[Federal Register Volume 70, Number 55 (Wednesday, March 23, 2005)]
[Notices]
[Pages 14740-14742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1256]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51386; File No. SR-NASD-2005-031]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Regarding Modifications to the Nasdaq Opening Process for 
Nasdaq-Listed Stocks

March 16, 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 March 14, 2005, 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 
designated the proposed rule change as ``non-controversial'' under 
section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposed rule change 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 is filing a proposed rule change to modify NASD Rule 
4704(d)(1) which governs the dissemination of the Order Imbalance 
Indicator prior to the Nasdaq Opening Cross. The text of the proposed 
rule change is set forth below. Proposed new language is in italics; 
proposed deletions are in [brackets].\5\
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    \5\ The proposed rule change is marked to show changes from the 
rule text appearing in the NASD Manual available at http://www.nasd.com as amended by SR-NASD-2005-029 (March 4, 2005).
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* * * * *

Rule 4704 Opening Process for Nasdaq-Listed Securities

    (a)-(c) No Change.
    (d) Processing of Nasdaq Opening Cross. For certain Nasdaq-listed 
securities designated by Nasdaq, the Nasdaq Opening Cross shall occur 
at 9:30, and regular hours trading shall commence when the Nasdaq 
Opening Cross concludes.
    (1) Beginning at 9:25:30 a.m., Nasdaq shall disseminate by 
electronic means an Order Imbalance Indicator every 15 seconds until 
9:28:20[9], and then every 5 seconds until market open. The Order 
Imbalance Indicator shall contain the following real time information:
    (A)-(E) No Change.
    (2)-(4) 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.

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 NASD Rule 4704(d)(1) which governs 
the dissemination of the Order Imbalance Indicator prior to the Nasdaq 
Opening

[[Page 14741]]

Cross. NASD Rule 4704(d)(1) currently provides that Nasdaq will 
disseminate the Order Imbalance Indicator every 15 seconds beginning at 
9:25 a.m. and every 5 seconds beginning at 9:29 a.m. until market open. 
The Order Imbalance Indicator informs market participants about the 
expected outcome of the Nasdaq Opening Cross and enables them to 
determine how to participate in it. Nasdaq recently determined that 
disseminating the Order Imbalance Indicator beginning at 9:25 a.m. will 
enhance market transparency and encourage increased order interaction 
during the Nasdaq Opening Cross.
    Currently, Nasdaq's system opens all quotes and orders at 9:25 a.m 
via an unlocking/uncrossing process described in Rule 4704(b). The 
processing of the unlocking/uncrossing algorithm takes several seconds 
to complete. Under the recently published rule change,\6\ the first 
dissemination of the Order Imbalance Indicator at 9:25 a.m. could occur 
prior to the completion of the unlocking/uncrossing algorithm. This 
would defeat the transparency that Nasdaq continually strives to 
create. Accordingly, Nasdaq is proposing to disseminate the Order 
Imbalance Indicator at 9:25:30 a.m. rather than 9:25 a.m. as recently 
proposed. In addition, Nasdaq is proposing to increase transparency by 
disseminating the Order Imbalance Indicator every five seconds 
beginning at 9:28:20 a.m. rather than at 9:29 a.m.
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    \6\ See SR-NASD-2005-029 (March 4, 2005).
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    There would be no changes in the entry, display, processing, or 
execution of individual orders.
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 section 
15A(b)(6) requires, among other things, that a national securities 
association's rules be designed to protect investors and the public 
interest. Nasdaq believes that its current proposal is consistent with 
the NASD's obligations under these provisions of the Act because it 
would result in a more orderly opening for all Nasdaq stocks. The 
proposed rule change would create a fair, orderly, and unified opening 
for Nasdaq stocks, prevent the occurrence of locked and crossed markets 
in halted securities, and preserve price discovery and transparency 
that is vital to an effective opening of trading.
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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 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

    Nasdaq neither solicited nor received written comments with respect 
to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\ Nasdaq has requested that the 
Commission waive the five-day pre-filing notice requirement and the 30-
day operative delay for ``non-controversial'' proposals, based upon a 
representation that the proposal is of the utmost importance to the 
fair and orderly operation of The Nasdaq Stock Market during the pre-
opening trading period. The Commission believes that waiver of the 
five-day pre-filing requirement and the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it would allow Nasdaq immediately to implement the proposed 
rule change which should improve transparency in the pre-opening 
trading period. For this reason, the Commission designates the proposal 
to be effective and operative upon filing with the Commission.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ For purposes only of waiving the 30-day operative delay of 
the proposed rule change, the Commission 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 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.

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-2005-031 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-2005-031. 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-2005-031 and should be submitted on or before April 
13, 2005.


[[Page 14742]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1256 Filed 3-22-05; 8:45 am]
BILLING CODE 8010-01-P