposed only for an immediate ``zero second'' auction.
(2) 50% Match
    A Participant registered as a Primex Auction Market Maker for a 
particular security may enter an order with a 50% Match parameter.
    (A) Orders entered with the 50% Match parameter will be executed 
against any interest by the Crowd that satisfies the order during its 
exposure at the price(s) and size of such Crowd interest, for no more 
than 50% of the order. Any execution with the Crowd will immediately 
cause the Application to provide the order with an additional execution 
of like size and price against the Primex Auction Market Maker that 
entered the order.
    (B) Any unexecuted balance of the order remaining at the end of its 
exposure will be automatically executed against the Primex Auction 
Market Maker. With respect to Market Orders, this execution price will 
be at the best quote then publicly displayed. With respect to Fixed 
Price Orders, the execution price will be at the price specified in the 
Fixed Price Order, unless such price is outside the best quote publicly 
displayed, in which case the execution price will be at the best quote 
publicly displayed.
    (C) A Primex Auction Market Maker may enter customer orders of any 
size with the 50% Match parameter.
    (D) A Primex Auction Market Maker that enters a Market Order with 
the 50% Match parameter may elect immediate (``zero seconds''), 15 or 
30 second maximum exposure duration for that order. A Fixed Price Order 
can be exposed only for an immediate ``zero second'' auction. For 
example: The best bid and offer publicly displayed for a security is 
$20--20.10. A Primex Auction Market Maker for that security enters into 
the Application a Market Order to buy 2,000 shares for a customer and 
selects the 50% Match Parameter. The Participant selects an exposure 
time of 30 seconds. During its exposure, the order elicits the 
following executions by other Crowd Participants (which could be in the 
form of Indications, Responses, or contra-side orders to sell): 500 at 
$20.04, and 200 at $20.05. The Application will execute these 
transactions, and immediately match each one as they occur by executing 
an additional 500 and 200 shares, at $20.04 and $20.05, respectively, 
against the Primex Auction Market Maker entering the order. If there is 
no other interest from the Crowd at the end of the 30 second exposure 
period, the Application will cause the remaining balance of 600 shares 
to be automatically executed against the Primex Auction Market Maker 
entering the order at the best offer publicly displayed at that time. 
Assuming the best offer publicly displayed is still $20.10 at this 
time, this would result in the Primex Auction Market Maker selling the 
balance of 600 shares to the customer at $20.10.
(3) Block Facilitation Match
    A Participant registered as a Primex Auction Market Maker for a 
particular security may enter an order with a Block Facilitation match 
parameter, provided the order is for at least 10,000 shares. The Primex 
Auction Market Maker may elect to expose the order in an Auction for a 
maximum of 0, 15, or 30 seconds. Any Crowd interest that executes 
against the order during the selected exposure period, up to a maximum 
of 50% of the order size, will be immediately matched with an execution 
of like size and price against the entering Participant until the order 
is fully executed. If any unexecuted portion remains at the end of the 
exposure period, it will be automatically executed against the entering 
Participant. With respect to Market Orders, the execution price will be 
the then existing best offer (for orders to buy) or best bid (for 
orders to sell) publicly displayed. With respect to a Fixed Price 
Order, the execution price will be the price specified in the Fixed 
Price Order, unless such price is outside of the best quote publicly 
displayed, in which case the execution price will be at the best quote 
publicly displayed.
    For example: The best bid and offer publicly displayed is $20--
20.10. A Participant enters into the Application an order to buy a 
block of 10,000 shares for a customer and selects the Block 
Facilitation Match Parameter. The Participant selects an exposure time 
of 15 seconds. During its exposure, the order elicits the following 
executions by other Crowd Participants (in the form of Indications, 
Responses, or contra-side orders to sell): 1000 at $20.05, and 2000 at 
$20.07. The Application will execute these transactions, and 
immediately match each one as they occur by executing an additional 
1000 and 2000 shares, at $20.05 and $20.07, respectively, against the 
Participant entering the block order. If there is no other interest 
from the Crowd at the end of the 15 second exposure period, the 
Application will cause the remaining balance of 4000 shares to be 
automatically executed against the Participant entering the block order 
at the best offer publicly displayed at that time. Assuming the best 
offer publicly displayed is still $20.10 at this time, this would 
result in the Participant selling the balance of 4000 shares to the 
customer at $20.10.
(4) Clean Cross
    A Participant registered as a Primex Auction Market Maker for a 
particular security may enter a Clean Cross order for the accounts of 
two separate customers where the order represents both sides of a cross 
for at least 10,000 shares to be exposed to the Crowd in an immediate, 
zero second Auction. The two sides will be executed against each other 
at the midpoint of the best bid and offer publicly displayed unless 
superior-priced interest within the Application breaks up one or both 
sides of the cross. In order to break up a side of the cross, there 
must be Crowd contra-side interest resident within the Application 
(e.g., resident PRIs) that totals at least 10,000

