[Federal Register Volume 69, Number 22 (Tuesday, February 3, 2004)]
[Notices]
[Pages 5229-5230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2145]



[[Page 5229]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49131; File No. SR-NASD-2004-12]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Extend Operation of NASD's Alternative 
Display Facility on a Pilot Basis

January 27, 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 27, 2004, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') submitted to the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
NASD. NASD filed the proposal pursuant to Section 19(b)(3) of the 
Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD proposes to extend for nine months the operation of NASD's 
Alternative Display Facility (``ADF'') on a pilot basis. The current 
ADF pilot program, which the Commission approved on July 24, 2002, will 
expire on January 26, 2004. The pilot permits members to quote and 
trade only Nasdaq-listed securities on or through the ADF.
    New text is italicized. Deleted text is in brackets.
* * * * *

4000A. NASD Alternative Display Facility

4100A. General

    NASD Alternative Display Facility (``ADF'') is the facility to be 
operated by NASD on a pilot basis for members that choose to quote or 
effect trades in Nasdaq securities (``ADF-eligible securities'') 
otherwise than on Nasdaq or on an exchange. The ADF will collect and 
disseminate quotations, compare trades, and collect and disseminate 
trade reports. Those NASD members that utilize ADF systems for 
quotation or trading activities must comply with the Rule 4000A, Rule 
5400 and Rule 6000A Series, as well as all other applicable NASD Rules. 
The ADF pilot will expire on [January 26, 2004] October 26, 2004.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD 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. NASD 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
    On July 24, 2002, the Commission approved SR-NASD-2002-97,\5\ which 
authorized NASD to operate the ADF on a pilot basis for nine months, 
pending the anticipated approval of SR-NASD-2001-90, which proposed to 
operate the ADF on a permanent basis. The ADF pilot was extended until 
January 26, 2004 in SR-NASD-2003-67.\6\ As described in detail in SR-
NASD-2001-90, the ADF is a quotation collection, trade comparison, and 
trade reporting facility developed by NASD in accordance with the 
Commission's SuperMontage Approval Order \7\ and in conjunction with 
Nasdaq's anticipated registration as a national securities exchange.\8\ 
In addition, since the Commission gave its initial approval to the ADF 
pilot, NASD has filed with the Commission several other proposed rule 
changes to amend the ADF's rules, some of which have become effective 
and been incorporated into the operation and administration of the ADF 
pilot.\9\
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    \5\ See Securities Exchange Act Release No. 46249 (July 24, 
2002), 67 FR 49822 (July 31, 2002) (Order approving SR-NASD-2002-97 
on a pilot basis).
    \6\ See Securities Exchange Act Release No. 47633 (April 10, 
2003), 68 FR 19043 (April 17, 2003) (Notice of Filing and Immediate 
Effectiveness of SR-NASD-2003-67).
    \7\ See Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001) (File No. SR-NASD-99-53).
    \8\ See Securities Exchange Act Release No. 44396 (June 7, 
2001), 66 FR 31952 (June 13, 2001) (File No. 10-131).
    \9\ On January 30, 2003, NASD filed a proposed rule change with 
the Commission to revise the transaction and quotation-related fees 
applicable to ADF activity during the pilot program. This proposed 
rule change became effective upon filing, with an implementation 
date of February 17, 2003. See Securities Exchange Act Release No. 
47331 (February 10, 2003), 68 FR 7635 (February 14, 2003) (Notice of 
Filing and Immediate Effectiveness of SR-NASD-2003-09). On January 
6, 2004, the Commission approved on an accelerated basis a proposal 
to amend NASD's ADF pilot rules to give jurisdiction to a three-
member subcommittee of NASD's Market Regulation Committee (``MRC'') 
to review system outage determinations under NASD Rule 4300A(f) and 
excused withdrawal denials under NASD Rule 4619A. This proposed rule 
change became effective contemporaneous with the Commission's 
approval. See Securities Exchange Act Release No. 49029 (January 6, 
2004), 69 FR. 2167 (January 14, 2004) (Order granting accelerated 
approval to SR-NASD-2003-145). On December 4, 2003, NASD filed for 
immediate effectiveness a proposed rule change to amend NASD Rule 
4613A(c) to clarify that NASD may suspend quotations in ADF 
displayed by any market participant, including an ECN, that are no 
longer reasonably related to the prevailing market. See Securities 
Exchange Act Release No. 49075 (January 14, 2004) (Notice of Filing 
and Immediate Effectiveness of SR-NASD-2003-181). Additionally, NASD 
has two other rule changes that propose to amend ADF rules pending 
with the Commission. One proposed rule change would repeal NASD Rule 
4613A(e)(1), which requires members that display priced quotations 
for a Nasdaq security in two or more market centers to display the 
same priced quotations for that security in each market center. See 
SR-NASD-2003-175. The second rule change proposes to amend NASD Rule 
4300A to require an ADF Market Participant to provide advance 
written notice to NASD's ADF Market Operations before denying 
electronic access to its ADF quote to any NASD member in the limited 
circumstances where a broker-dealer fails to pay contractually 
obligated costs for access to the Market Participant's quotations. 
See SR-NASD-2004-002.
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    As proposed in SR-NASD-2001-90, the ADF would provide market 
participants the ability to quote and trade Nasdaq and exchange-listed 
securities. The current ADF pilot program, however, permits operation 
of the ADF with respect to Nasdaq securities only. This is because 
several regulatory issues relating to the trading of exchange-listed 
securities on the ADF have not been resolved.
    According to NASD, the ADF has been operating successfully during 
the pilot period. NASD believes that the Commision, in approving the 
launch of SuperMontage, stated that the ADF met the conditions set 
forth in its SuperMontage Approval Order to provide an alternative 
quotation collection, trade comparison and trade reporting facility. 
The ADF has since continued to honor those conditions. NASD also notes 
that the issues related to trading exchange-listed securities--and by 
extension, approval of the operation of ADF on a permanent basis--
remain unresolved. Accordingly, NASD believes it is appropriate to 
extend the pilot period for ADF trading in Nasdaq securities--until 
October 26,

