[Federal Register Volume 69, Number 182 (Tuesday, September 21, 2004)]
[Notices]
[Pages 56468-56470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2279]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50372; File No. SR-NASD-2004-074]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the National Association of 
Securities Dealers, Inc. To Clarify and Modify Market Maker Quote Re-
Entry Obligations

September 14, 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 28, 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 Nasdsaq. On August 31, 
2004, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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 Edward S. Knight, Executive Vice President 
and General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated August 30, 2004 (``Amendment No. 1''). In Amendment No. 1, 
Nasdaq replaced the rule text in the original proposal with a new 
version to reflect changes to NASD rules effected by SR-NASD-2004-
076. See Securities Exchange Act Release No. 50074 (July 23, 2004), 
69 FR 45866 (July 30, 2004).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes certain changes to Rule 4620 to clarify and modify 
market makers' quote re-entry obligations when

[[Page 56469]]

a quote is withdrawn by Nasdaq's systems because of a dividend 
application or a trading halt.
    The text of the proposed rule change is set forth below. Proposed 
new language is in italics; proposed deletions are in [brackets].
* * * * *

4620. Voluntary Termination of Registration

    (a) A market maker may voluntarily terminate its registration in a 
security by withdrawing its [Quote] two-sided quotation from the Nasdaq 
Market Center. A market maker that voluntarily terminates its 
registration in a security may not re-register as a market maker in 
that security for twenty (20) business days. Withdrawal from 
participation as a market maker in a Nasdaq-listed security in the 
Nasdaq Market Center shall constitute termination of registration as a 
market maker in that security for purposes of this Rule; provided, 
however, that a market maker that fails to maintain a clearing 
arrangement with a registered clearing agency or with a member of such 
an agency and is withdrawn from participation in the trade reporting 
service of the Nasdaq Market Center and thereby terminates its 
registration as a market maker in Nasdaq-listed issues may register as 
a market maker at any time after a clearing arrangement has been 
reestablished and the market maker has complied with Nasdaq Market 
Center participant requirements contained in Rule 6100.
    (b) and (c) No change
    (d) For purposes of paragraph (a) of this Rule, a market maker 
shall not be deemed to have voluntarily terminated its registration in 
a security by voluntarily withdrawing its two-sided quotation from the 
Nasdaq Market Center if the market maker's two-sided quotation in the 
subject security is withdrawn by Nasdaq's systems due to issuer 
corporate action related to a dividend, payment or distribution, or due 
to a trading halt, and one of the following conditions is satisfied:
    (1) the market maker enters a new two-sided quotation prior to the 
close of the regular market session on the same day when Nasdaq's 
systems withdrew such a quotation;
    (2) the market maker enters a new two-sided quotation on the day 
when trading resumes following a trading halt, or, if the resumption of 
trading occurs when the market is not in regular session, the market 
maker enters a new two-sided quotation prior to the opening of the next 
regular market session; or
    (3) upon request from the market maker, Nasdaq MarketWatch 
authorizes the market maker to enter a new two-sided quotation, 
provided that Nasdaq MarketWatch receives the market maker's request 
prior to the close of the regular market session on the next regular 
trading day after the day on which the market maker became eligible to 
re-enter a quotation pursuant to subparagraph (d)(1) or (d)(2) hereof 
and determines that the market maker was not attempting to avoid its 
market making obligations by failing to re-enter such a quotation 
earlier.
    [(d)](e) The Market Operations Review Committee shall have 
jurisdiction over proceedings brought by [Market Makers] market makers 
seeking review of their denial of a reinstatement pursuant to 
[paragraph (b) above] paragraphs (b) or (d) of this Rule.
* * * * *

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
    The proposed rule change seeks to clarify the existing practice 
with respect to market maker quote reinstatement following a Nasdaq 
system-initiated withdrawal of the quote and to give market makers an 
additional trading day within which to request such a reinstatement. 
Nasdaq systems withdraw all market maker quotes in a security when 
certain corporate actions occur (e.g., a dividend is applied) and in 
the event of a trading halt. After such Nasdaq system-initiated quote 
withdrawal, a market maker is expected to reinstate its quote within a 
reasonable period of time in order to avoid being deemed as having 
voluntarily terminated its registration in the particular security.
    Currently, a market maker is expected to re-enter its quote by the 
close of the regular market session on the day that the corporate 
action occurred or regular trading resumed. If trading resumes in the 
extended hours session, the market maker has until market open on the 
next regular trading day to re-enter a quote. The proposed rule change 
would codify this policy.
    The proposed rule change would also permit market makers who 
inadvertently failed to re-enter their quotes within the time frames 
described above to contact Nasdaq's MarketWatch department by the close 
of regular trading on the next trading day after the date of the 
corporate action or trading resumption and to seek to enter a quote. 
Nasdaq states that Nasdaq MarketWatch would monitor market maker 
reactivation requests for any pattern of delays that might indicate 
that a market maker was attempting to avoid its obligations and in such 
cases would deny immediate reactivation and deem the market maker's 
registration in the security as having been voluntarily terminated. 
Market makers would be able to seek a review by the Market Operations 
Review Committee of a denial of reinstatement under Rule 4620(d).
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\4\ including Section 
15A(b)(6) of the Act,\5\ which requires that the rules of the NASD be 
designed to 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. Nasdaq believes that the proposed 
rule change would make the existing policy concerning quote 
reinstatements following system-initiated withdrawals more transparent 
and contribute to the quality of the market and benefit investors. 
Nasdaq also believes that, by extending the amount of time available to 
submit a new quote following system-initiated withdrawals, the proposed 
rule change would also further encourage the desired re-infusion of 
liquidity and yield corresponding additional benefits to the market and 
investors.
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    \4\ 15 U.S.C. 78o-3.
    \5\ 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 would result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 56470]]

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, or
    (B) institute proceedings to determine whether the proposed rule 
change 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 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-2004-074 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-2004-074. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Nasdaq. 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-2004-074 and should be submitted on or before October 12, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-2279 Filed 9-20-04; 8:45 am]
BILLING CODE 8010-01-P