Federal Register / Vol. 62, No. 233 / Thursday, December 4, 1997 / Notices 64239

1 15 U.S.C. 78s(b)(1).

significant change in the types or

significant increase in the amounts of

any effluents that may be released

offsite.

2. The proposed amendment will not

result in a significant increase in

individual or cumulative occupational

radiation exposure.

For the reasons provided in the

assessment of criterion 1, the proposed

amendment will not significantly

increase the risk of a UF6 release.

Therefore, having a single pressure

switch in the ALRI set at +0.5 psig, as

opposed to having redundant pressure

switches, will not result in a significant

increase in individual or cumulative

occupational radiation exposures.

3. The proposed amendment will not

result in a significant construction

impact.

The proposed amendment does not

involve any construction, therefore,

there will be no construction impacts.

4. The proposed amendment will not

result in a significant increase in the

potential for, or radiological or chemical

consequences from, previously analyzed

accidents.

For the reasons provided in the

assessment of criterion 1, the proposed

amendment will not significantly

increase the risk of a release of UF6 or

of the products of its reaction with

steam. Therefore, having a single

pressure switch in the ALRI set at +0.5

psig, as opposed to having redundant

pressure switches, will not result in a

significant increase in the potential for,

or radiological or chemical

consequences from, previously analyzed

accidents.

5. The proposed amendment will not

result in the possibility of a new or

different kind of accident.

Based on the staff’s review of the

proposed amendment, no new or

different accidents were identified.

6. The proposed amendment will not

result in a significant reduction in any

margin of safety.

For the reasons provided in the

assessment of criterion 1, the proposed

amendment will not significantly

increase the risk of a release of UF6 or

of the products of its reaction with

steam. Based on the staff’s review of the

proposed amendment, the staff

concludes that there will be no

significant reduction of any margin of

safety.

7. The proposed amendment will not

result in an overall decrease in the

effectiveness of the plant’s safety,

safeguards, or security programs.

For similar reasons provided in the

assessment of criterion 1, the proposed

amendment will not significantly

increase the risk of a release of UF6 or

of the products of its reaction with

steam. In addition, the staff has not

identified any criticality related

implications from the proposed

amendment. Based on the staff’s review

of the proposed amendment, the staff

concludes that there will be no decrease

in the effectiveness of the overall plant’s

safety program.

The staff has not identified any

safeguards or security related

implications from the proposed

amendment. Therefore, the proposed

amendment will not result in an overall

decrease in the effectiveness of the

plant’s safeguards or security programs.

Effective date: The amendment to

GDP–2 will become effective 5 days

after issuance by NRC.

Certificate of Compliance No. GDP–2:

The amendment will revise the

Compliance Plan and the SAR.

Local Public Document Room

location: Portsmouth Public Library,

1220 Gallia Street, Portsmouth, Ohio

45662.

Dated at Rockville, Maryland, this 26th day

of November 1997.

For the Nuclear Regulatory Commission.

Carl J. Paperiello,

Director, Office of Nuclear Material Safety

and Safeguards.

[FR Doc. 97–31797 Filed 12–3–97; 8:45 am]

BILLING CODE 7590–01–P

NUCLEAR REGULATORY

COMMISSION

[Docket No. 72–22]

Private Fuel Storage Limited Liability

Company Establishment of Local

Public Document Room

Notice is hereby given that the

Nuclear Regulatory Commission (NRC)

has established a local public document

room (LPDR) for records pertaining to

Private Fuel Storage Limited Liability

Company’s (PFS) proposed independent

spent fuel storage facility (ISFSI) to be

constructed on the Skull Valley Goshute

Indian Reservation, Utah.

Members of the public may now

inspect and copy documents related to

the proposed ISFSI at the University of

Utah, Marriott Library, Documents

Division, 295 S. 1500 East, Salt Lake

City, Utah 84112–0860. The library

documents division is open on the

following schedule when school is in

session: Monday through Thursday 7:00

a.m. to 11:00 p.m.; Friday 7:00 a.m. to

5:00 p.m.; Saturday 9:00 a.m. to 5:00

p.m.; and Sunday 11:00 a.m. to 9:00

p.m. Confirm the hours of operation

during holiday and vacation periods.

For further information interested

parties in the Tooele County area may

contact the LPDR directly through Mr.

Lee Warthen, Documents Division,

telephone number (801) 581–8394.

