[Federal Register Volume 70, Number 100 (Wednesday, May 25, 2005)]
[Notices]
[Page 30166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2605]



[[Page 30166]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51703; File No. SR-NASD-2004-033]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving a Proposed Rule Change and Amendment 
Nos. 1, 2, and 3 Thereto Seeking to Modify the Nasdaq Market Center 
Execution Service To Add an Optional Routing Feature

May 18, 2005.

I. Introduction

    On February 25, 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''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change seeking to modify the Nasdaq 
Market Center execution service to add an optional routing feature. On 
July 15, 2004, Nasdaq submitted Amendment No. 1 to the proposed rule 
change.\3\ On February 23, 2005, Nasdaq submitted Amendment No. 2 to 
the proposed rule change.\4\ On April 7, 2005, Nasdaq submitted 
Amendment No. 3 to the proposed rule change.\5\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on April 13, 2005.\6\ The Commission received no comments on the 
proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the originally filed 
proposed rule change.
    \4\ Amendment No. 2 replaced and superseded the originally filed 
proposed rule change, as amended.
    \5\ Amendment No. 3 replaced and superseded the originally filed 
proposed rule change, as amended.
    \6\ See Securities Exchange Act Release No. 51504 (April 7, 
2005), 70 FR 19538 (April 13, 2005) (SR-NASD-2004-033).
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II. Description

    Nasdaq has proposed to modify the Nasdaq Market Center execution 
service to create an optional outbound order routing feature that will 
route orders in Nasdaq-listed securities to other markets when those 
markets are displaying quotes at prices superior to those displayed on 
Nasdaq and that are accessible through the router.\7\ Under the 
proposal, Nasdaq Market Center Participants will be able to choose on 
an order-by-order basis whether they want an order routed outside the 
Nasdaq Market Center. Such routed orders will be executed pursuant to 
the rules and regulations of the destination market. If more than one 
market is at a price level that is superior to Nasdaq's displayed 
price, the computer algorithm of the Nasdaq Market Center router will 
determine the market, or markets, to which the order will be sent, 
based on several factors including the number of shares being 
displayed, response time, likelihood of undisplayed trading interest, 
and the cost of accessing the market. If an order (or a portion of the 
order) remains unfilled after being routed, it will be returned to 
Nasdaq where, if the order is marketable, it will be returned to the 
Non-Directed Order processing queue, where it can be executed in 
Nasdaq, or routed again, if Nasdaq is not at the best price when the 
order is next in line in the processing queue. Once a routed limit 
order is no longer marketable, whether it becomes non-marketable upon 
return to Nasdaq or while in the execution queue, it will be placed on 
the Nasdaq Market Center book, if consistent with the order's time in 
force condition. Once on the book, however, an order will not be routed 
out of the Nasdaq Market Center, even if it becomes marketable against 
the quotes of another market.
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    \7\ Under the proposal, Nasdaq will access the quotes of 
exchanges through its broker-dealer subsidiary, Brut. See Securities 
Exchange Act Release No. 51326 (March 7, 2005), 70 FR 12521 (March 
14, 2005).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a self-regulatory 
organization.\8\ In particular, the Commission believes that the 
proposed rule change, as amended, is consistent with Section 15A(b)(6) 
of the Act,\9\ which requires, among other things, that NASD's rules be 
designed to protect investors and the public interest.
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    \8\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(6).
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    The Commission notes that the proposed routing functionality is an 
optional feature and that Nasdaq Market Center Participants will be 
able choose whether or not to participate in routing on an order-by-
order basis. The Commission also notes that orders flagged for routing 
will only in fact route when a superior price is available in another 
market that is accessible through the router. Therefore, the Commission 
believes that the proposed outbound order routing feature should help 
investors to reach better prices available outside the Nasdaq Market 
Center and thereby enhance the national market system.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-NASD-2004-033), as 
amended, be, and hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2605 Filed 5-24-05; 8:45 am]
BILLING CODE 8010-01-P