[[Page 3966]]

shares in the aggregate at a price or prices that are all superior to 
the bid-ask midpoint by at least the nearest whole cent. Any portion of 
a side that is not executed against either the opposite side of the 
Clean Cross order or contra-side interest resident within the 
Application will be returned unexecuted.

5015. Public and Professional Orders

    All orders submitted to the Application shall be identified as 
either a Public Order or a Professional Order, as those terms are 
defined in Rule 5011. This Public or Professional status is not 
displayed, exposed or communicated to any other Participant in the 
Application, but is used to determine whether an order is available to 
interact with the Response or Indication of a Crowd Participant. As 
indicated in Rule 5018(e), a Participant that responds to orders in an 
Auction can choose whether its Responses and Indications interact with 
all orders (both Public and Professional Orders) or just Public Orders. 
When entering an order, however, a Participant entering an order does 
not have the ability to select or control whether Public or 
Professional interest may interact with the order.

5016. Option to Route Orders Outside of the System After Exposure in 
the Application

    (a)(1) All Market Orders submitted to the Application shall include 
an identifier as to whether any unexecuted balance, after the order is 
exposed to the Crowd, should be forwarded to the SuperSoesSM 
version of the Nasdaq National Market Execution System, in the case of 
a Nasdaq security, or to ITS/CAES, in the case of an exchange-listed 
security, or whether the order should be returned to the entering 
Participant. This option to route orders outside of the Application to 
SuperSoes or ITS/CAES is available for Market Orders only. Orders 
submitted to the Application with a specified, fixed price cannot be 
automatically forwarded to SuperSoes or ITS/CAES. Routing identifiers 
are not displayed, exposed or communicated to any other Participant in 
the Application.
    (2) For securities eligible for the SuperMontage version of the 
Nasdaq National Market Executions System, all orders submitted to the 
Application shall include an identifier as to whether any unexecuted 
balance, after the order is exposed to the Crowd, should be forwarded 
to SuperMontage, or whether the order should be returned to the 
entering Participant. Orders forwarded to SuperMontage will be treated 
as immediate or cancel orders. Routing identifiers are not displayed, 
exposed or communicated to any other Participant in the Application.
    (b) With respect to exchange-listed securities, only Primex Auction 
Market Makers (which also must be ITS/CAES market makers with respect 
to these securities, as required by these rules) may elect to have 
Market Orders in exchange-listed securities routed out to ITS when 
there is a balance remaining following exposure in the System, 
provided, however, that customer orders so routed must first be exposed 
in the Application for at least 15 seconds. In addition, to the extent 
the best price publicly quoted at that time is available within 
Nasdaq's CAES system, regardless of whether the same price also is 
being publicly quoted by another ITS market center, such orders 
designated for routing to ITS/CAES will be delivered to CAES for 
execution up to the size publicly quoted by CAES participants and will 
not be routed out to another market center through ITS.
5017. Short Sales
    (a) Participants must properly identify trading interest as a long 
sale, short sale, or short sale exempt.
    (b) The Application will not process trading interest to sell short 
a Nasdaq-listed security if the execution of such trading interest will 
violate Rule 3350.
    (c) The Application will reject trading interest identified as a 
short sale or short sale exempt in any exchange-listed security 
eligible for participation in the InterMarket Trading System.