Parties outside the service area of the

LPDR may address their requests for

records to the NRC’s Public Document

Room, Washington, DC 20555–0001,

telephone number toll-free 1–800–397–

4209.

Questions concerning the NRC’s local

public document room program or the

availability of documents should be

addressed to Ms. Jona Souder, LPDR

Program Manager, Freedom of

Information/Local Public Document

Room Branch, Information Management

Division, Office of the Chief Information

Officer, U.S. Nuclear Regulatory

Commission, Washington, DC 20555–

0001, telephone number (301) 415–7170

or toll-free 1–800–638–8081.

Dated at Rockville, Maryland, this 1st day

of December, 1997.

For the Nuclear Regulatory Commission.

Russell A. Powell,

Chief, Freedom of Information/Local Public

Document Room Branch, Information

Management Division, Office of the Chief

Information Officer.

[FR Doc. 97–31798 Filed 12–3–97; 8:45 am]

BILLING CODE 7590–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39366; File No. SR–NASD–

97–60]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change

Filed by the National Association of

Securities Dealers, Inc. Relating to

Trading Halts

November 26, 1997.

I. Introduction

On August 20, 1997, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Exchange Act’’) 1 the proposed rule

change, prepared by the Nasdaq Stock

Market, Inc. (‘‘Nasdaq’’), relating to

trading halts. The proposed rule change

was published for comment in

Securities Exchange Act Release No.

39196 (October 3, 1997), 62 FR 53361

(October 14, 1997) (‘‘Notice of Proposed

Rule Change’’). No comments were

received on the proposal. For the

reasons discussed below, the
64240 Federal Register / Vol. 62, No. 233 / Thursday, December 4, 1997 / Notices

2The ‘‘third market’’ is the market for exchangelisted securities away from exchange markets.

3 ITS/CAES is the NASD’s link to the Intermarket

Trading System (‘‘ITS’’), which is a system that

enables ITS/CAES market makers to trade certain

exchange-listed securities—known as SEC Rule

19c–3 securities—by allowing such market makers

to direct agency and principal orders to, and receive

orders from, other ITS members. SEC Rule 19c–3

prohibits off-board trading restrictions from

applying to securities that: (1) Were not traded on

an exchange before April 26, 1979; or (2) were

traded on an exchange on April 26, 1979, but

ceased to be traded on an exchange for any period

of time thereafter. (The Computer Assisted

Execution System (‘‘CAES’’) is the NASD’s

automated system that allows members to direct

principal and agency orders in exchange-listed

securities to CAES for automated execution in the

third market). Thus, pursuant to the ITS Plan,

trading in ITS/CAES is limited to SEC Rule 19c–3

securities and excludes those securities not subject

to SEC Rule 19c–3.

4The Consolidated Quotation System (‘‘CQS’’) is

a service that provides quotations of all

participating exchange specialists and market

makers on all securities listed on the New York

Stock Exchange and the American Stock Exchange,

and selected securities listed on the regional stock

exchanges.

5Thus, the proposed amendments would give

Nasdaq expanded authority to initiate operational

trading halts in the third market of SEC Rule 19c–

3 securities, as well as those securities not subject

to SEC Rule 19c–3.

Commission is approving the proposed

rule change.

II. Description

Nasdaq has proposed to amend NASD

Rule 4120 and IM–4120–1 to expand

Nasdaq’s trading halt authority and to

clarify procedures for initiating certain

trading halts. Rule 4120 currently sets

out the bases on which Nasdaq may

initiate trading halts. In addition to the

existing bases, the proposed

amendments authorize Nasdaq to: halt

trading in the third market of a

Consolidate Quotation System (‘‘CQS’’)

security when a national securities

exchange halts trading in such security

for operational reasons; halt trading in

a Nasdaq-listed security that is a

derivative or component of a CQS

security (such as a convertible bond,

warrant, or unit), when a national

securities exchange halts trading in the

underlying CQS security for operational

reasons; halt trading in an American

Depository Receipt (‘‘ADR’’) or other

Nasdaq-listed security when a national

or foreign securities exchange or

regulatory entity imposes a regulatory

trading halt in the security underlying

the ADR or the Nasdaq-listed security;

and halt trading when Nasdaq requests

from an issuer information relating to

material news or the issuer’s

compliance with Nasdaq listing

qualification requirements.

Additionally, the proposed amendments

clarify that the procedures in the rule

permit Nasdaq to initiate trading halts

when material information emanates

from a source other than the issuer.

