[Federal Register Volume 70, Number 6 (Monday, January 10, 2005)]
[Notices]
[Pages 1746-1748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-396]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50956; File No. SR-NASD-2004-190]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Establish the Minimum Quotation Increment 
for the BRUT ECN System

January 3, 2005.
    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 30, 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 filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ 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\ 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

    Nasdaq proposes to establish a new NASD Rule 4912 to set the 
minimum quotation increment for the BRUT ECN System (``BRUT''). Nasdaq 
has designated this proposal as non-controversial and has requested 
that the Commission waive the 30-day pre-operative waiting period 
contained in Rule 19b-4(f)(6)(iii) under the Act.\5\ If the Commission 
grants such a waiver, then this rule proposal, which is effective upon 
filing with the Commission, shall become operative on January 3, 2005 
pursuant to Rule 19b-4(f)(6) under the Act.\6\
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    \5\ 17 CFR 240.19b-4(f)(6)(iii).
    \6\ 17 CFR 240.19b-4(f)(6).
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    The text of the proposed rule change is below. Proposed new 
language is italicized.\7\
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    \7\ The proposed rule change will add a new NASD Rule 4912 to a 
pending new NASD Rule series 4900 (proposed NASD Rules 4901 through 
4911), which has been filed with the Commission. See SR-NASD-2004-
173. When the proposed rule change contained herein becomes 
operational, Nasdaq will make a conforming amendment to the pending 
filing.
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* * * * *
    4912. Minimum Quotation Increment
    The minimum quotation increment in the BRUT ECN System for 
quotations of $1.00 or above in Nasdaq-listed securities and in 
securities listed on a national securities exchange shall be $0.01. The 
minimum quotation increment in the BRUT ECN System for quotations below 
$1.00 in Nasdaq-listed securities and in securities listed on a 
national securities exchange shall be $0.0001.
* * * * *

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
    Currently, the minimum quotation increment in the Nasdaq Market 
Center (``NMC'') is $0.01 for all quotations. However, in BRUT, which 
was recently purchased by Nasdaq, the minimum quotation increment can 
be below $0.01 for orders priced under $5.00. Nasdaq states that the 
purpose of the proposed rule change is to bring BRUT closer to the 
existing NMC practice by lowering the $5.00 threshold to $1.00 and 
setting the minimum quotation increment at $0.01 for all Nasdaq-listed 
and exchange-listed security quotations of

[[Page 1747]]

$1.00 or higher.\8\ As such, the language of the proposed new rule 
closely mirrors the language of similar provisions applicable to NMC 
quotations. See NASD Rules 4613(a)(1)(B) and 6330(d). The minimum 
quotation increment for quotations below $1.00 will remain at $0.0001.
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    \8\ If BRUT receives a ``sub-penny'' order priced at or above 
the threshold (i.e., at or above $5 today and $1 when the proposed 
rule becomes operational), BRUT automatically adjusts the price of 
such an order down (for bids) or up (for offers) to the nearest 
penny for display, execution, and routing purposes.
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    Nasdaq believes that reducing ``sub-penny'' quoting in BRUT will 
benefit investors for many of the same reasons cited by the Commission 
in its original Regulation NMS Proposing Release (the ``Regulation NMS 
Release''),\9\ which would similarly restrict sub-penny quoting to 
under-$1 securities. For example, this proposal would address the 
``hidden market'' problem of prices not being transparent to the 
general public, and it would decrease the incidence of ``flickering 
quotes'' and the attendant difficulties for members. In its Regulation 
NMS Release, the Commission analyzes in great detail the benefits of 
limiting sub-penny quoting, and Nasdaq agrees with this analysis.
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    \9\ Securities Exchange Act Release No. 49325 (February 26, 
2004), 69 FR 11126 (March 9, 2004).
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    Since the proposed rule change would bring BRUT's rules closer to 
the long-established NMC rules, Nasdaq believes that the proposed rule 
change should not be seen as controversial, and asks that the 
Commission waive the 30-day pre-operative period applicable to non-
controversial rule changes contained in Rule 19b-4(f)(6)(iii) under the 
Act.\10\
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    \10\ 17 CFR 240.19b-4(f)(6)(iii).
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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)(6) of the Act,\12\ in particular, in that it is designed 
to promote just and equitable principles of trade, and to remove 
impediments to and perfect the mechanism of a free and open market. 
Specifically, Nasdaq believes that the proposal would address the 
``hidden market'' problem of prices not being transparent to the 
general public, and would decrease the incidence of ``flickering 
quotes'' and the attendant difficulties for members.\13\
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    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(b)(6).
    \13\ Telephone conversation between Alex Kogan, Associate 
General Counsel, Nasdaq, and David Liu, Attorney, Division of Market 
Regulation, Commission, on January 3, 2005.
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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 foregoing proposed rule change is subject to Section 
19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) thereunder \15\ 
because the proposal: (i) does not significantly affect the protection 
of investors or the public interest; (ii) does not impose any 
significant burden on competition; and (iii) does not become operative 
prior to 30 days after the date of filing or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that Nasdaq has given the Commission 
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, 
or such shorter time as designated by the Commission.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq satisfied the five-day pre-filing requirement. In addition, 
Nasdaq has requested that the Commission waive the 30-day operative 
delay requirement to permit the proposed rule change to become 
operative on January 3, 2005. The Commission believes that accelerating 
the operative date is consistent with the protection of investors and 
the public interest because such acceleration will permit Nasdaq to 
lower the minimum quotation increment threshold for BRUT from $5.00 to 
$1.00, thereby more closely mirroring the minimum quotation increment 
applicable to NMC quotations. For this reason, the Commission 
designates the proposal to be effective upon filing with the Commission 
and operative as of January 3, 2005.\16\
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    \16\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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.\17\
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    \17\ See Section 19(b)(3)(C) of the Act, 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-2004-190 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-2004-190. 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 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

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should refer to File Number SR-NASD-2004-190 and should be submitted on 
or before January 31, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 05-396 Filed 1-7-05; 8:45 am]
BILLING CODE 8010-01-P