[Federal Register Volume 69, Number 53 (Thursday, March 18, 2004)]
[Notices]
[Page 12882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6101]



[[Page 12882]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49413; File No. SR-NASD-2003-175]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc., To Repeal Rule 4613A(e)(1) Requiring Same-Priced Quotations on 
Multiple Markets

March 12, 2004.

I. Introduction

    On November 26, 2003, the National Association of Securities 
Dealers, Inc. (``NASD''), filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') a proposed rule change pursuant 
to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder \2\ to repeal NASD Rule 4613A(e)(1), 
which requires NASD 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. The proposed rule 
change was published for comment in the Federal Register on February 5, 
2004.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 49152 (January 29, 
2004); 69 FR 5632.
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II. Description

    Currently, NASD Rule 4613A(e)(1) requires NASD 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. In the instant proposal, the NASD proposes to repeal NASD Rule 
4613A(e)(1), so that NASD members that choose to display quotations for 
a Nasdaq security in multiple market centers are permitted to display 
different priced quotations for a particular security in two or more 
market centers.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\4\ Specifically, the Commission believes that the proposed 
rule change is consistent with the provisions of sections 15A(b)(6) and 
15A(b)(9) of the Act.\5\ Section 15A(b)(6) requires, among other 
things, that rules of a national securities association be designed to 
prevent fraudulent and manipulative acts and practices; to promote just 
and equitable principles of trade; to remove impediments to and perfect 
the mechanism of a free and open market; and, in general, to protect 
investors and the public interest. Section 15A(b)(9) requires that the 
rules of the association not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \4\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78o-3(b)(6) and (b)(9).
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    The NASD originally proposed NASD Rule 4613A(e)(1) as part of the 
Alternative Display Facility (``ADF'') pilot rules,\6\ in order to 
prevent the fragmentation of quotations by an NASD member (which might 
serve to undermine the transparency of the best quotes in the market), 
given the increased potential that NASD members might choose to dual 
quote on several market centers, including ADF.
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    \6\ Securities Exchange Act Release No. 46249 (July 24, 2002), 
67 FR 49822 (July 31, 2002). Subsequent to the initial approval of 
the ADF rules, the Commission approved an extension of the pilot 
until January 26, 2004. Securities Exchange Act Release No. 47633 
(April 10, 2003), 68 FR 19043 (April 17, 2003).
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    The Commission notes that NASD Rule 4613A(e)(1) is the only ADF 
rule that applies to all markets.\7\ The Commission believes that, as 
an intra-market rule, NASD Rule 4613A(e)(1) may make sense because 
displaying different priced quotations for the same security in the 
same market may be confusing and misleading to other market 
participants and public investors. However, as an inter-market rule, 
NASD Rule 4613A(e)(1) may have undesirable or unintended consequences 
given recent market structure developments. For example, an NASD member 
now may have several completely distinct business units, such as a 
market making unit and an electronic communications network (``ECN''), 
which are used by different types of clients and, therefore, represent 
separate pools of liquidity. An NASD member may choose to display 
quotations relating to its market-making unit on Nasdaq and its ECN on 
ADF. Under such circumstances, compliance with NASD Rule 4613A(e)(1) 
may, in effect, require the NASD member to consolidate these distinct 
business units for purposes of displaying quotations on each market, 
which may be contrary to the business model of the firm since these 
quotes represent separate liquidity pools. According to the NASD, an 
NASD member could establish separate broker/dealers for each business 
unit in order to comply with NASD Rule 4613A(e)(1), but this may be 
burdensome and may interfere with competition. After analyzing NASD 
Rule 4613A(e)(1) and its effects, including the difficulty of enforcing 
the rule across market centers, the Commission agrees that repealing 
NASD Rule 4613A(e)(1) is consistent with the Act.
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    \7\ See id.
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    The Commission also notes that the NASD has represented that it 
will continue to monitor and surveil for any potentially collusive or 
manipulative conduct relating to quotation activity on markets under 
its regulatory authority. Nothing in this rule change would modify any 
other responsibility of a broker or dealer under the Act, including 
Rule 11Ac1-1 under the Act \8\ and all other rules and regulations of 
the NASD.
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    \8\ 17 CFR 240.11Ac1-1.
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NASD-2003-175) is approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-6101 Filed 3-17-04; 8:45 am]
BILLING CODE 8010-01-P