First, the proposed amendments

expand Nasdaq’s existing authority to

initiate a trading halt in the third market

of an exchange-listed security when the

primary market initiates an operational

trading halt in such security.2 Rule

4120(a)(3) currently authorizes Nasdaq

to impose an operational trading halt in

those exchange-listed securities traded

through the ITS/CAES linkage.3 Under

the current rule, Nasdaq may initiate a

trading halt when there is an order

imbalance or influx in the security and

the primary market halts trading to

resolve operational issues. The

proposed amendments expand Nasdaq’s

authority and permit Nasdaq to halt

trading in all exchange-listed securities

traded in the third market (i.e., CQS

securities) 4—not just those securities

traded through the ITS/CAES linkage—

when a national securities exchange

initiates an operational trading halt in

the CQS security.5

In addition, the amendments

authorize Nasdaq to halt trading in an

exchange-listed security and which also

is a derivative or component of a CQS

security, when a national securities

exchange imposes an operational

trading halt in the CQS security, i.e.,

when a national securities exchange

halts trading in a CQS security for an

order imbalance. Currently, the Nasdaqlisted derivative security would not be

halted in conjunction with the

operational trading halt in the CQS

security, thus making it difficult for

market makers in the Nasdaq-listed

security to price accurately the

derivative security due to the lack of

current pricing information in the

underlying CQS security. That is,

because the primary market is

temporarily closed, price discovery is

not occurring in that venue, and market

makers must attempt to determine

pricing independent of the primary

market or may wait until the primary

market reopens to price their issues. The

proposed amendments, however, would

allow Nasdaq to halt trading in the

Nasdaq-listed security, such as a

Nasdaq-traded convertible bond whose

value is tied closely to an exchangelisted security, when a national

securities exchange initiates an

operational trading halt in a CQS

security. Similar to the current

provisions of Rule 4120(a)(3), the

proposed amendments permit CQS and

Nasdaq market makers to commence

quotations and trading at any time

following the initiation of the

operational trading halt. Nasdaq

believes that the proposed amendments

foster orderly markets and investor

protection because they allow Nasdaq to

halt trading—based on a national

securities exchange’s operational

trading halt—to allow market makers in

related issues to assess the situation and

determine the appropriate pricing of the

security.

Second, Rule 4120 is being amended

to authorize Nasdaq to halt trading in an

ADR or other Nasdaq-listed security,

when a national or foreign securities

exchange or regulatory authority, for

regulatory reasons, imposes a trading

halt in the security underlying the ADR

or the dually-listed (Nasdaq) security.

There are times when another exchange,

market, or regulatory entity—such as a

Canadian commission or European

market center with which a Nasdaq

company’s securities are registered or

listed—implements a regulatory trading

halt. These trading halts sometimes

occur because the issuer is delinquent

in making a required filing with the

national or foreign securities exchange

or regulatory entity, or the market or

regulatory entity halts trading in the

company’s stock for a violation of that

entity’s rules or regulations. For

example, an issuer, which is registered

as a reporting company with a Canadian

regulatory commission and which also

is a Nasdaq-listed company or has its

ADRs listed on Nasdaq, becomes

delinquent in its filings with the

Canadian commission. The Canadian

commission subsequently initiates a

trading halt in the issuer’s securities.

Currently, trading would continue on

Nasdaq even though regulatory concerns

prompted another regulatory entity to

halt trading in the issuer’s securities,

because the issuer is in compliance with

Nasdaq filing requirements. Under the

proposed amendments, however,

Nasdaq would now have the authority

to halt trading.

Specifically, the amendments

authorize Nasdaq to halt trading in an

ADR or other Nasdaq-listed security,

when the Nasdaq-listed security or the

security underlying the ADR is listed on

or registered with a national or foreign

securities exchange or market and

trading is halted in the security for

regulatory reasons by such exchange or

market, or regulatory authority

overseeing such exchange or market.

Thus, the amendments ensure investor

protection because they allow Nasdaq to

take coordinated action when another

market or regulatory authority identifies

a regulatory basis for halting trading in

an issue.

