[Federal Register Volume 69, Number 243 (Monday, December 20, 2004)]
[Notices]
[Pages 76022-76026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3720]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50845; File No. SR-NASD-2004-181]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Concerning 
Modifications to the Nasdaq Market Center Execution Service

December 13, 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 December 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is filing a proposed rule change to address the time 
priority issue that has prevented Nasdaq from registering as an 
exchange under Section 6 of the Act.\3\ Specifically, Nasdaq is 
proposing to eliminate: (1) The ``internalization'' exception to the 
time priority aspect of the Nasdaq Market Center execution service's 
price/time priority execution algorithm, (2) Preferenced Orders; and 
(3) the Directed Order functionality of the service.
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    \3\ 15 U.S.C. 78f.
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    Proposed new language is italicized; proposed deletions are in 
brackets.
4700. NASDAQ MARKET CENTER--EXECUTION SERVICES
4701. Definitions
    Unless stated otherwise, the terms described below shall have the 
following meaning:
    (a) through (e) No changes.
    (f) Reserved [The term ``Directed Order'' shall mean an order in a 
Nasdaq-listed security that is entered into the system by a Nasdaq 
Market Center participant that is directed to a particular Quoting 
Market Participant at any price, through the Directed Order process 
described in Rule 4710(c). This term shall not include the 
``Preferenced Order'' described in subparagraph (aa) of this rule. 
Directed Orders shall not be available for ITS Securities.]
    (g) through (o) No changes.
    (p) The term ``Non-Directed Order'' shall mean an order that is 
entered into the system by a Nasdaq Market Center Participant and is 
not directed to any particular Quoting Market Participant or ITS 
Exchange [, and shall also include Preferenced Orders as described in 
subparagraph (aa) of this rule].
    (q) Reserved [The term ``Non-Liability Order'' shall mean for 
Nasdaq listed securities an order that when delivered to a Quoting 
Market Participant imposes no obligation to respond to such order under 
the Firm Quote Rule. For ITS Securities, only orders preferenced to an 
ITS exchange can be non-liability orders.]
    (r) through (z) No changes.
    (aa) Reserved [The term ``Preferenced Order'' shall mean an order 
that is entered into the Non-Directed Order Process and is designated 
to be delivered to or executed against a particular Quoting Market 
Participant's Attributable Quote/Order if the Quoting Market 
Participant is at the best bid/best offer when the Preferenced Order is 
the next in line to be executed or delivered. Preferenced Orders shall 
be executed subject to the conditions set out in Rule 4710(b).]
    (bb) through (uu) No changes.
4704. Opening Process for Nasdaq-Listed Securities
    (a) No change.
    (b) No change.
    (1) through (4) No changes.
    (5) Notwithstanding subparagraphs (1) through ([5] 4), if a Nasdaq 
Quoting Market Participant has entered a Locking/Crossing Quote/Order 
into the system that would become subject to the automated processing 
described above, the [system shall, before sending the order to any 
other Quoting Market Participant or Order Entry Firm, first attempt to 
match off the order against the locking/crossing Nasdaq Quoting Market 
Participant's own Quote/Order if that participant's Quote/Order is at 
the highest bid or lowest offer, as appropriate. A] Nasdaq Quoting 
Market Participant [may avoid this automatic matching through the] can 
use the [of] anti-internalization qualifier as set forth in Rule 
4710(b)(1)(B)(ii)(a) to deviate from time priority. Order Entry Firms 
that enter locking/crossing Quotes/

[[Page 76023]]

Orders also can use the anti-internalization qualifier [shall have 
those Quotes/Orders processed as set forth in subparagraphs (1) through 
(4), unless they voluntarily select a ``Y'' AIQ Value] as provided for 
in Rule 4710 (b)(1)(B)(ii)(a) to deviate from time priority.
    (c) and (d) No changes.
4706. Order Entry Parameters
    (a) Non-Directed Orders--
    (1) No change.
    (A) No change.
    (B) No change.
