[Federal Register Volume 69, Number 184 (Thursday, September 23, 2004)]
[Notices]
[Pages 57116-57117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2348]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50406; File No. SR-NASD-2004-119]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment Nos. 1 and 2 Thereto Regarding Fees for 
Orders and Quotes Executed in the Nasdaq Closing Cross

September 16, 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 August 10, 2004, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), submitted to 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 August 23, 
2004, Nasdaq amended the proposed rule change.\3\ On September 13, 
2004, Nasdaq amended the proposed rule change.\4\ Nasdaq has designated 
the proposed rule change as ``establishing or changing a due, fee, or 
other charge'' under Section 19(b)(3)(A) of the Act,\5\ and Rule 19b-
4(f)(2) thereunder,\6\ which renders the proposal 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\ 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 August 20, 2004 (``Amendment No. 1''). In Amendment No. 1, 
Nasdaq restated the proposed rule change in its entirety.
    \4\ See letter from Mary M. Dunbar, Vice President and Deputy 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division, Commission, dated September 10, 2004 
(``Amendment No. 2''). In Amendment No. 2, Nasdaq restated the 
proposed rule change in its entirety.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is filing this proposed rule change to establish fees for 
quotes and orders executed in the Nasdaq Closing Cross. The text of the 
proposed rule change is set forth below. Proposed new language is in 
italics; proposed deletions are in [brackets].\7\
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    \7\ The proposed rule language is marked to show changes to Rule 
7010(i) as currently reflected in the NASD Manual available at 
www.nasd.com, as amended by SR-NASD-2004-076 (filed May 5, 2004 and 
amended on July 2, 2004 and July 23, 2004), Securities Exchange Act 
Release No. 50074 (July 23, 2004); 69 FR 49866 (July 30, 2004), and 
SR-NASD-2004-106, Securities Exchange Act Release No. 50038 (July 
19, 2004); 69 FR 44699 (July 27, 2004). Amendment 2 to SR-NASD-2004-
076, filed on July 23, 2004, inadvertently omitted modifications to 
the language of Rule 7010(i) that were made effective on July 12, 
2004 by SR-NASD-2004-106. Amendment 1 to SR-NASD-2004-119, filed on 
August 23, 2004, then omitted to reflect the changes effected by 
Amendment 2 to SR-NASD-2004-076. This amendment is marked to reflect 
the changes to Rule 7010(i) from SR-NASD-2004-076 and to ensure that 
the language of Rule 7010(i) is properly reflected in the NASD 
manual.
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* * * * *

Rule 7010. System Services

    (a)-(h) No Change.
    (i) Nasdaq Market Center order execution)
    (1) and (2) No Change.
    (3) [Pilot--] Closing Cross
    [For a period of three months commencing on the date Nasdaq 
implements its Closing Cross (as described in Rule 4709) members shall 
not be charged Nasdaq Market Center execution fees, or receive Nasdaq 
Market Center liquidity provider credits, for those quotes and orders 
executed in the Nasdaq Closing Cross.]

Market-on-Close and Limit-on-executed: $0.0005 per share.
Close orders executed in the Nasdaq Closing Cross.
All other quotes and orders executed in the Nasdaq Closing Cross: No 
charge for execution.

    (j)-(u) No change.
* * * * *

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.

[[Page 57117]]

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

1. Purpose
    The Commission recently approved the Nasdaq Closing Cross, which is 
a new process for determining the Nasdaq Official Closing Price for the 
most liquid Nasdaq stocks.\8\ The Nasdaq Closing Cross is designed to 
create a more robust close that allows for price discovery, and an 
execution that results in an accurate, tradable closing price. Nasdaq 
established a pilot program, commencing with the launch of the Closing 
Cross, during which no execution charges were charged, and no liquidity 
provider credits were offered, for those quotes and orders executed in 
the Nasdaq market center as part of the Nasdaq Closing Cross.\9\
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    \8\ Securities Exchange Act Release No. 49406 (March 11, 2004); 
69 FR 12879 (March 18, 2004)(SR-NASD-2004-173).
    \9\ Securities Exchange Act Release No. 49576 (April 16, 2004); 
69 FR 22112 (April 23, 2004)(SR-NASD-2004-048).
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    Nasdaq has determined to end the pilot program and establish the 
following pricing for the Nasdaq Closing Cross. Nasdaq will assess a 
fee of $0.0005 per share executed during the Nasdaq Closing Cross for 
all Market-on-Close and Limit-on-Close orders. At this time, Nasdaq 
will assess no fees and offer no rebates for quotations and other 
orders executed during the Nasdaq Closing Cross.\10\ Nasdaq will 
monitor the effectiveness of the proposed pricing schedule in 
preserving and enhancing the success of the Nasdaq Closing Cross to 
date.
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    \10\ In the event Nasdaq determines to assess such fees, Nasdaq 
will file a rule proposal with the Commission.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\11\ in general, and with 
Section 15A(b)(5),\12\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
members and issuers and other persons using any facility or system that 
NASD operates or controls. Nasdaq believes that the proposed fees for 
Market-on-Close and Limit-on-Close orders are consistent with the 
statute in that they are designed to result in an execution charge 
approximating the execution charge for quotes and orders entered and 
executed in the Nasdaq Market Center throughout the trading day. Nasdaq 
believes that assessing no fee and offering no rebate for quotations 
and other orders executed during the Nasdaq Closing Cross is consistent 
with the statute because it is designed to encourage the entry of 
Imbalance Only orders to minimize imbalances resulting from the Closing 
Cross algorithm, and to preserve the Closing Cross liquidity provided 
by quotations and orders from the continuous market.
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    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(b)(5).
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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

    The proposed rule change has become immediately effective pursuant 
to Section 19(b)(3)(A)(ii) of the Act,\13\ and subparagraph (f)(2) of 
Rule 19b-4 thereunder,\14\ because it establishes or changes a due, 
fee, or other charge imposed by Nasdaq. 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.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).
    \15\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change, as 
amended, under Section 19(b)(3)(C) of the Act, the Commission 
considers the period to commence on September 15, 2004, the date 
Nasdaq filed Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C).
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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. 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-2004-119 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-2004-119. 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 such 
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-2004-119 and should be submitted on or before 
October 14, 2004.


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-2348 Filed 9-22-04; 8:45 am]
BILLING CODE 8010-01-P