[Federal Register Volume 69, Number 147 (Monday, August 2, 2004)]
[Notices]
[Pages 46195-46197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17489]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50087: File No. SR-NASD-2004-090]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto Relating to the Nasdaq Closing Cross

July 26, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 9, 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, II, 
and III below, which Items have been prepared by Nasdaq. On July 23, 
2004, Nasdaq amended the proposed rule change.\3\ 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\ See letter from Mary M. Dunbar, Vice President and Deputy 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated July 22, 2004 (``Amendment No. 1''). In Amendment No. 1, 
Nasdaq restated the proposed rule change in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes an amendment to NASD Rule 4709 to establish 
auxiliary procedures for administering the Nasdaq Closing Cross on 
certain significant trading days. Nasdaq intends to implement the 
proposed rule change immediately upon approval by the Commission.\4\ 
The text of the proposed rule change is set forth below. Proposed new 
language is in italics; deletions are in [brackets].\5\
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    \4\ The Commission revised this sentence to reflect the fact 
that Nasdaq intends to implement the proposed rule change 
immediately upon approval by the Commission. Telephone conversation 
between Jeffrey S. Davis, Associate Vice President and Associate 
General Counsel, Nasdaq, and Ann E. Leddy, Special Counsel, 
Division, Commission (July 23, 2004).
    \5\ The proposed rule change is marked to show changes from the 
rule text appearing in the NASD Manual available at www.nasd.com. 
There are no other pending or approved rule filings that would 
affect NASD Rule 4709(c).
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* * * * *
    4709. Nasdaq Closing Cross
    (a) No Change.
    (b) No Change.
    (c) Processing of Nasdaq Closing Cross.
    (1)-(4) No Change.
    (5) Auxiliary Procedures. When significant trading volume is 
expected at the close of regular hours, Nasdaq may apply auxiliary 
procedures for the Closing Cross to ensure a fair and orderly market. 
The determination to implement auxiliary procedures for the Closing 
Cross shall be made by the President of Nasdaq or any Executive Vice 
President designated by the President. Nasdaq shall inform market 
participants of such auxiliary procedures as far in advance as 
practicable. Auxiliary procedures shall include:
    (i) Setting an earlier time or times for the end of the order entry 
periods set forth in paragraph (a) for IO, MOC, and LOC orders. Nasdaq 
may end the order entry period as early as 3:40 p.m.
    (ii) Setting an earlier time for the order modification and 
cancellation periods in paragraph (a) for IO, MOC, and LOC orders. 
Nasdaq may end the order modification and cancellation periods as early 
as 3:40 p.m.
    (iii) Setting an earlier time for the dissemination times and 
frequencies set forth in paragraph (b) for the Order

[[Page 46196]]

Imbalance Indicator. Nasdaq may begin disseminating the Order Imbalance 
Indicator as early as 3:40 p.m. and may increase or decrease the 
frequency with which the Order Imbalance Indicator is disseminated.
    (iv) Adjusting the threshold values set forth in subparagraph 
(c)(2)(D) to no greater than 20 percent.
* * * * *

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, as 
amended, 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
    On March 11, 2004, the Commission approved Nasdaq's proposal to 
create a Closing Cross.\6\ The Closing Cross is designed to create a 
robust close that allows for price discovery, and an execution that 
results in an accurate, tradable closing price. There are three 
components of the Nasdaq Closing Cross: (1) The creation of Market On 
Close (``MOC''), Limit on Close (``LOC'') and Imbalance Only (``IO'') 
order types; (2) the dissemination of an order imbalance indicator; and 
(3) Closing Cross processing in the Nasdaq Market Center at 4:00:00 
that executes the maximum number of shares at a single, representative 
price that is the Nasdaq Official Closing Price.
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    \6\ See, Securities Exchange Act Release No. 49406 (Mar. 11, 
2004), 69 FR 12879 (Mar. 18, 2004) (SR-NASD-2003-173).
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    In order to maintain a fair and orderly market on significant 
trading days, such as the reconstitution of indices administered by 
Standard and Poors and the Russell Investment Group and various options 
expiration days, it is necessary for Nasdaq to adjust certain aspects 
of the Closing Cross. These significant trading days are characterized 
by high volume during a limited period of time around the close due to 
market participants' desire to execute trades at the closing price used 
by various index providers. On such days, the effort required to 
maintain a fair and orderly market and the potential cost of not 
maintaining a fair and orderly market are both increased. Therefore, 
Nasdaq believes it is prudent to maintain flexibility to adjust certain 
aspects of the Closing Cross for these significant trading days.
2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of section 15A of the Act,\7\ in 
general, and with section 15A(b)(6) of the Act,\8\ in particular, in 
that section 15A(b)(6) requires that the rules of self-regulatory 
organizations be designed, among other things, to protect investors and 
the public interest. Nasdaq believes that its current proposal 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, the index would more accurately reflect the value of the market, 
or segment of the market, the index is designed to measure. The 
corresponding result should be trades executed at prices more 
reflective of the current market.
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    \7\ 15 U.S.C. 78o-3.
    \8\ 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, as amended, 
would 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, as amended, or
    B. Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic comments:

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2004-090 on the subject line.

Paper Comments

    Send paper comments in triplicate to Jonathan G. Katz, Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2004-090. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 also will be available for inspection and copying at the 
principal office of the NASD. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASD-2004-090 and should be submitted on or before 
August 23, 2004.


[[Page 46197]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-17489 Filed 7-30-04; 8:45 am]
BILLING CODE 8010-01-P