    (i) through (vi) No change
    (vii) An order may be designated as ``Pegged,'' in which case the 
order will also automatically be designated as Day. [A Pegged Order may 
not be designated as a Preferenced Order.] A Pegged Order (or 
unexecuted portion thereof) will be retained by the Nasdaq Market 
Center and its price adjusted in response to changes in the Nasdaq 
Market Center inside market. A Pegged Order (including a Discretionary 
Order that is pegged) will be cancelled if there is no displayable 
Quote/Order to which its price can be pegged. Starting at 7:30 a.m., 
until the 4 p.m. market close, Pegged Orders may be entered into the 
Nasdaq Market Center (or previously entered orders cancelled), but such 
orders entered prior to market open will not become available for 
execution until 9:30 a.m. Eastern Time. The initial price of Pegged 
Orders (including Discretionary Orders that are pegged) entered prior 
to market open will be established at 9:30 a.m. based on the Nasdaq 
inside bid or offer at that time. Pegged Orders shall not be available 
for ITS Securities.
    To maintain the capacity and performance of the Nasdaq Market 
Center, Nasdaq may at any time suspend the entry of Pegged Orders 
(including Discretionary Orders that are pegged) for all securities or 
for any security. Pegged Orders that are in the Nasdaq Market Center at 
the time of such suspension will continue to be available for 
adjustment and execution.
    (viii) a. An order may be designated as ``Discretionary'', in which 
case the order will also automatically be designated as Day. [A 
Discretionary Order may not be designated as a Preferenced Order.] The 
order (or unexecuted portion thereof) shall be displayed in the system, 
if appropriate, using the displayed price selected by the entering 
party, with the system also retaining a non-displayed discretionary 
price range within which the entering party is also willing to execute 
if necessary. If a Discretionary Order is pegged, its displayed price 
will be adjusted in response to changes in the Nasdaq inside market. 
Starting at 7:30 a.m., until the 4 p.m. market close, Discretionary 
Orders may be entered into the Nasdaq Market Center (or previously 
entered orders cancelled), but such orders entered prior to market open 
will not become available for execution until 9:30 a.m. Eastern Time. 
Discretionary Orders whose displayed price or discretionary price range 
does not lock or cross another Quote/Order will be available for 
execution at 9:30 a.m. All other Discretionary Orders will be added to 
the time-priority queue described in Rule 4706(a)(1)(F) and (a)(2)(B) 
and processed by the Nasdaq Market Center at market open.
    b. A Discretionary Order in an ITS Security [may not be preferenced 
to an ITS/CAES Market Maker or ITS Exchange,] shall not result in a 
quote that locks or crosses the national best bid and offer and shall 
not be executed at a price that trades through the quotation of an ITS 
Exchange unless it is also designated as a Sweep Order. Starting at 
7:30 a.m., until the 4 p.m. market close, Discretionary Orders in ITS 
Securities may be entered into the Nasdaq Market Center (or previously 
entered orders cancelled), but such orders entered prior to market open 
will not become available for execution until 9:30 a.m. Eastern Time. 
Discretionary Orders whose displayed price or discretionary price range 
does not lock or cross another Quote/Order will be available for 
execution at 9:30 a.m. All other Discretionary Orders will be added to 
the time-priority queue described in Rule 4706(a)(1)(F) and (a)(2)(B) 
and processed by the Nasdaq Market Center at market open.
    (ix) through (xiii) No changes.
    (C) through (F) No changes.
    (2) No change.