5018. Responses and Indications

    (a) General--Participants may submit Responses and Indications to 
the Application, consistent with this Rule Series, for the purpose of 
interacting with orders in an Auction, as described herein. Responses 
and Indications are not displayed, exposed or communicated to any 
Participant, except to the extent they result in an execution with an 
order. Responses and Indications cannot execute against other Responses 
or Indications.
    (b) Responses--Responses are instructions submitted to the 
Application by Participants to interact with available orders exposed 
in an Auction. Responses may be either a Fixed Price Response (e.g. buy 
1000 at $20) or a Relative Priced Response (e.g., buy 1000 at the bid 
plus 3 cents). All Responses must be entered in an amount of at least 
one round lot, but also may be for a mixed lot.
    (c) Indications--Indications are instructions, with the 
characteristics set forth below, submitted to the Application by 
Participants to interact with orders exposed in an Auction. An 
Indication may be a Predefined Relative Indication (``PRI'') or a Go-
Along Indication.
(1) Predefined Relative Indications
    (A) PRIs can be submitted to the Application for the purpose of 
automatically responding to an Auction at a point in time when one or 
more orders becomes available. PRIs have no specific, fixed price, but 
are expressed at time of entry in terms relative to the best bid or 
offer publicly displayed at such time when the Application activates 
the PRI against orders in an Auction. While resident within the 
Application, PRIs are ranked in relative price/time priority among all 
other PRIs resident within the Application and any same-side orders 
currently being exposed in an Auction, as indicated in paragraph (e) of 
this Rule. Neither the existence nor terms of a PRI are displayed, 
exposed or communicated to any other Participant while resident in the 
Application. When activated by the Application, a PRI will match 
against orders in an Auction at a price equal to the best bid (for PRIs 
to buy) or offer (for PRIs to sell) publicly displayed at that time in 
the NBBO, plus or minus (respectively) the relative price term 
associated with that PRI; provided that such price also satisfies any 
applicable condition associated with the order(s) in the Auction to 
which it is responding.
    (B) At the time of its original entry, each PRI submitted to the 
Application must be for at least 100 shares.
    (C) The Application will accept a PRI with the following amounts of 
relative price improvement:
    (i) if the NBBO, at the time the PRI is submitted, has a spread 
equal to three cents or more, the PRI will be accepted if it offers any 
amount of price improvement between zero and the actual NBBO spread 
prevailing at that time;
    (ii) if the NBBO, at the time the PRI is submitted, has a spread 
that is less than three cents, the PRI may offer any amount of price 
improvement between zero and three cents.
    (D) Participants may elect to limit their exposure when using PRIs 
by entering a Per Auction Maximum size for each PRI submitted. The Per 
Auction Maximum represents the maximum share amount of a PRI available 
for a single Auction. It cannot be greater than the size of the PRI, 
but is subject to the same minimum values applicable to the original 
entry of a PRI with that relative price term. Once the Per Auction 
Maximum, if any, for a PRI is exhausted, the Participant will have 15 
seconds to withdraw the PRI, during which time no further executions 
against that PRI will

[[Page 3967]]

