[Federal Register Volume 69, Number 62 (Wednesday, March 31, 2004)]
[Notices]
[Pages 17011-17013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7142]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49458; File No. SR-NQLX-2004-02]


Self-Regulatory Organization; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
NQLX LLC To Amend Its Rule 419 Relating to Block Trades

March 23, 2004.
    Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on March 4, 2004, NQLX LLC (``NQLX'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule changes 
described in Items I, II, and III below, which Items have been prepared 
by NQLX. On March 16, 2004, NQLX filed an amendment to the proposed 
rule changes.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule changes, as amended, from interested 
persons. On March 3, 2004, NQLX filed the proposed rule changes with 
the Commodity Futures Trading Commission (``CFTC''), together with a 
written certification under section 5c(c) of the Commodity Exchange Act 
\4\ (``CEA'') in which NQLX indicated that the effective date of the 
proposed rule changes would be March 4, 2004.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
    \3\ See letter from Robert Ledvora, Executive Vice President and 
Chief Financial Officer, NQLX, to the Office of Market Supervision, 
Division of Market Regulation (``Division''), Commission, dated 
March 16, 2004 (``Amendment No. 1'').
    \4\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    NQLX is proposing changes to its Rule 419 to explicitly permit 
orders for block trades at the Daily Settlement Price for the Exchange 
Contract, at the fair value \5\ derived from that day's last sale price 
of the security underlying the Security Futures Contract, or at the 
fair value of the Security Futures Contract derived from the volume 
weighted average price (``VWAP'') \6\ of

[[Page 17012]]

transactions during an agreed upon time segment for that trading day in 
the underlying security. According to NQLX, these changes will provide 
a technical means for members to enter block trades during trading 
hours with a price indicator of whether the price will be the futures 
settlement price, the last sale price of the underlying security or the 
fair value of the Security Futures Contract derived from the VWAP of 
the underlying security.
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    \5\ The fair value of a security future is the current security 
price plus the interest rate cost of carry to the future's 
expiration minus the value of the expected dividend. Transaction 
costs make this an inexact number. Therefore, the fair value must be 
represented as an approximation.
    \6\ ``Volume Weighted Average Price'' means the average price of 
a security over an agreed upon time segment computed by multiplying 
the price per share of each transaction by the number of shares 
traded in that transaction, then dividing the sum of these values 
for all the transactions in the security during the agreed upon time 
segment by the total number of shares traded during that period.
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    The text of the proposed rule change appears below. New text is in 
italics. Deleted text is in [brackets].
* * * * *
Rule 419 Block Trades \7\
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    \7\ Pursuant to a telephone conversation between De'Ana Dow, 
Associate Vice President and Chief Counsel, Futures and Options 
Regulation, National Association of Securities Dealers and Marisol 
Rubecindo, Law Clerk, Division, Commission, on March 18, 2004, NQLX 
amended rule text language to conform with language published in its 
Rule Book.
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    (a)-(f) No change
    (g) Information Recording, Submission, and Dissemination
    (1)-(7) No change
    (8) For Orders for Block Trades at the Daily Settlement Price for 
the Exchange Contract, at the fair value derived from that day's last 
sale price of the security underlying the Security Futures Contract, or 
at the fair value of the Security Futures Contract derived from the 
volume weighted average price (VWAP) of transactions during an agreed 
upon time segment for that trading day in the underlying security, the 
Member for the Initiator must as soon as practicable but no later than 
8 minutes after negotiations end submit the Block Trade through the ATS 
with all the information required by Rule 419(g)(2) and indicating the 
price as:
    (i) ``0.00'' for the Daily Settlement Price for the Exchange 
Contract,
    (ii) ``0.01'' for the fair value of that day's last sale price for 
the security underlying the Security Futures Contract, or
    (iii) ``0.02'' for the fair value of the Security Futures Contract 
derived from the VWAP of transactions during an agreed upon time 
segment for that trading day in the underlying security.
    As soon as practicable but no later than 10 minutes after the close 
of trading for the Exchange Contract, the Member for the Initiator must 
provide through the ATS the Daily Settlement Price, the fair value of 
that day's last sale price for the security underlying the Security 
Futures Contract, or the fair value of the Security Futures Contract 
derived from the VWAP, in the underlying securities as applicable. 
Nothing in this Rule 419(g)(8) relieves Members from complying with the 
provisions of Rules 419(g)(6) and 419(g)(7).
* * * * *

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

    NQLX has prepared statements concerning the purpose of, and 
statutory basis for, the proposed rule changes, burdens on competition, 
and comments received from members, participants, and others. The text 
of these statements may be examined at the places specified in Item IV 
below. These statements are set forth in sections A, B, and C below.