    (b) Reserved [Directed Orders in Nasdaq-listed Securities. A 
participant may enter a Directed Order in a Nasdaq-listed security into 
the Nasdaq Market Center to access a specific Attributable Quote/Order 
displayed in the system, subject to the following conditions and 
requirements:
    (1) Unless the Quoting Market Participant to which a Directed Order 
is being sent has indicated that it wishes to receive Directed Orders 
that are Liability Orders, a Directed Order must be a Non-Liability 
Order, and as such, at the time of entry must be designated as:
    (A) An ``All-or-None'' order (``AON'') that is at least one normal 
unit of trading (e.g. 100 shares) in excess of the Attributable Quote/
Order of the Quoting Market Participant to which the order is directed;
    (B) A ``Minimum Acceptable Quantity'' order (``MAQ''), with a MAQ 
value of at least one normal unit of trading in excess of Attributable 
Quote/Order of the Quoting Market Participant to which the order is 
directed. Nasdaq will append an indicator to the quote of a Quoting 
Market Participant that has indicated to Nasdaq that it wishes to 
receive Directed Orders that are Liability Orders; or
    (C) A Directed Order that is entered at a price that is inferior to 
the Attributable Quote/Order of the Quoting Market Participant to which 
the order is directed.
    (2) A Directed Order may have a time in force of 3 to 99 minutes, 
or may be designated as ``Day'' order, or an ``End of Day'' order.
    (3) Directed Orders shall be processed pursuant to Rule 4710(c).
    (4) A Directed Order entered into the system may not be cancelled 
until a minimum of five seconds has elapsed after the time of entry. 
This five-second time period shall be measured by the Nasdaq Market 
Center.
    (5) Directed Orders shall not be entered in ITS Securities.]
    (c) through (e) No changes.
4710. Participant Obligations in the Nasdaq Market Center
    (a) Registration.
    No change.
    (b) Non-Directed Orders.
    (1) No change.
    (A) No change.
    (B) Processing of Non-Directed Orders--Upon entry of a Non-Directed 
Order into the system, the Nasdaq Market Center will ascertain who the 
next Quoting Market Participant or Order Entry Firm in queue to receive 
an order is and shall deliver an execution to Quoting Market 
Participants or Order Entry Firms that participate in the automatic-
execution functionality of the system, or shall deliver a Liability 
Order to Quoting Market Participants that participate in the order-
delivery functionality of the system. Non-Directed Orders entered into 
the Nasdaq Market Center system shall be delivered to or automatically 
executed against Quoting Market Participants' or Order Entry Firms' 
Displayed Quotes/Orders and Reserve Size, in strict price/time 
priority, as described in the algorithm contained in subparagraph 
(b)(B)(i) of this rule. The individual time priority of each Quote/
Order submitted to the Nasdaq Market Center shall be assigned by the 
system based on the date and time such Quote/Order was received. 
Remainders of Quote/Orders reduced by execution, if retained by the 
system, shall retain the time priority of their

[[Page 76024]]

original entry. For purposes of the execution algorithms described in 
paragraphs (i), (ii) and (iii) below, ``Displayed Quotes/Orders'' shall 
also include any odd-lot, odd-lot portion of a mixed-lot, or any odd-
lot remainder of a round-lot(s) reduced by execution, share amounts 
that while not displayed in the quotation montage of the Nasdaq Market 
Center, remain in system and available for execution.
    (i) [Default] Execution Algorithm--Price/Time Priority--The system 
will execute Quotes/Orders in [default to a] strict price/time priority 
within Nasdaq, and will attempt to access interest in the system in the 
following priority and order:
    a. Displayed Quotes/Orders of Nasdaq Market Makers, ITS/CAES Market 
Makers, and Nasdaq ECNs, displayed Non-Attributable Quotes/Orders of 
NNMS Order Entry Firms, and displayed non-attributable agency Quotes/
Orders of UTP Exchanges (as permitted by subparagraph (f) of this 
rule), in time priority [between] among such participants' Quotes/
Orders;
    b. Reserve Size of Nasdaq Quoting Market Participants and Order 
Entry Firms, in time priority [between] among such participants' 
Quotes/Orders; and
    c. Principal Quotes/Orders of UTP Exchanges, in time priority 
[between] among such participants' Quotes/Orders.
