[Federal Register Volume 70, Number 114 (Wednesday, June 15, 2005)]
[Notices]
[Pages 34803-34804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3078]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51810; File No. SR-NASD-2005-069]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Multiple Market Participant Identifiers

June 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 May 25, 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 
(``SEC'' or ``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 as a ``non-controversial'' rule change pursuant 
to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders it 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 re-establish two pilot programs that provide 
market participants who execute transactions in Nasdaq and exchange-
listed securities through its systems the ability to display trading 
interest using up to 10 individual MPIDs. The text of the proposed rule 
change is available on the Nasdaq's Web site (http://www.nasdaq.com), 
at the Nasdaq's Office of the Secretary, and at the Commission's Public 
Reference Room.

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
    As set forth in more detail below, Nasdaq is proposing to re-
establish two pilot programs that inadvertently were permitted to lapse 
on March 1, 2005. On March 1, 2004, Nasdaq submitted to the Commission 
SR-NASD-2004-037 \5\ establishing the ability of ECNs and market makers 
in Nasdaq securities to use up to 10 individual Market Participant 
Identifiers (``MPIDs'') to display attributable quotes and orders in 
the Nasdaq Quotation Montage. On July 29, 2004, Nasdaq submitted to the 
Commission SR-NASD-2004-097,\6\ which created this same capability for 
ECNs and market makers using Nasdaq systems to quote and trade 
exchange-listed securities. MPIDs for Nasdaq and exchange-listed 
securities are allocated and, when Nasdaq is reaching technological 
limits for displayed, attributable MPIDs, re-allocated using the same 
procedures.\7\ An additional MPID is known as a ``Supplemental MPID'' 
with a market maker's or ECN's first MPID being known as the ``Primary 
MPID.'' On September 1, 2004, Nasdaq submitted SR-NASD-2004-134 which 
extended both pilots through March 1, 2005.\8\ Nasdaq is proposing to 
re-establish the pilot programs through November 30, 2005.
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    \5\ Securities Exchange Act Release No. 49471 (March 25, 2004), 
69 FR 17006 (March 31, 2004).
    \6\ Securities Exchange Act Release No. 50140 (August 3, 2004), 
69 FR 48535 (August 10, 2004).
    \7\ Under those procedures, rankings are based only on the 
volume associated with a member's Supplemental MPID--Primary MPIDs 
will be excluded from the calculation. The member with lowest volume 
using a Supplemental MPID will continue to be the first to lose the 
display privilege, but only with respect to the Supplemental MPID 
that caused the member to have the lowest ranking; the member will 
not lose its authority to use the Supplemental MPID in that security 
to submit quotes and orders to SIZE or the display privileges 
associated with that Supplemental MPID with respect to other 
securities in which it is permitted to use the identifier. When re-
allocating the display privileges, requests for Primary MPIDs will 
continue to receive precedence over requests for Supplemental MPIDs.
    \8\ Securities Exchange Act Release No. 50434 (Sept. 23, 2004), 
69 FR 58564 (Sept. 30, 2004).
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    The purpose of providing Supplemental MPIDs is to provide quoting 
market participants a better ability to organize and manage diverse 
order flows from their customers and to route orders and quotes to 
Nasdaq's listed trading facilities from different units/desks. To the 
extent that this flexibility provides increased incentives to provide 
liquidity to Nasdaq systems all market participants can be expected to 
benefit.\9\
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    \9\ Nasdaq assesses no fees for the issuance or use of a 
Supplemental MPIDs other than the SEC-approved transaction fees set 
forth in NASD Rule 7010.
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    The restrictions on the use of any Supplemental MPID are the same 
as those applicable to a Primary MPID. Regardless of the number of 
MPIDs used, NASD members will trade exchange-listed securities using 
Nasdaq systems in compliance with all pre-existing NASD and SEC rules 
governing the trading of these securities. There are only two 
exceptions to this general principle. First, the continuous quote 
requirement and the need to obtain an excused withdrawal, or functional 
excused withdrawal, as described in Rule 5220(e), as well as the 
procedures described in Rule 4710(b)(2)(B) and (b)(5), do not apply to 
Supplemental MPIDs; Second, only one MPID may be used to engage in 
passive market making or to enter stabilizing bids pursuant to NASD 
Rules 4614 and 4619. In all other respects, market makers and ECNs will 
have the same rights and obligations in using a Supplemental MPID to 
enter quotes and orders and to display quotations, as they do today.

[[Page 34804]]

    The granting of Supplemental MPIDs is secondary to the integrity of 
the Nasdaq system trading those issues. As such, ECNs and market makers 
may not use a Supplemental MPID(s) to accomplish indirectly what they 
would be prohibited from doing directly through a single MPID. For 
example, members will not be permitted to use a Supplemental MPID to 
avoid their Manning or best execution obligations or their obligations 
under the SEC Order Handling Rules, the firm quote rule, the OATS 
rules, and the SEC order routing and execution quality disclosure 
rules. To the extent that the allocation of Supplemental MPIDs creates 
regulatory confusion or ambiguity, every inference will be drawn 
against the use of Supplemental MPIDs in a manner that would diminish 
the quality or rigor of the regulation of the Nasdaq market. 
Accordingly, if it is determined that a Supplemental exchange-listed 
MPID is being used improperly, Nasdaq will withdraw its grant of the 
Supplemental MPID for all purposes for all securities.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\10\ in general and with 
Section 15A(b)(6) of the Act,\11\ 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. In particular, the use of 
multiple MPIDs in listed securities can be expected to provide greater 
flexibility in the processing of diverse orders flows thereby improving 
overall system liquidity for the benefit of all market participants.
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    \10\ 15 U.S.C. 78o-3.
    \11\ 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

    Because the foregoing rule change (1) does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not 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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii), a proposed ``non-controversial'' 
rule change does not become operative for 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.\14\ Nasdaq has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change as immediately 
operative.
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\15\ The proposal will make available a functionality that has 
been widely adopted by Nasdaq market participants and that has, in 
Nasdaq's view, improved liquidity and transparency within the Nasdaq 
market center since its inception. According to Nasdaq, to deny the 
waiver of the 30-day implementation delay would require widespread re-
programming to decommission multiple MPIDs, imposing great cost on 
market participants. For this reason, the Commission designates the 
proposal to be effective and operative upon filing with the Commission.
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    \15\ 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 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, 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-2005-069 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

    All submissions should refer to File Number SR-NASD-2005-069. 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-2005-069 and 
should be submitted on or before July 6, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3078 Filed 6-14-05; 8:45 am]
BILLING CODE 8010-01-P