occur. In the absence of a withdrawal during this period, the 
Application will restore the PRI up to the Per Auction Maximum and the 
PRI will become available again for any subsequent Auctions to the 
extent there is an eligible balance remaining for that PRI. For 
purposes of relative price/time priority, the restored PRI will receive 
a new timestamp within the Application.
    (E) Participants may select a maximum residency period of one (1) 
or five (5) days, during which time the PRI remains resident within the 
Application unless fully executed or withdrawn. The Application will 
automatically withdraw any PRIs that remain at the end of the 
applicable residency period.
(2) Go-Along Indications
    (A) A Go-Along Indication can be submitted to the Application for 
the purpose of automatically responding in an Auction at a point in 
time when one or more orders becomes available in an Auction and there 
has been at least one other contemporaneous Crowd execution within the 
Application at the NBBO; provided there are no PRIs available or orders 
being exposed in an Auction (executions resulting from a Primex Auction 
Market Maker Guarantee do not trigger Go-Along Indications). Go-Along 
Indications have no specific, fixed price when entered, but will match 
against orders at a price equal to the best bid (for Go-Along 
Indications to buy) or best offer (for Go-Along Indications to sell) 
that exists at such time the Go-Along Indication is activated. While 
resident within the Application, Go-Along Indications are not 
displayed, exposed or communicated to any other Participant.
    (B) At the time of its original entry, each Go-Along Indication 
submitted to the Application must be for at least 10,000 shares.
    (C) Participants may select a maximum residency period of one (1) 
or five (5) days, during which time the Go-Along Indication remains 
resident within the Application unless fully executed or withdrawn. The 
Application will automatically withdraw any Go-Along Indications that 
remain at the end of the applicable residency period.
    (d) Executions Bounded by the NBBO--The Application will never 
execute an order outside of the NBBO prevailing at the time of 
execution. Indications such as PRIs that potentially would offer an 
amount of price improvement that could result in an execution outside 
of the NBBO will be priced at the NBBO if matched with an order, in 
effect providing the maximum amount of price improvement permissible 
within the NBBO at that time.
    (e) Relative Priority Of Predefined Relative Indications and 
Orders--(1) While resident within the Application, Predefined Relative 
Indications are ranked in relative price/time priority while they await 
activation against incoming orders notwithstanding that PRIs have no 
specified, fixed price associated with them. For example, among 
resident PRIs for the same security on the same side of the market, 
PRIs offering greater relative price improvement are ranked ahead of 
PRIs offering less relative price improvement. PRIs offering the same 
relative amount of price improvement are ranked by time of entry (or 
the time the Indication was restored after exhausting its Per Auction 
Maximum).
    (2) Market Orders being exposed within the Application also are 
ranked in relative price/time priority during the life of their 
exposure, notwithstanding that Market Orders have no specified, fixed 
price associated with them. For example, among Market Orders in the 
same security being exposed on the same side of the market, those 
orders not seeking any relative price improvement are ranked ahead of 
orders seeking some relative amount of Minimum Relative Price 
Improvement. Orders seeking a greater relative amount of Minimum 
Relative Price Improvement are ranked behind orders seeking a lesser 
relative amount of Minimum Relative Price Improvement. Orders seeking 
the same relative amount of price improvement are ranked by time of 
entry.
    (3) Among and between Indications and orders on the same side of 
the market, the relative price/time priorities for each are integrated, 
based on their respective ranking relative to the best bid and offer 
publicly displayed. The Application recalculates and maintains these 
relative priorities whenever there is a change in the best bid or offer 
prices publicly displayed in the NBBO. Market Orders that are matched 
with other Market Orders being auctioned are executed at the midpoint 
of the best bid and offer publicly displayed, provided that such price 
satisfies any condition for Minimum Relative Price Improvement 
associated with each order.
    (f) Responding to All Orders or Public Orders Only--All Responses 
and Indications shall include an identifier as to whether it may 
interact with either: (1) all available orders (both Public Orders and 
Professional Orders); or (2) Public Orders only. Such identifier is not 
displayed, exposed or communicated to any Participant at any time, but 
is used by the Application for determining the universe of orders with 
which the Response or Indication may interact.

5019. Crowd Participation

    (a) There are two levels of participation in the Application: Crowd 
Participant and Primex Auction Market Maker. Becoming a Participant in 
the Application automatically entitles the Participant to be a Crowd 
Participant for any security, allowing participation consistent with 
this Rule 5019. A Crowd Participant may also choose to register as a 
Primex Auction Market Maker, but only on a security-by-security basis, 
as set forth in Rule 5020, and only consistent with the requirements 
for participation under that Rule.
    (b) Unless otherwise specified, a Crowd Participant may enter 
orders, Indications, and Responses in any Primex Eligible Security at 
any time, for its own account or for the account of a customer. Crowd 
Participants have no mandatory obligation to submit to the Application 
any order at any time.

5020. Market Maker Participation

    (a) A Participant may register as a Primex Auction Market Maker in 
one or more Primex Eligible Securities, and may maintain such 
registration while in compliance with the requirements of this Rule. 
Unless otherwise specified, a Primex Auction Market Maker is 
automatically subject to the same rights and obligations of Crowd 
Participants pursuant to Rule 5019 with respect to customer orders in 
any and all Primex Eligible Securities. In addition, a Primex Auction 
Market Maker is entitled, but not obligated, to use either of the 
following features of the Application when submitting customer orders, 
but only with respect to those securities in which it is currently 
registered as a Primex Auction Market Maker:
    (1) A Primex Auction Market Maker, for securities in which it is 
registered as such, may submit customer orders to the Application with 
any of the available match parameters that enable the Primex Auction 
Market Maker to exercise certain matching rights facilitated by the 
Application, as set forth in Rule 5014(b). When associated with an 
order, these match parameters are not displayed, exposed or 
communicated to any other Participant; or
    (2) A Primex Auction Market Maker, for securities in which it is 
registered as such, may submit customer orders to the Application with 
a Market Maker Guarantee enabling the Primex Auction Market Maker to 
guarantee an execution within the Application where such