    (ii) Exceptions--The following exceptions shall apply to the above 
execution parameters:
    a. [If a Nasdaq Quoting Market Participant or Order Entry Firm 
enters a Non-Directed Order into the system, before sending such Non-
Directed Order to the next Quoting Market Participants in queue, the 
Nasdaq Market Center will first attempt to match off the order against 
the Nasdaq Quoting Market Participant's or Order Entry Firm's own 
Quote/Order if the participant is at the best bid/best offer in 
Nasdaq.] Nasdaq Quoting Market Participants and Order Entry Firms [may 
avoid any attempted automatic system matching permitted by this 
paragraph through the] can use [of an] the anti-internalization 
qualifier (AIQ) quote/order flag containing the [following values:] 
``Y'' value to deviate from time priority as follows: [or ``I'', 
subject to the following restrictions:]
    Y--[if] when the Y value is selected, the system will execute the 
flagged quote/order solely against attributable and non-attributable 
quotes/orders (displayed and reserve) of Quoting Market Participants 
and Order Entry Firms other than the party entering the AIQ ``Y'' 
flagged quote/order. If the only available trading interest is that of 
the same party that entered the AIQ ``Y'' flagged quote/order, the 
system will not execute at an inferior price level, and will instead 
return the latest entered of those interacting quote/orders (or 
unexecuted portions thereof) to the entering party; provided, however, 
that in the case of a Discretionary Order interacting with a bid/offer 
entered by the system pursuant to Rule 4710(b)(5), the Discretionary 
Order (or unexecuted portions thereof) will be returned.
    [I--if the I value is selected, the system will execute against all 
available trading interest, including the quote/orders of the Order 
Entry Firm or Nasdaq Quoting Market Participant that entered the AIQ 
``I'' flagged order, based on the price/time execution algorithm.]
    b. through g. No changes.
    (C) and (D) No changes.
    (2) No change.
    (3) No change.
    (A) No change.
    (B) No change.
    (i) Exception--The following exception shall apply to the above 
locked/crossed processing parameters:
    If an ITS/CAES Market Maker has entered a Locking/Crossing Quote/
Order into the system that would become subject to the automated 
processing described in subparagraph (B) above, the [system shall, 
before sending the order to any other ITS/CAES Market Maker or Order 
Entry Firm, first attempt to match off the order against the locking/
crossing ITS/CAES Market Maker's own Quote/Order if that participant's 
Quote/Order is at the highest bid or lowest offer, as appropriate. An] 
ITS/CAES Market Maker [may avoid this automatic matching through the] 
can use the [of] anti-internalization qualifier as set forth in Rule 
4710(b)(1)(B)(ii)(a) to deviate from time priority. Order Entry Firms 
that enter locking/crossing Quotes/Orders also can use the anti-
internalization qualifier [shall have those Quotes/Orders processed as 
set forth in subparagraph (B) above, unless they voluntarily select a 
``Y'' AIQ Value] as provided for in Rule 4710(b)(1)(B)(ii)(a) to 
deviate from time priority.
    (4) through (8) No changes.
    (c) Reserved [Directed Order Processing.
    A participant may enter a Directed Order in Nasdaq-listed 
securities into the Nasdaq Market Center to access a specific Quote/
Order in the Nasdaq Quotation Montage and to begin the negotiation 
process with a particular Quoting Market Participant. The system will 
deliver an order (not an execution) to the Quoting Market Participant 
designated as the recipient of the order. Upon delivery, the Quoting 
Market Participant shall owe no liability under the Firm Quote Rule to 
that order, unless the Quoting Market Participant to which a Directed 
Order is being sent has indicated that it wishes to receive Directed 
Orders that are Liability Orders (as described in Rule 4706(b)). 
Additionally, upon delivery, the system will not decrement the 
receiving Quoting Market Participant's Quote/Order. This provision 
shall not apply to Preferenced Orders.]
    (d) No change.
    (e) UTP Exchanges.
    Participation in the Nasdaq Market Center by UTP Exchanges is 
voluntary. If a UTP Exchange does not participate in the Nasdaq Market 
Center, the UTP Exchange's quote will not be accessed through the 
Nasdaq Market Center, and the Nasdaq Market Center will not include the 
UTP Exchange's quotation for order processing and execution purposes.