[[Page 5230]]

2004 or until approval of SR-NASD-2001-90.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act \10\ which requires that the NASD have 
rules that prevent fraudulent and manipulative acts, promote just and 
equitable principles of trade, foster cooperation and coordination 
among persons engaged in regulating, clearing, settling, processing 
information and facilitating transactions in securities, 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. NASD further believes the proposed rule change is 
consistent with Section 15A(b)(6)\11\ because it does not permit unfair 
discrimination between customers, issuers, brokers, or dealers, fix 
minimum profits, impose any schedule or fix rates of commissions, 
allowances, discounts, or other fees to be charged by members, or 
regulate matters not related to the purposes of the Act or the 
administration of NASD.
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    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3.
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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. Written 
comments, however, were solicited on proposed rule changes SR-NASD-
2001-90 and SR-NASD-2002-28, the underlying rule filings to SR-NASD-
2002-97 and SR-NASD-2003-67, and SR-2003-09, respectively. NASD 
responded to the comments received in response to SR-NASD-2001-90 in 
its Amendment No. 2 to that filing submitted to the Commission on May 
24, 2002. NASD responded to the comments received in response to SR-
NASD-2002-28 in its Amendment No. 1 to that filing submitted to the 
Commission on May 14, 2002.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) of Rule 19b-4\13\ 
thereunder because it 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. 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    NASD has requested that the Commission waive the 30-day operative 
delay to prevent the current ADF pilot program from lapsing. Under Rule 
19-4(f)(6) of the Act, a proposed rule change does not become operative 
for 30 days after the date of filing, unless the Commission designates 
a shorter time. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Acceleration of the operative date will ensure the 
uninterrupted operation of the ADF pilot until October 26, 2004. For 
this reason, the Commission waives the 30-day operative delay and 
designates the proposal to be immediately effective and operative upon 
filing with the Commission.\14\
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    \14\ 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 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-NASD-2004-12. This 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 the filing will also be available for 
inspection and copying at the principal office of the Association. All 
submissions should refer to File No. SR-NASD-2004-12 and should be 
submitted by February 24, 2004. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-2145 Filed 2-2-04; 8:45 am]
BILLING CODE 8010-01-P