[[Page 3968]]

orders are not otherwise subject to an execution as a result of either 
satisfactory Crowd interest or matching rights processing elected by 
the Primex Auction Market Maker pursuant to Rule 5014(b) for the order.
    (i) Public customer orders of any size are eligible for the Market 
Maker Guarantee. The Application will facilitate the Market Maker 
Guarantee by automatically executing any unexecuted balance of the 
order against the Primex Auction Market Maker that submits the order, 
after the Auction exposure period for the order has expired.
    (ii) The Market Maker Guarantee is automatically provided at a 
price equal to the best publicly quoted offer price (for orders to buy) 
or best publicly quoted bid price (for orders to sell) existing for the 
security at the time when such exposure period for the order has 
expired (including ``zero second'' auctions), for any amount of shares 
established by the Primex Auction Market Maker for the order.
    (b) With respect to each security in which a Participant is 
registered as a Primex Auction Market Maker, the Participant shall:
    (1) If the security is a Nasdaq-listed security, be registered as a 
Nasdaq market maker in such security (or become so registered), and at 
all times comply with all applicable NASD rules and interpretations 
relating to Nasdaq market makers, including the requirement to enter 
and maintain two-sided quotations in Nasdaq for such security, subject 
to the excused withdrawal procedures set forth in Rule 4619;
    (2) if the security is an ITS/CAES eligible security, be registered 
as an ITS/CAES Market Maker (or become so registered) in such security, 
and at all times comply with all applicable NASD rules and 
interpretations relating to ITS/CAES Market Makers, including the 
requirement to enter and maintain two-sided quotations in CQS for such 
security, subject to the excused withdrawal procedures set forth in 
Rule 6350;
    (3) not attach a condition for Minimum Relative Price Improvement 
to any order submitted to the Application solely for its own principal 
account and not involving a customer order.

5021. Reporting and Clearing

    (a) After facilitating an execution, the Application will send an 
execution report to all Participants involved as soon as practicable. 
The execution report will indicate the details of the transaction, and 
contain the identity of the contra-party.
    (b) Matches within the Application are executed and reported 
through Nasdaq systems for public tape reporting and forwarding to NSCC 
for clearing, where necessary. Participants (or their clearing brokers) 
are the parties responsible for the clearance and settlement of all 
trades executed through the Application. Once a transaction is 
executed, Participants do not have the ability within the Application 
to modify or reallocate any portion of the execution to a clearing 
broker other than the clearing broker that the Application associates 
with the transaction at the time of execution. Neither the NASD (and 
its affiliates) nor any operator or administrator of the Primex Auction 
System shall be directly or indirectly a party to any transaction 
entered into, matched, or otherwise effected through the Application.

5022. Credit Limits and Clearing Limits

    (a) Credit Limits--The Application shall allow a Participant's Firm 
Administrator to establish Credit Limits for each of its associated 
Subscribers, including sponsored Subscribers, on an individual 
Subscriber basis. The limits are established as a dollar amount of 
aggregated purchases or sales which, when reached, causes the 
Application to: (1) Inhibit any future executions or the entry of 
future interest for that Subscriber; (2) cancel any orders and withdraw 
any Indications resident within the Application for that Subscriber; 
and (3) send a notice to that Subscriber, its Firm Administrator, and 
the Nasdaq Supervisor. Credit Limits may be monitored and modified by 
the Firm Administrator on a real-time basis directly through the 
Application.
    (b) Clearing Limits--The Application shall allow a Participant's 
clearing broker to establish Clearing Limits within the Application for 
the Participant on a firm-wide basis. The limits are established as a 
dollar amount of both purchases and sales (calculated separately, and 
not netted) of all Subscribers, collectively for a Participant, 
effected within the Application through or in the name of that 
Participant. When the Clearing Limits for a Participant are reached, 
the Application will: (1) Inhibit any future executions for all 
Subscribers associated with that Participant; (2) cancel any orders and 
withdraw any Indications resident within the Application for all 
Subscribers associated with that Participant; and (3) send a notice to 
that Participant's Firm Administrator, the Nasdaq Supervisor, and to 
the clearing broker for that Participant provided that the clearing 
broker also is a Participant. Clearing Limits for a Participant may be 
monitored on a real-time basis by the Participant's Firm Administrator 
and can be established, monitored, and modified by the Firm 
Administrator of the Participant's clearing broker, provided the 
clearing broker also is a Participant. If the clearing broker is not a 
Participant in the Application, then the Nasdaq Supervisor will notify 
the clearing broker that the Clearing Limits have been reached as soon 
as practicable. Clearing Limits also can be established and modified by 
the Nasdaq Supervisor on behalf of the clearing broker.