    A UTP Exchange may voluntarily participate in the Nasdaq Market 
Center if it executes a Nasdaq Workstation Subscriber Agreement, as 
amended, for UTP Exchanges, and complies with the terms of this 
subparagraph (f) of this rule. The terms and conditions of such access 
and participation, including available functionality and applicable 
rules and fees, shall be set forth in and governed by the Nasdaq 
Workstation Subscriber Agreement, as amended for UTP Exchanges. The 
Nasdaq Workstation Subscriber Agreement, as amended for UTP Exchanges 
may expand but shall not contract the rights and obligations set forth 
in these rules. Access to UTP Exchanges may be made available on terms 
that differ from the terms applicable to members but may not 
unreasonably discriminate among similarly situated UTP Exchanges. The 
following provisions shall apply to UTP Exchanges that choose to 
participate in the Nasdaq Market Center.
    (1) Order Entry--UTP Exchanges that elect to participate in the 
system shall be permitted to enter [Directed and] Non-Directed Orders 
into the system subject to the conditions and requirements of Rules 
4706. [Directed and] Non-Directed Orders entered by UTP Exchanges shall 
be processed (unless otherwise specified) as described subparagraphs 
(b) and (c) of this rule.
    (2) and (3) No changes.
    (4) Reserved [Directed Order Processing--UTP Exchanges that elect 
to participate in the system shall participate in the Directed Order 
processing as described in subparagraph (c) of this rule.]
    (5) and (6) No changes.

[[Page 76025]]

4719. Anonymity
    (a) No change.
    (b) Full Anonymity.
    (1) through (4) No changes. (5)(A) No change.
    (B) In the situations described in paragraphs (b)(2) or (b)(4) of 
Rule 4719, [and solely with respect to the member that submits, and 
receives an execution of, a fully anonymous Non-Attributable Quote/
Order that is a Preferenced Order,] the member retains the obligation 
to comply with Rules 17a-3(a)(1) and 17a-4(a) because it possesses the 
identity of its contra party.

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 to modify the Nasdaq Market Center execution 
service (formerly known as SuperMontage) to eliminate certain 
functionality that deviates from the time priority aspect of the 
system's price/time priority execution algorithm. The changes are being 
proposed to eliminate the issue that has prevented Nasdaq from 
registering as an exchange.
    Nasdaq has been working with Commission staff to resolve the open 
issues concerning its application to register as an exchange. The issue 
delaying Nasdaq's application concerns the Commission's policy that 
orders generally must be executed on an exchange in time priority at 
the best price displayed on the exchange. Nasdaq's current execution 
service does not follow strict time priority in all situations.
    For example, the execution algorithm for Non-Directed Orders 
generally executes trades in strict time priority at the best price by 
matching an incoming order against the oldest order at the best 
price.\4\ However, there is an internalization exception to strict time 
priority. When deciding against which orders an incoming order should 
be executed, the system first attempts to execute the incoming order 
against the member submitting the order--in effect internalizing the 
order through the system--but only if the member submitting the order 
is at the best price. The system will not internalize the order at a 
price inferior to the best price displayed on Nasdaq. Nasdaq is 
proposing to re-program the system so that it does not deviate from 
time priority to internalize an order. With one exception, the system 
will execute in strict time priority at the best price.
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    \4\ See NASD Rule 4710(b)(1)(B)(i). Time priority is maintained 
within three different categories: Displayed Quotes/Orders, Reserve 
Size of Nasdaq Quoting Participants, and Principal Quotes/Orders of 
UTP Exchanges.