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

1. Purpose
    NQLX proposes revising Rule 419--Block Trades--to permit its 
members to submit orders for block trades at the Daily Settlement Price 
for the Exchange Contract, at the fair value derived from that day's 
last sale price of the security underlying the Security Futures 
Contract or at the fair value of the Security Futures Contract derived 
from the VWAP of transactions during an agreed upon time segment for 
that trading day in the underlying security. NQLX is amending this rule 
to provide a technical means for members to enter block trades during 
trading hours with a price indicator. The actual price of the block 
trade must be submitted as soon as practicable, but not later than 10 
minutes after the close of trading for the Exchange Contract.
    NQLX believes that the proposed rule changes are consistent with 
the requirements, where applicable, under section 6(h)(3)(J) of the Act 
\8\ and the criteria, where applicable, under section 2(a)(1)(D)(i)(IX) 
of the CEA,\9\ as modified by joint orders of the Commission and the 
CFTC.\10\
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    \8\ 15 U.S.C. 78f(h)(3)(J).
    \9\ 7 U.S.C. 2(a)(1)(D)(i)(IX).
    \10\ See Joint Order Granting the Modification of Listing 
Standards Requirements (Exchange-Traded Funds, Trust-Issued Receipts 
and Shares of Closed-End Funds), Securities Exchange Act Release No. 
46090 (June 19, 2002), 67 FR 42760 (June 25, 2002) and Joint Order 
Granting the Modification of Listing Standards Requirements 
(American Depository Receipts), Securities Exchange Act Release No. 
44725 (August 20, 2001), 67 FR 42760 (June 25, 2002).
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2. Statutory Basis
    NQLX files these proposed rule changes pursuant to section 19(b)(7) 
of the Act.\11\ NQLX believes that these proposed rule changes are 
consistent with the requirements of the Commodity Futures Modernization 
Act of 2000,\12\ including the requirement that NQLX have audit trails 
necessary and appropriate to facilitate coordinated surveillance to 
detect, among other things, manipulation.\13\ NQLX further believes 
that its proposed rule change complies with the requirements under 
section 6(h)(3) of the Act \14\ and the criteria under section 
2(a)(1)(D)(i) of the CEA,\15\ as modified by joint orders of the 
Commission and the CFTC. In addition, NQLX believes that its proposed 
rule change is consistent with the provisions of section 6 of the 
Act,\16\ in general, and section 6(b)(5) of the Act,\17\ in particular, 
in that it will prevent fraudulent and manipulative acts and practices, 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities and protect investors and the 
public interest.
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    \11\ 15 U.S.C. 78s(b)(7).
    \12\ P.L. 106-554, 114 Stat. 2763 (2000).
    \13\ 15 U.S.C. 78f(h)(3)(J).
    \14\ 15 U.S.C. 78f(h)(3).
    \15\ 7 U.S.C. 2(a)(1)(D)(i).
    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NQLX 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 Proposed 
Rule Changes Received From Members, Participants, or Others

    NQLX neither solicited nor received written comment on the proposed 
rule change.

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

    The proposed rule changes became effective on March 4, 2004. Within 
60 days of the date of effectiveness of the proposed rule changes, the 
Commission, after consultation with the CFTC, may summarily abrogate 
the proposed rule changes and require that the proposed rule changes be 
refiled in accordance with the provisions of section 19(b)(1) of the 
Act.\18\
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    \18\ 15 U.S.C. 78s(b)(1). For purposes of calculating the sixty-
day abrogation period, the Commission considers the period to 
commence on March 16, 2004, the date on which NQLX filed Amendment 
No. 1.

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[[Page 17013]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
changes conflict with the Act. Persons making written submissions 
should file nine copies of the submission 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-NQLX-2004-02. 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 changes that are filed with the 
Commission, and all written communications relating to the proposed 
rule changes 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 these filings will also 
be available for inspection and copying at the principal office of 
NQLX. All submissions should refer to File No. SR-NQLX-2004-02 and 
should be submitted by April 21, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(75).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-7142 Filed 3-30-04; 8:45 am]
BILLING CODE 8010-01-P