5023. Hours of Operation

    (a) The Application is available for executing securities 
transactions during regular Nasdaq trading hours whenever there is a 
free and open quote (i.e., not locked or crossed), subject to the 
general authority and regulatory responsibilities of Nasdaq or its 
affiliates in operating the Application as a facility of Nasdaq or its 
affiliate (including but not limited to its authority to implement 
trading halts in one or more securities due to regulatory reasons, 
market-wide emergencies, and system malfunctions).
    (b) Nasdaq may permit certain functionality of the Application to 
be available outside of the time period during which securities 
transactions may be effected through the Application, including but not 
limited to, the monitoring, entering, canceling, withdrawing, or 
modifying resident Indications, Credit Limits, or Clearing Limits.

5024. Limitation of Liability

    (a) Neither Nasdaq, the NASD (including their affiliates), Primex 
Trading N.A., L.L.C. (including its affiliates) nor any other operator, 
licensor, or administrator (including their affiliates) of the Nasdaq 
Application of the Primex Auction System shall have any liability for 
any loss, damages, claim or expense arising from or occasioned by any 
inaccuracy, error or delay in, or omission of or from: (1) the Nasdaq 
Application; or (2) the collection, processing, reporting or 
dissemination of any information derived from the Nasdaq Application, 
resulting either from any act or omission by Nasdaq or any affiliate, 
or any operator, licensor, or administrator of the Nasdaq Application 
or from any act, condition or cause beyond the reasonable control of 
Nasdaq or any affiliate, operator, licensor or administrator of the 
Nasdaq Application, including, but not limited to, flood, extraordinary 
weather

[[Page 3969]]

conditions, earthquake or other act of nature, fire, war, insurrection, 
riot, labor dispute, accident, action of government, communications or 
power failure, or equipment or software malfunction. If a Participant 
that enters, authorizes its Subscribers (including sponsored 
Subscribers) to enter, or is authorized by other Participants to enter 
orders, Responses, or Indications that result in a transaction through 
the Application fails to perform its settlement or other obligations 
under the terms of such transaction, the NASD (and its affiliates) and 
Primex Trading N.A., L.L.C. (and its affiliates) shall have no 
liability for such failure to settle.
    (b) Neither Nasdaq, the NASD (including their affiliates), Primex 
Trading N.A., L.L.C. (including its affiliates) nor any other operator, 
licensor, or administrator (including their affiliates) of the Nasdaq 
Application of the Primex Auction System makes any express or implied 
warranties or conditions to Participants or their associated 
Subscribers (including sponsored Subscribers) as to results that any 
person or party may obtain from the Nasdaq Application for trading or 
for any other purpose, and all warranties of merchantability or fitness 
for a particular purpose or use, title, and non-infringement with 
respect to the Nasdaq Application are hereby disclaimed.]

5400. NASDAQ STOCK MARKET AND ALTERNATIVE DISPLAY FACILITY TRADE 
REPORTING

* * * * *

5430. Transaction Reporting

(a) (No change).
(b) Which Party Reports Transactions and to Which Facility
    (1)-(7) (No change).
    (8) If a member simultaneously is a Registered Reporting Nasdaq 
Market Maker and a Registered Reporting ADF Market Maker, and has the 
trade reporting obligation pursuant to paragraphs (1), (2), (4), (5), 
(6), or (7), the member can report the trade using either ACT or TRACS, 
unless the trade is executed using ACES[;] or the Nasdaq National 
Market Execution System (``NNMS'')[; or the Primex Auction System 
(``Primex'')]. A trade executed using ACES must be reported using ACT, 
and trades executed using NNMS[, or Primex] will be reported to ACT 
automatically.
* * * * *