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    The exception concerns Nasdaq's desire to continue to provide 
members the opportunity to deviate from time priority to avoid 
internalizing an order. For example, assume that, in the following time 
priority, members A, B, and C are displaying bids at $10, and member A 
submits a sell order. The system, if member A has chosen the anti-
internalization qualifier (``AIQ flag'') for this order, will not 
execute member A's sell order against its bid, but instead will skip 
member A and execute against members B and C. The AIQ flag is designed 
to assist members in complying with regulatory and/or fiduciary 
obligations that govern their dealings with accounts managed by them or 
their affiliates.\5\ Nasdaq believes it is appropriate to deviate from 
time priority in these circumstances because members are attempting to 
comply with regulatory and/or fiduciary obligations.
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    \5\ For example, Section 17(a) of the Investment Company Act of 
1940 (``Investment Company Act'') limits self-dealing by generally 
prohibiting affiliated persons of an investment company or principal 
underwriters of a registered investment company's securities from, 
among other things, knowingly selling securities to, or knowingly 
buying securities from, the investment company unless the securities 
being sold or bought are issued by the investment company or the 
Commission grants an application for an exemption pursuant to 
Section 17(b) of the Investment Company Act.
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    Nasdaq also is proposing to eliminate Preferenced Orders. 
Preferenced Orders are a type of Non-Directed Order and thus are 
processed in the same order queue and execution algorithm as other Non-
Directed Orders. With a Preferenced Order, however, the member 
submitting the order can specify that it only seeks to execute against 
a particular contra party--the ``preferenced'' party. When a 
Preferenced Order is next to be processed in the order queue, the 
system determines whether the preferenced party is at the best price. 
If the preferenced party is at the best price, the system will execute 
the order against the preferenced party--irrespective of whether the 
preferenced party has time priority.
    Finally, Nasdaq also is proposing to eliminate the Directed Order 
process. The Directed Order process replicates the SelectNet 
functionality that existed prior to the implementation of SuperMontage 
and is not integrated with the Non-Directed Order execution algorithm--
meaning that Directed Orders are processed independent of Non-Directed 
Orders. The Directed Order process allows members to negotiate 
transactions electronically, whereas the Non-Directed Order process 
automatically decrements quotes when an order is delivered against 
them.
    For example, member A can send a Directed Order to sell to member 
B, who is displaying quotes in Nasdaq. Unless member B has expressly 
indicated it will accept liability orders through the Directed Order 
process, member B is not obligated to trade with the incoming order. 
Member B can reject the order, respond with a counter offer, or execute 
the order. Because the Directed Order process is used to negotiate 
trades, orders can be executed at prices inferior to the best prices 
displayed in Nasdaq. In addition, because Directed Orders are not 
integrated in Non-Directed Order execution algorithm, trades are 
executed without consideration of the time priority of orders in the 
Non-Directed Order process.
    With the exception of the AIQ functionality, the changes described 
above eliminate certain elements of Nasdaq's execution service that 
deviate from time priority and thus, in Nasdaq's view, address the 
issue that has delayed Nasdaq's application to register as an 
exchange.\6\ As previously discussed, Nasdaq believes the AIQ 
functionality is necessary and thus not inconsistent with the standards 
for registering as an exchange--because it is designed to prevent 
internalization and assist members in complying with regulatory or 
fiduciary obligations.
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    \6\ Supra note 4. Time priority will be maintained within the 
three categories listed in footnote 3, not in aggregate.
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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,\7\ in general and with 
Section 15A(b)(6) of the Act,\8\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to

[[Page 76026]]

promote just and equitable principles of trade, remove impediments to a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The proposed changes are 
consistent with the obligations of Section 15A(b)(6) of the Act because 
they will provide for greater time priority protection in Nasdaq's 
execution service. In addition, because the obligations under Section 
15A(b)(6) and Section 6(b)(5) are the same, the proposed changes also 
are consistent with the obligations applicable to registered exchanges.
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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 will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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,\9\ the Commission 
will:
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    \9\ Nasdaq has consented to an extension of the time period for 
Commission action.
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    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-2004-181 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-2004-181. 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-2004-181 and should be submitted on or before 
January 10, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3720 Filed 12-17-04; 8:45 am]
BILLING CODE 8010-01-P