[Federal Register Volume 70, Number 149 (Thursday, August 4, 2005)]
[Notices]
[Pages 44960-44961]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4134]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52156; File No. SR-NASD-2005-091]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Regarding the 
Nasdaq Opening Process for Initial Public Offerings

July 28, 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 July 20, 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 proposal as described in Items I, II, and III 
below, which Items have been prepared by Nasdaq. Nasdaq filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 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 the 
Substance of the Proposed Rule Change

    Nasdaq is filing a proposed rule change to modify Rule 4704(c)(1) 
to improve the opening of stocks that are the subject of an Initial 
Public Offering. Nasdaq has designated this proposal as non-
controversial and has provided the Commission with a written 
description of the proposal in accordance with Rule 19b-4(f)(6)(iii) 
under the Act.\5\ This rule proposal, which is effective upon filing 
with the Commission, would become operative on August 22, 2005.
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    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.\6\
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    \6\ Changes are marked to the rule text that appears in the 
electronic NASD Manual found at the NASD Web site at (http://www.nasd.com).
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* * * * *

Rule 4704 Opening Process for Nasdaq-listed Securities

    (a)-(b) No Change.
    (c) Nasdaq-listed securities [that are not designated by Nasdaq to 
participate in the] in which no Nasdaq Opening Cross occurs shall begin 
trading at 9:30 a.m. or, in the case of Nasdaq-listed securities in 
which trading is halted pursuant to Rule 4120(a), at the time specified 
by Nasdaq pursuant to Rule 4120 in the following manner:
    (1) At 9:30 or at the time specified by Nasdaq pursuant to Rule 
4120 the system shall suspend processing as set forth in paragraph (b) 
in order to open and integrate Regular Hours orders into the book in 
time priority; provided, however, that in the case of an Initial Public 
Offering halted pursuant to Rule 4120(a)(7), the Issuer's Initial 
Public Offering Price shall be entered on the bid side of the market as 
the oldest quotation.
    (2)-(4) No Change.
    (d) 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
    Rule 4704(c)(1) currently provides that at 9:30 a.m. the system 
shall stop processing according to the pre-opening instructions set 
forth in Rule 4704(b) and begin to construct the Nasdaq book for the 
opening of trading. In the case of an Initial Public Offering 
(``IPO''), the first step in that process is to add quotes and orders 
in that security to the Nasdaq book in time priority.
    Nasdaq has determined that the process currently set forth in Rule 
4704(c) as applied to IPOs can be improved by programmatically entering 
the Issuer's Public Offering Price as the first quotation on the bid 
side of the market. The current process can create unnecessary 
volatility in an IPO because, unlike other securities, there are no 
existing quotes and orders in the Nasdaq book against which to 
integrate new quotes and orders. Due to this lack of a baseline against 
which new quotes and orders are measured before entry, the first quotes 
entered into the system for an IPO can vary significantly even in 
instances where the security ultimately opens at or near the IPO price. 
As a result, the initial executions in an IPO, even successive 
executions, can vary significantly from each other and can create the 
appearance of volatility.
    By entering the Issuer's Public Offering Price as the first 
quotation on the bid side of the market, Nasdaq hopes to provide a 
baseline against which subsequent quotes would be measured and thereby 
reduce the potential for volatility at the open. This should happen in 
two ways. First, displaying a quotation at the Issuer's Public Offering 
Price should encourage market participants to enter quotations and 
orders that are marketable at that price. Second, the execution 
sequence at the opening of trading would start from the Issuer's Public 
Offering Price and revolve around that price, rather than potentially 
starting from an extreme price and moving towards the Issuer's price.
    This proposal represents a minor technical enhancement to Nasdaq's 
systems because Nasdaq already enters the Issuer's Public Offering 
Price into its systems. Nasdaq currently enters the Issuer's Public 
Offering Price as the previous day's closing price for an IPO, and uses 
it as the baseline for calculating the daily price percentage change 
for the IPO. Because the Issuer's Public Offering Price already resides 
within Nasdaq systems as the oldest entered price, it is a minor 
technical change to display that price as a quotation and to execute it 
in the approved opening process.
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 it is

[[Page 44961]]

designed, among other things, to protect investors and the public 
interest. Nasdaq believes that the 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 stocks that are the subject 
of an Initial Public Offering. The proposed rule change would decrease 
volatility during an important period of trading while preserving 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 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 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\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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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-2005-091 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASD-2005-091. 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-2005-091 and should be submitted on or before 
August 25, 2005.\11\

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4134 Filed 8-3-05; 8:45 am]
BILLING CODE 8010-01-P