Third, Rule 4120(a)(1) currently

permits Nasdaq to halt trading in a

Nasdaq-listed security to permit the

dissemination of material news, and
Federal Register / Vol. 62, No. 233 / Thursday, December 4, 1997 / Notices 64241

6The proposed change to Rule 4120(a)(1)

specifies that trading in a Nasdaq-listed security

may be halted ‘‘to permit’’ the dissemination of

material news. (Rule 4120(a)(1) currently provides

that trading in a Nasdaq-listed security may be

halted ‘‘pending’’ the dissemination of material

news.) The rule is being amended to specifically

authorize Nasdaq to halt trading when material

news technically is not ‘‘pending,’’ but a trading

halt is necessary to protect investors and maintain

an orderly market. For example, there are instances

where Nasdaq is not advised of pending material

news, material news is disseminated partially, and

Nasdaq learns of such news, and Nasdaq quickly

determines that a halt is necessary to permit

complete dissemination of the material news.

Additionally, the amendments to Rule 4120(a)(1)

will bring it into parity with the language in Rule

4120(a)(2).

7 If the company initiating the unsolicited takeover bid is a Nasdaq issuer, that company, in

certain circumstances, may not be required to report

the take-over bid to Nasdaq if such information is

not material to the company. Thus, even if the

company initiating the bid is listed on Nasdaq,

Nasdaq may not be apprised of such information by

either the Nasdaq company which is initiating the

unsolicited take-over or the Nasdaq company which

is the target of the unsolicited take-over.

8Note that under the proposed amendments,

Nasdaq still is required to keep confidential all nonpublic information and use such information only

for regulatory purposes.

Rules 4120(b)(1)–(3) set out the

procedures for doing so.6 Specifically,

Rule 4120(b)(1) requires Nasdaq issuers

to inform Nasdaq of any material news

prior to the release of such information,

and Rule 4120(b)(3) authorizes Nasdaq

to evaluate information provided by the

issuer to determine if trading should be

halted prior to the release of such

information. Rule 4120(b)(3) does not

specifically set out procedures for

initiating a trading halt when Nasdaq is

advised of material news about a

particular Nasdaq issuer and such news

emanates from a source other than that

issuer. For instance, a Nasdaq issuer

may be subject to an unsolicited takeover bid by another company, of which

the Nasdaq-listed company is unaware.

In such instance, the acquiring issuer

might disseminate news about the

unsolicited take-over bid to the public;

thus, Nasdaq may learn of information

warranting a trading halt from a source

other than the Nasdaq issuer, such as a

news headline.7 The proposed

amendments to Rule 4120(b)(3) and IM–

4120–1 clarify that Nasdaq may halt

trading when Nasdaq learns of material

news about an issuer, regardless of

whether the news emanates from the

particular issuer or from another source.

Furthermore, proposed amendments to

Rule 4120(b)(3) reflect that Nasdaq may

halt trading without first consulting the

issuer about material news because it

may not be practicable or possible for

Nasdaq to do so, such as when material

news is released (without consultation

with Nasdaq) by a source other than the

issuer.

Next, the proposed amendments

permit Nasdaq to halt trading when

Nasdaq requests information from an

issuer relating to material news or

qualification matters. For example,

Nasdaq may be advised of material news

about an issuer which appears to be

factually inaccurate or incomplete. This

incomplete or inaccurate disclosure may

raise regulatory and listing qualification

issues (i.e., whether the issuer is in

compliance with all Nasdaq listing

requirements, as set out in the Rule

4300 and 4400 Series), which Nasdaq

staff would thoroughly investigate, i.e.,

when a Nasdaq-listed company issues a

press release making highly

questionable claims of a significant

discovery. The Nasdaq company is

unable to immediately substantiate the

basis for the claims, which raises

serious concerns with Nasdaq as to the

accuracy of the company’s public

statement. Accordingly, Nasdaq staff

determines that additional information

from the issuer is required to evaluate

whether the company’s public statement

is accurate or requires further

clarification. The proposed amendments

permit Nasdaq, upon the request of

certain information, to halt trading so

that it may determine whether

continued trading is advisable once the

information is received and reviewed.

