[Federal Register Volume 70, Number 149 (Thursday, August 4, 2005)]
[Notices]
[Pages 44961-44963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4150]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52170; File No. SR-NASD-2005-090]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 Thereto To Modify Brut's Directed Cross 
Order Routing Process

July 29, 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 19, 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 and 
II below, which Items have been prepared by Nasdaq. On July 28, 2005, 
Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ Nasdaq has 
designated the proposed rule change as constituting a non-controversial 
rule change under Rule 19b-4(f)(6) under the Act,\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, 
as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaces the original filing in its 
entirety. See Amendment No. 1. The effective date of the original 
proposed rule change is July 19, 2005, and the effective date of the 
amendment is July 28, 2005. For purposes of calculating the 60-day 
period within which the Commission may summarily abrogate the 
proposed rule change, as amended, under Section 19(b)(3)(C) of the 
Act, the Commission considers the period to commence on July 28, 
2005, the date on which the Exchange submitted Amendment No. 1. See 
15 U.S.C. 78s(b)(3)(C).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify how Directed Cross Orders are processed 
on its Brut Facility. Under the proposal, Brut Directed Cross Orders in 
exchange-listed securities that are directed to the New York Stock 
Exchange (``NYSE'') will first be routed to the Nasdaq Market Center 
for potential execution and thereafter to venues that provide automated 
electronic executions before being sent to the NYSE. Nasdaq will 
implement the proposed rule change on or about July 28, 2005, with the 
exact

[[Page 44962]]

date being provided to market participants via a Head Trader Alert on 
www.nasdaqtrader.com.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].

4903. Order Entry Parameters

    (a) No change.
    (b) Brut Cross Orders--
    (1) General. A Brut Cross Order is an order that is displayed in 
the System, and is executable against marketable contra-side orders in 
the System. The order also is eligible for routing to other market 
centers. If marketable upon receipt against both orders in the System 
as well as other market centers, the order shall execute first against 
System orders. With the exception of Directed Cross Orders, once a Brut 
Cross Order is routed (in whole or in part) to another market center, 
any remaining unexecuted or returned portion of the order shall be 
posted in System and shall no longer be eligible for routing to other 
market centers. Directed Cross Orders in exchange-listed securities 
directed to the New York Stock Exchange shall remain at the exchange 
until executed or cancelled by the entering party.
    (A)-(C) No change.
    (D) A Brut Cross Order may also be designated as a Directed Cross 
Order. A Directed Cross Order is an order that entered in the System 
during market hours and is executable against marketable contra-side 
orders in the System. The order also is eligible for routing to other 
market centers. [If,] [a]After being processed in the Brut System and 
exhausting available liquidity in the Brut System, the order is 
automatically routed by Brut to the specific market center selected by 
the entering party for potential execution. Any portion of the Directed 
Cross Order that remains unfilled after being routed to the selected 
market center will be returned to the entering party. For Directed 
Cross Orders in exchange-listed securities directed to the New York 
Stock Exchange if, after being processed in the Brut System and 
exhausting available liquidity in the Brut System, such orders will be 
automatically routed to the Nasdaq Market Center for potential 
execution and thereafter to other market centers that provide automated 
electronic executions before being sent to the New York Stock Exchange. 
Directed Cross Orders in exchange-listed securities directed to the New 
York Stock Exchange shall remain at the exchange until executed or 
cancelled by the entering party.
    (E) Brut Cross Orders, including those designated as Aggressive 
Cross Orders, Super Aggressive Cross Orders and Directed Cross Orders, 
shall be executed pursuant to:
    (i) The [To] Brut Book Order Process described in Rule 4905(a) to 
the extent marketable against an order resident in the System; and
    (ii) With the exception of Directed Cross Orders, the Brut Order 
Routing Process described in Rule 4905(b) to the extent not marketable 
against an order resident in the System.
    (F) No change.
    (c)-(f) No change.
* * * * *

4905. Order Processing

    (a) Brut Book Order Process
    Orders subject to the Brut Book Order Process shall be executed as 
follows:
    (1)-(3) No change.
    (4) Processing of Directed, Aggressive and Super Aggressive Cross 
Orders--The System shall process crossed Directed and Aggressive Cross 
Orders, and locked or crossed Super Aggressive Cross Orders as follows:
    (A) Displayed orders which are designated as ``Directed Cross 
Orders'' by a Participant shall be routed [to the market center 
selected by the entering party for potential execution by the System] 
as described in Rule 4903(b)(1)(D). This order type is available for 
Nasdaq-listed and Exchange-listed securities.
    (B)-(C) No change.
    (b) 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
    Currently, a Brut Directed Cross order attempts to access any 
marketable liquidity within the Brut system before routing to the 
market center specified by the entering party as the final destination 
for the order. In this filing, Nasdaq proposes to modify the Brut 
Directed Cross Order process for orders in exchange-listed securities 
so that an order in an exchange-listed security for which the entering 
party designates the New York Stock Exchange (``NYSE'') as the final 
destination will, after interacting with the Brut system, first be 
routed for potential execution to the Nasdaq Market Center, and 
thereafter to other market centers that provide automated electronic 
executions, before being sent to the NYSE.\5\ The routing priority of 
market centers other than Brut and the Nasdaq Market Center, will be 
based on the existence of appropriate linkages to those market centers 
as well as factors such as the response times and fees of the 
destination markets. The ranking of such intermediate destination 
electronic market centers may be adjusted on a real-time basis at 
Brut's discretion based on the above, or other, factors.
---------------------------------------------------------------------------

    \5\ In addition, the proposal corrects Nasdaq Rule 
4903(b)(1)(E)(i) to make clear that BRUT Cross Orders are processed 
using the Brut Book Order Process.
---------------------------------------------------------------------------

    Nasdaq believes that by increasing the interaction of exchange-
listed Directed Cross Orders with venues that provide automated 
electronic executions, the proposal will improve the overall speed and 
efficiency of executing such orders.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\6\ in general and with 
Section 15A(b)(6) of the Act,\7\ in particular, in that it is designed 
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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78o-3.
    \7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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.

[[Page 44963]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has been filed by Nasdaq as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\8\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\9\ Consequently, 
because the foregoing rule change does not:
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    (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 of filing, 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 and Rule 19b-
4(f)(6) thereunder.\10\
---------------------------------------------------------------------------

    \10\ Rule 19b-4(f)(6) under the Act also requires a self-
regulatory organization to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
NASD complied with this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. Nasdaq has requested that the 
Commission waive the 30-day pre-operative period, which would make the 
proposed rule operative immediately.
    The Commission believes that it is consistent with the protection 
of investors and the public interest to waive the 30-day pre-operative 
period in this case.\11\ Allowing the rule change to become operative 
immediately should permit Nasdaq to provide Brut users the benefits of 
enhanced routing functionality as soon as possible.\12\ Consequently, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
---------------------------------------------------------------------------

    \11\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \12\ The Commission notes that Nasdaq intends the proposed rule 
to enhance the speed and efficiency of order execution by increasing 
the opportunity for orders to be executed through automated 
electronic trading venues and notes that use of the Brut system and 
the Directed Cross Order is voluntary.
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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-2005-090 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-2005-090. 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-2005-090 and 
should be submitted on or before August 25, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4150 Filed 8-3-05; 8:45 am]
BILLING CODE 8010-01-P