[Federal Register Volume 69, Number 71 (Tuesday, April 13, 2004)]
[Notices]
[Pages 19584-19586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8266]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49534; File No. SR-NASD-2004-060]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc., Regarding the Nasdaq Closing Cross

April 7, 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 April 5, 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 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by Nasdaq. Nasdaq has 
designated the proposed rule change as ``non-controversial'' under 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposed rule change 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

    The proposed rule change would make two amendments to NASD Rule 
4709 governing the Nasdaq Closing Cross. Specifically, the proposed 
rule change would: (1) Change Rule 4709(a)(2) to change the order entry 
time for Imbalance Only Orders (``IOs'') to start at 3:30 p.m. e.s.t., 
rather than 9:30 a.m., and (2) amend Rule 4709(b) to change the 
frequency with which Nasdaq would disseminate the Nasdaq Order 
Imbalance Indicator (``NOII'').
    The text of the proposed rule change is set forth below. Proposed 
new language is in italics; proposed deletions are in [brackets].
* * * * *
4709. Nasdaq Closing Cross
    (a) Definitions. For the purposes of this rule the term:
    (1) No Change.
    (2) ``Imbalance Only Order'' or ``IO'' shall mean an order to buy 
or sell at a specified price or better that may be executed only during 
the Nasdaq Closing Cross and only against MOC or LOC orders. IO orders 
can be entered between [9:30:01 a.m.] 3:30 p.m. and 3:59:59 p.m., but 
they cannot be cancelled or modified after 3:50:00 except to increase 
the number of shares or to increase (decrease) the buy (sell) limit 
price. IO sell (buy) orders will only execute at or above (below) the 
4:00:00
    SuperMontage offer (bid). All IO orders must be available for 
automatic execution.
    (3) ``Limit On Close Order'' or ``LOC'' shall mean an order to buy 
or sell at a specified price or better that is to be executed only 
during the Nasdaq Closing Cross. LOC orders can be entered, cancelled, 
and corrected between 9:30:01 a.m. and 3:50:00 p.m. [and] LOC Orders 
will execute only at the price determined by the Nasdaq Closing Cross. 
All LOC orders must be available for automatic execution.
    (4) ``Market on Close Order'' shall mean an order to buy or sell at 
the market that is to be executed only during the Nasdaq Closing Cross. 
MOC orders can be entered, cancelled, and corrected between 9:30:01 
a.m. and 3:50:00 p.m. [and] MOC orders will execute only at the price 
determined by the Nasdaq Closing Cross. All MOC orders must be 
available for automatic execution.
    (5) No Change.
    (6) No Change.
    (b) Order Imbalance Indicator. Beginning at 3:50 p.m., Nasdaq shall 
disseminate by electronic means an Order Imbalance Indicator every 30 
seconds until 3:55, and then beginning at 3:55, every 15 seconds until 
[3:58] 3:59, and then beginning at 3:59, every 5 seconds until [3:59, 
and then every second until] market close. The Order Imbalance 
Indicator shall contain the following real time information:
    (1)-(4) No Change.
    (c) No Change.
* * * * *

[[Page 19585]]

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
    Nasdaq is proposing two amendments to NASD Rule 4709 governing the 
Nasdaq Closing Cross. Specifically, Nasdaq proposes to modify 
subsection (a)(2) which defines an IO and currently permits market 
participants to enter such orders beginning at 9:30:01 a.m. E.S.T. 
Nasdaq has determined that it is inefficient to accept and retain such 
orders early in the trading day because IOs do not impact the market or 
the Closing Cross until 3:50 p.m. and market participants derive little 
benefit from entering them that early. Accordingly, Nasdaq proposes to 
change the order entry time for IOs to start at 3:30 p.m. E.S.T. in 
order to better allocate order processing resources.
    Nasdaq is also proposing to amend subsection (b) of Rule 4709 to 
change the frequency with which Nasdaq will disseminate the NOII. 
Currently, the rule provides for the following dissemination: beginning 
at 3:50 p.m., Nasdaq will disseminate the NOII every 30 seconds until 
3:55, and then every 15 seconds until 3:58, and then every 5 seconds 
until 3:59, and then every second until market close. Nasdaq has 
determined that this dissemination would be an unnecessary drain on 
system resources. Nasdaq proposes to change that dissemination to the 
following: beginning at 3:50 p.m., Nasdaq would disseminate the NOII 
every 30 seconds until 3:55, then beginning at 3:55 every 15 seconds 
until 3:59, and then beginning at 3:59 every 5 seconds until market 
close.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\5\ in general, and with 
Section 15A(b)(6) of the Act,\6\ in particular, in that Section 
15A(b)(6) requires, among other things, that a national securities 
association's rules be designed to protect investors and the public 
interest. Nasdaq believes that the proposed rule change is consistent 
with the obligations under these provisions of the Act because it would 
result in the public dissemination of information that more accurately 
reflects the trading in a particular security at the close. 
Furthermore, to the extent a security is a component of an index, 
Nasdaq believes the index would more accurately reflect the value of 
the market, or segment of the market, the index is designed to measure. 
Nasdaq believes the corresponding result should be trades, or other 
actions, executed at prices more reflective of the current market when 
the price of an execution, or other action, is based on the last sale, 
the high price or low price of a security, or the value of an index.
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    \5\ 15 U.S.C. 78o-3.
    \6\ 15 U.S.C. 78o-3(b)(6).
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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.

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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 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,\7\ 
it has become effective pursuant to Section 19(b)(3)(A) of the Act \8\ 
and Rule 19b-4(f)(6) thereunder.\9\ 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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    \7\ The Commission revised this section to reflect that the 
proposed rule change does not become operative for 30 days from the 
date on which it was filed, or such shorter time as the Commission 
may designate. Telephone conversation between Jeffrey S. Davis, 
Associate Vice President and Associate General Counsel, Nasdaq, and 
Ann E. Leddy, Special Counsel, Division of Market Regulation 
(``Division''), Commission (April 6, 2004).
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). The Commission notes that Nasdaq 
provided written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change at least five business days prior to the date of filing of 
the proposed rule change.
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    Nasdaq has requested that the Commission waive the 30-day operative 
delay. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because it will allow Nasdaq to effect the proposed amendments to the 
Nasdaq Closing Cross prior to the launch of the Nasdaq Closing Cross 
scheduled for Wednesday, April 7, 2004.\10\ For these reasons, the 
Commission designates the proposal to be effective and operative upon 
filing with the Commission.\11\
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    \10\ The Commission revised this sentence to clarify that the 
launch date of the Nasdaq Closing Cross is Wednesday, April 7, 2004. 
Telephone conversation between Jeffrey S. Davis, Associate Vice 
President and Associate General Counsel, Nasdaq, and Ann E. Leddy, 
Special Counsel, Division, Commission (April 6, 2004).
    \11\ For purposes only of waiving the 30-day operative delay of 
the proposed rule change, the Commission 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-2004-060. 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

[[Page 19586]]

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 
NASD. All submissions should refer to File No. SR-NASD-2004-060 and 
should be submitted by May 4, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Margaret H. McFarland,
Deputy Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 04-8266 Filed 4-12-04; 8:45 am]
BILLING CODE 8010-01-P