Nasdaq is proposing to amend IM–

4120–1 to clarify that all trading halts

initiated under Rule 4120—not just

those imposed to permit the

dissemination of material news—

generally last one half hour, but may

last longer if necessary to permit the

dissemination of material news or if the

original or an additional basis under

Rule 4120(a) exits for continuing the

halt. Furthermore, the statement in IM–

4120–1 that Nasdaq will keep denials of

rumors confidential is deleted to reflect

Nasdaq’s policy of issuing press releases

indicating that MarketWatch has

reviewed unusual trading activity, has

contacted the issuer, and is not

initiating a halt because it has not been

advised of a basis for doing so.8

The proposed amendments also

include minor conforming changes to

both Rule 4120 and IM–4120–1. For

example, the procedures for halting

trading have been consolidated into a

revised Rule 4120(b)(4) in light of the

inclusion of the additional bases for

initiating trading halts. References in

Rule 4120 and IM–4120–1 to the

‘‘Association’’ and ‘‘Market Regulation

Department’’ have been replaced with

references to ‘‘Nasdaq’’ and

‘‘MarketWatch Department’’

respectively, to reflect that Nasdaq has

authority for trading halts under the

Plan of Allocation and Delegation of

Functions by NASD to Subsidiaries.

Changes to Rule 4120(b)(2) reflect that

issuers may notify MarketWatch of

material news by facsimile, as well as by

telephone—which is stated in the

accompanying footnote to the rule but

not in the rule text. Finally, references

in Rules 6350(b) and 6430(b) to

operational trading halts for ITS/CAES

market makers have been changed to

reflect that Rule 4120 will authorize

Nasdaq to initiate trading halts for CQS

market makers, as well as ITS/CAES

market makers.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Exchange Act

and the rules and regulations applicable

to the NASD and, in particular, with the

requirements of Section 15(b). In

particular, the Commission believes the

proposal is consistent with the Section

15A(b)(6) requirements that the rules of

a national securities association be

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to remove impediment to and

perfect the mechanism of a free and

open market and a national market

system, and, in general, to protect

investors and the public interest. In

addition, the Commission believes that

the proposed rule is consistent with

Section 15A(b)(11) that requires that

rules of the association be designed to

produce fair and informative quotations,

to prevent fictitious or misleading

quotations, and to promote orderly

procedures for collecting, distributing,

and publishing quotations.

The Commission believes NASD Rule

4120 and IM–4120–1 will benefit

investors because the expanded

authority to halt trading will give

Nasdaq third market makers the ability

to allow a national securities exchange

to adjust to an order imbalance or influx

to better determine the appropriate price

for a security. Third market makers will

no longer have a disparate requirement

to continuing pricing an exchange-listed

security when a competing specialist

has halted trading in that particular

security. Moreover, Nasdaq may now

also halt trading in a Nasdaq listed

security that is a derivative of a security

halted on a national securities exchange.

Nasdaq market makers will no longer be

required to price a derivative Nasdaq

listed security when no accurate pricing

information on the underlying security

is available from a national securities

exchange.
64242 Federal Register / Vol. 62, No. 233 / Thursday, December 4, 1997 / Notices

9 In approving this rule proposal, the Commission

notes that it has also considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. 78c(f).

10 15 U.S.C. 78s(b)(2).

11 17 CFR 300.30(a)(12).

1 15 U.S.C. 78s(b)(1).

2 62 FR 46787 (September 4, 1997).

3See letter from Steven Alan Bennett, Senior Vice

President and General Counsel, BankOne, to Mr.

Jonathan Katz, Secretary, SEC, dated September 25,

1997 (‘‘BankOne Letter’’); and letter from James E.

Buck, Senior Vice President and Secretary New

York Stock Exchange to Mr. Jonathan G. Katz,

Secretary, SEC, dated September 29, 1997 (‘‘NYSE

Letter’’).

4However, with the approval of Amendment No.

2 to the proposal, exchange-listed securities that are

included in the ITS/Computer Assisted Execution

System (‘‘CAES’’) linkage are not subject to the

NASD’s rule regarding permissible uses of

computer-generated quote systems.

5Quotations and quotation sizes in reported

securities may be entered into the Consolidated

Quotations Service (‘‘CQS’’) through The Nasdaq

Stock Market only by an Association member

registered with it as a CQS market maker. See

NASD Rule 6320.

6See NASD IM–4613. Specifically, these three

forms are: (1) Quotation updates in response to an

execution in the security by that firm (such as

execution of an order that partially fills a market

maker’s quotation size); (2) quotation updates that

In addition to Nasdaq’s expanded

authority to initiate operational trading

halts, the proposed rule change will

expand Nasdaq’s authority to initiate

regulatory trading halts when it learns

of regulatory concerns (either through a

regulatory trading halt by another

market or incomplete or inaccurate

disclosure from the issuer). The

Commission believes that Nasdaq’s

expanded authority will help prevent

fraudulent practices and protect

investors.

