[Federal Register Volume 70, Number 93 (Monday, May 16, 2005)]
[Notices]
[Pages 25869-25871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2399]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51668; File No. SR-NASD-2005-056]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendment No. 1 Thereto, National Association of Securities 
Dealers, Inc. Eliminating the Directed Order Process in The Nasdaq 
Market Center

May 9, 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 April 21, 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, II, 
and III below, which Items have been prepared by Nasdaq. On May 2, 
2005, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ The 
Commission is publishing this notice, as amended, 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\ In Amendment No. 1, Nasdaq amended NASD Rule 7010 to reflect 
the proposed elimination of the Directed Order Process.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq is filing a proposed rule change to eliminate the Directed 
Order Process from the Nasdaq Market Center.\4\ Nasdaq will implement 
the proposed rule change within 90 days of approval with the exact date 
being provided to market participants via a Head Trader Alert on http://www.nasdaqtrader.com. The text of the proposed rule change is 
available on Nasdaq's Web site (http://www.nasdaq.com/LegalCompliance.stm), at Nasdaq's principal office, and at the 
Commission's Public Reference Room.
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    \4\ Nasdaq notes it has previously filed to eliminate the 
Directed Order Process as part of File No. NASD-2004-181. See 
Securities Exchange Act Release No. 50845, (December 13. 2004), 69 
FR 76022 (December 20, 2004). Nasdaq will amend NASD-2004-181 to 
reflect the proposed elimination of the Directed Order process in 
the immediate filing.

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[[Page 25870]]

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 eliminate the Directed Order process from 
the Nasdaq Market Center. The Directed Order Process replicates 
SelectNet functionality that pre-dated the implementation of Nasdaq's 
SuperMontage system (since re-named the Nasdaq Market Center). Directed 
Orders are not integrated with the Non-Directed Order process and are 
processed independently of Non-Directed Orders in the Nasdaq Market 
Center.
    Currently, member A can send a Directed Order to sell to member B, 
who is displaying quotes in the Nasdaq Market Center. 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 the Nasdaq Market Center. 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.
    The maintenance of a separate order delivery processing 
infrastructure for Directed Orders, outside of the Nasdaq Market 
Center's main Non-Directed Order process, increases costs and system 
complexity for Nasdaq. In addition, the current ability of Directed 
Orders to be processed without regard for the best prices displayed in 
the Nasdaq Market Center, or the time priority of other orders in the 
system, impairs the overall trading efficiency of the system and 
Nasdaq's ongoing efforts to enhance price/time priority within the 
Nasdaq Market Center. Finally, given recent elimination of Nasdaq's 
pre-open Trade-or-Move requirements that obligated market participants 
to send Directed Orders containing a Trade-or-Move messages, Nasdaq 
feels that now is an appropriate time to eliminate the Directed Order 
Process from the Nasdaq Market Center.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\5\ in general and with 
Section 15A(b)(6) of the Act,\6\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to 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. Nasdaq believes that 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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    \5\ 15 U.S.C. 78o-3.
    \6\ 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.

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, as amended, 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-2005-056 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-2005-056. 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-2005-056 and 
should be submitted on or before June 6, 2005.


[[Page 25871]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-2399 Filed 5-13-05; 8:45 am]
BILLING CODE 8010-01-P