7000. CHARGES FOR SERVICES AND EQUIPMENTS

* * * * *

7010. System Services

* * * * *
(a)-(q) (No change).
(r) Reserved [Nasdaq Application of the Primex Auction 
SystemTM
    The following charges shall apply to the use of the Nasdaq 
Application of the Primex Auction System:
(1) Transaction Charges:
Execution Services--for all participants:
    Order entry: No fee.
    Auction Response (per share, per execution).* $.003.
Matching Rights--Primex Auction Market Makers (PAMMs) only:
    50 Percent Match: No fee.
    Two-Cent Match (per share, per retained order--$2.50 Maximum). ** 
$.0025
Revenue Sharing--PAMMs only:
    Each order executed: *** 1/3 of transaction fee.
(2) Monthly Access fees
Software

 
   Workstation license or unique logon:        Per workstation logon:
 
Stations/logons 1.........................  No charge if firm uses a
                                             dedicated circuit
Stations/logons 2-11......................  $100
Stations/logons 11 and above..............  $50
Proprietary interface license.............  Per license:
API specification.........................  $500
FIX (customized protocol).................  $500
Network:
Dedicated line............................  Per line:
256K......................................  $1,781
64K with non-guaranteed 256K burst          $1,564
 capacity.
56K.......................................  $712
Installation/Uninstall....................  $1,000 per Nasdaq Staff site
                                             visit
Internet Access:
Logons 1-10 (per firm)....................  $50
Logons 11 and up (per firm)...............  $25
 

(3) Waiver of Logon Fees
    All monthly logon fees for the period of August 2002 through 
November 2002 are waived for those Primex Auction System participants 
that, in connection with their participation in the Primex Auction 
System during such period, were customers of the Brass Service Bureau 
and Order Management System.]
    [*This fee applies to both Indications and ``real-time'' Responses. 
When two orders match directly, a fee is charged to the party that 
entered the second order.
    **This fee is charged in the event a PAMM attaches its matching 
right to an order, and the crowd offers two cents or less price 
improvement to that order.
    ***Paid to a PAMM when it enters an order that interacts with crowd 
interest in the system. Revenue sharing applies only to orders in those 
securities in which the firm is registered as a PAMM. The revenue 
sharing amounts will be paid on a monthly basis.]
* * * * *

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
    To streamline the number of systems it offers for trading Nasdaq 
and listed securities, Nasdaq is terminating its offering of the Primex 
trading system as of the close of business on January 16, 2004. 
Beginning on January 19, 2004, members will no longer be able to use 
the System. Nasdaq disseminated a notice of this decision on December 
31, 2003.\8\
---------------------------------------------------------------------------

    \8\ Nasdaq issued a press release and a Head Trader Alert (Head 
Trader Alert 2003-179). The press release is available on 
www.Nasdaqnews.com and the Head Trader Alert is available on 
www.Nasdaqtrader.com
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, 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 foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities. A notice of 
the decision to terminate the System was disseminated on December 31, 
2003.\11\ In addition, Primex is a voluntary system and the

[[Page 3970]]

proposal does not affect SuperMontage or ITS/CAES, Nasdaq's other 
trading systems.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(6).
    \11\ See supra note 8.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change, as amended, 
will result in any burden on competition.

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

    The foregoing rule change has been filed by the NASD as ``non-
controversial'' pursuant to Section 19(b)(3)(A) of the Act \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\ Because the foregoing 
rule change: (1) Does not significantly affect the protection of 
investors or the public interest; (2) does not impose any significant 
burden on competition; and (3) does not become operative for thirty 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and Rule 19b-4 thereunder.\15\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The Commission hereby waives the thirty-day operative waiting 
period. The Commission believes that the waiver would permit Nasdaq to 
terminate the System promptly, and would not significantly affect the 
protection of investors because a notice of the termination was issued 
on December 31, 2003.\16\ In addition, the Commission believes that the 
proposal will not affect Nasdaq's other trading systems, SuperMontage 
and the InterMarket Trading System/Computer Assisted Execution System. 
The proposed rule change, as amended, became operative at the close of 
business on January 16, 2004, pursuant to SEC Rule 19b-4(f)(6).\17\
---------------------------------------------------------------------------

    \16\ See supra note 8.
    \17\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within sixty 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.

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. Comments 
may also be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. SR-
NASD-2004-07. The file number should be included on the subject line if 
e-mail is used. To help the Commission process and review your comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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 Exchange. All 
submissions should refer to the File No. SR-NASD-2004-07 and should be 
submitted by February 17, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR.200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1661 Filed 1-26-04; 8:45 am]
BILLING CODE 8010-01-P