IV. Conclusion

For the foregoing reasons, the

Commission finds that the proposed

rule change is consistent with the

Exchange Act and the rules and

regulations thereunder applicable to the

NASD and, in particular, Sections

15A(b)(6) and 15A(b)(11).9

It is therefore ordered, pursuant to

Section 19(b)(2) of the Exchange Act 10

that the proposed rule change (SR–

NASD–97–60) be, and hereby is,

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–31753 Filed 12–3–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39367; File No. SR–NASD–

97–53]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving

Proposed Rule Change and Notice of

Filing and Order Granting Accelerated

Approval of Amendment No. 2 to

Proposed Rule Change Relating to

Trading in Exchange-Listed Securities

in the Third Market

November 26, 1997.

I. Introduction

On July 28, 1997, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly-owned subsidiary, The Nasdaq

Stock Market, Inc. (‘‘Nasdaq’’), filed

with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Exchange

Act’’).1 The proposed rule change

relating to automated quotations in

exchange-listed securities in the third

market, including Amendment No. 1,

was published for comment in

Securities Exchange Act Release No.

38985 (August 27, 1997).2 Two

comment letters were received on the

proposal.3 On October 10, 1997, the

NASD filed Amendment No. 2, prepared

by Nasdaq, which deferred the proposal

for permissible uses of automated

quotations with respect to exchangelisted securities included in the

Intermarket Trading System (‘‘ITS’’). For

the reasons discussed below, the

Commission is approving the proposed

rule change and granting accelerated

approval to Amendment No. 2.

II. Description of the Proposal

The NASD’s proposal included

changes to several rules governing the

trading in exchange-listed securities in

the over-the-counter market, the socalled ‘‘third market.’’ Specifically, the

NASD proposedl to amend rules of the

NASD to: (1) Codify permissible uses of

computer-generated quote systems with

respect to exchange-listed securities;4

(2) eliminate the excess spread rule for

market makers in exchange-listed

securities; (3) reduce the minimum

quotation size applicable to market

makers in exchange-listed securities to

one unit of trading (i.e., 100 shares),

regardless of whether the CQS market

maker 5 is displaying a customer’s limit

order or quoting for its own proprietary

account; (4) extend exemptive

provisions of the NASD’s limit order

protection rule applicable to Nasdaqlisted securities (the ‘‘Manning Rule’’) to

exchange-listed securities; and (5)

reduce from 1000 to 100 the number of

shares that CAES will execute

automatically.

a. Permissibility of the Use of Certain

Automated Quotation Generation

Systems

The plan governing the ITS Plan

currently provides that exchange

specialists and CQS market makers may

use ‘‘automated quotation tracking

systems,’’ provided that the quotations

generated by such systems are for 100

shares or less (‘‘100-Share Autoquoting

Limitation’’). Despite the ITS plan’s

allowance of 100-share autoquotes, the

NASD currently prohibits CQS market

makers from using autoquote systems to

effect automated quote updates or to

track the inside market. In addition, the

NASD currently requires CQS market

makers to maintain a minimum

quotation size of 500 shares, with the

exception of displaying a customer limit

order, which also effectively prohibits

CQS market makers from autoquoting.

The NASD’s proposal explicitly

accommodates computer-generated

quotations that add value to the market

and do not raise quotation accessibility

concerns or compromise the capacity or

integrity of Nasdaq. Specifically, the

proposed rule change amends NASD

Rule 6330 to permit computer-generated

quotations in exchange-listed securities

that generate proprietary quotes for 100

shares or more if such quote systems

equal or improve either or both sides of

the NBBO. For example, if a CQS market

maker utilized a computer-generated

quotation program to match the best

offer (bid) and the market responsible to

the best offer (bid) subsequently

increased (decreased) its offer (bid)

price, the CQS market maker could not

use the program to track such inferior

price. Thus, if the best offer is 201⁄4, a

CQS market maker could use the

program to improve its offer to 201⁄4. If

the market responsible for the 201⁄4 offer

moved to 203⁄8, however, the CQS

market maker could not use the program

to move its offer to 203⁄8.

In addition, the proposed rule change

amends Rule 6330 to permit computergenerated quotations that add size to the

NBBO, or are used to expose a

customer’s market or marketable limit

order for price improvement

opportunities. These uses would be in

addition to three other forms of

computer-enhanced quotation

maintenance programs referenced in the

NASD’s Autoquote Policy which are

also being incorporated into Rule 6330

with respect to exchange-listed

securities.6 With the exception of these