[Federal Register Volume 70, Number 148 (Wednesday, August 3, 2005)]
[Notices]
[Pages 44711-44712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4122]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52148; File No. SR-NASD-2005-56]


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

July 28, 2005.
    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''), 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 to eliminate the Directed Order Process in the 
Nasdaq Market Center. On May 2, 2005, Nasdaq filed Amendment No. 1 to 
the proposed rule change. The proposed rule change was published for 
comment in the Federal Register on May 16, 2005.\3\ The Commission 
received no comments on the proposal.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 51668 (May 11, 
2005), 70 FR 25869 (``Notice'').
    \4\ The Commission notes that Nasdaq also proposed to eliminate 
the Directed Order Process in File No. SR-2004-181. The Commission 
has received one comment letter on that proposal. See letter to 
Jonathan G. Katz, Secretary, Commission, from Mary Yeager, Assistant 
Secretary, New York Stock Exchange, dated January 10, 2005. The 
comment letter raised issues regarding Nasdaq's application to 
register as a national securities exchange and did not specifically 
address any issues relating to the elimination of the Directed Order 
Process. The Commission expects Nasdaq to file an amendment to File 
No. S-NASD-2004-181 to reflect the Commission's approval of this 
proposed rule change.
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    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a registered securities association.\5\ In 
particular, the Commission believes that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act \6\ 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.
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    \5\ In approving this proposal, the Commission considered the 
proposed rule's impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78o-3(b)(6).
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    Nasdaq proposes to eliminate the Directed Order Process from the 
Nasdaq Market Center. The Directed Order Process, which replicates the 
SelectNet functionality that pre-dated the implementation of the Nasdaq 
Market Center, operates independent of the Non-Directed Order Process. 
Specifically, the Directed Order Process is used by members to 
negotiate trades and allows orders to be executed at prices inferior to 
the best prices displayed in the Nasdaq Market Center. In addition, 
because the Directed Order Process is not integrated within the order 
execution algorithm for the Non-Directed Order Process, Directed Order 
trades are executed without consideration of the price-time priority of 
orders in the Non-Directed Order Process.
    Because the Directed Order Process allows orders to bypass limit 
orders that have price priority and/or time priority, its elimination 
will enhance the protection of limit orders in the Nasdaq Market 
Center. Accordingly, the Commission believes that this proposed rule 
change may result in increased liquidity. In addition, the Commission 
notes that Nasdaq represented that it believes that it is now 
appropriate to retire the Directed Order Process from the Nasdaq Market 
Center in light of the recent elimination of Nasdaq's pre-open Trade-
or-Move requirements which obligated market participants to send 
Directed Orders containing a Trade-or-Move message.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-NASD-2005-056) be, 
and hereby is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).


[[Page 44712]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4122 Filed 8-2-05; 8:45 am]
BILLING CODE 8010-01-P