30252 Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices

3See Securities Exchange Act Release No. 43112

(August 3, 2000), 65 FR 49040 (August 10, 2000)

(SR–CBOE–2000–28).

4See Securities Exchange Act Release No. 44095

(March 23, 2001), 66 FR 17459 (March 30, 2001)

(SR–CBOE–2001–09).

5For purposes of this filing, the term

‘‘spread’’means an options transaction involving the

simultaneous purchase and/or sale of one or more

contracts of at least two different series of the same

class of options (i.e., options covering the same

underlying security), which transaction is executed

at limit or market prices on the floor of the

Exchange. E-mail from Chris Hill, Attorney, CBOE,

to Cyndi Nguyen, Attorney, SEC, dated May 18,

2001.

6 In a ‘‘buy write,’’ a market maker buys stock and

sells calls of a given series in a 1-to-1 ratio, creating

the equivalent of a sale of puts of the same series.

A ‘‘synthetic’’ is the opposite: The market maker

sells stock and buys calls in a 1-to-1 ratio, creating

the equivalent of a purchase of puts of the same

series.

7For purposes of marketing fee waivers, the

CBOE defines ‘‘deep in the money’’ options as

options that are ‘‘in the money’’ by a minimum of

both $10 and 20% of the closing value of the

underlying security on either the trade date or the

date immediately prior to the trade date.

8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(4).

10 15 U.S.C. 78s(b)(3)(A)(ii).

11 17 CFR 240.19b–4(f)(2).

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Last year CBOE imposed a $.40 per

contract marketing fee to collect funds

that the appropriate Designated Primary

Market Maker (‘‘DPM’’) may use for

marketing its services and attracting

order flow to the CBOE.3 Initially, this

fee was applicable to all market-maker

to market-maker options transactions.

Thereafter, the Exchange determined

that the fee was making it unprofitable

for market makers to do reversal and

conversion transactions, in which a

market maker trades a given amount of

an underlying security against an

equivalent number of call/put ‘‘combos’’

through buying the call and selling the

put (or vice versa) in equal quantities

with the same strike price in the same

expiration month. The Exchange

therefore amended its marketing fee to

waive the fee in the case of call/put

combo transactions used in reversals

and conversions.4

The Exchange is now filing this rule

change proposal to exempt certain

‘‘spreads’’ 5 as well as ‘‘by write’’ and

‘‘synthetic’’ transactions 6 involving

‘‘deep in the money’’ 7 options. In the

CBOE’s view, these transactions, like

reversals and conversions, enable

popular trading strategies that

contribute to market liquidity, but they

usually have smaller profit margins than

other types of trades. The CBOE believes

that, when the $.40 marketing fee is

imposed upon the call/put combo

transactions, the trades may become

unprofitable.

Consequently, the Exchange has

decided to exempt from the marketing

fee all buy-write and synthetic

transactions involving at least 200 deepin-the-money options contracts for a

particular class, as well as spread

transaction involving a total of at least

400 deep-in-the-money option contracts

for a particular class. The Exchange will

use trade data to determine qualifying

transactions, and may require market

makers to submit documentation

showing that specific trades qualify for

the exemption.

2. Statutory Basis

The CBOE believes the proposed rule

change is consistent with Section 6(b) of

the Act 8 in general, and furthers the

objectives of Section 6(b)(4) 9 in

particular, in that it is designed to

provide for the equitable allocation of

reasonable dues, fees, and other changes

among CBOE members.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CBOE does not believe that the

proposed rule change will impose any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The CBOE neither solicited nor

received written comments with respect

to the proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change has become

effective pursuant to Section

19(b)(3)(A)(ii) of the Act 10 and

subparagraph (f)(2) of Rule 19b–4

thereunder 11 because it establishes or

changes a due, fee, or other charge

imposed by the Exchange. 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 proposal is

consistent with the Act. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. 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 will also be

available for inspection and copying at

the principal office of the CBOE. All

submissions should refer to file number

SR–CBOE–2001–18 and should be

submitted by June 26, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14026 Filed 6–4–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44365; File No. SR–NASD–

2001–35]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

National Association of Securities

Dealers, Inc. Relating to the

Elimination of the Interval Delay

Between Executions in the Nasdaq

National Market Execution System and

the Effect of Odd-Lot Orders on Market

Makers’ Displayed Quotations in the

Nasdaq National Market Execution

System

May 29, 2001.

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 10,

2001, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its subsidiary,

Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices 30253

3See Letter from John M. Yetter, Assistant

General Counsel, Nasdaq, to Katherine A. England,

Division of Market Regulation, Commission, dated

May 22, 2001 (‘‘Amendment No. 1). In Amendment

No. 1, the Nasdaq made a minor technical

correction to the rule text of NASD Rule 4710(b)(1).

See infra note 5.

4The Commission approved the NNMS, a new

platform for trading Nasdaq National Market

(‘‘NNM’’) securities, on January 14, 2000. See

Securities Exchange Act Release No. 42344 (January

14, 2000), 65 FR 3897 (January 25, 2000), (order

approving File No. SR–NASD–99–11).

5Nasdaq revised the rule text of NASD Rule

4710(b)(1) to replace the phrase ‘‘NNM security’’

with the phrase ‘‘NNMS Security.’’ See Amendment

No. 1, supra note 3.

[6 In order to obtain immediate processing of

executions in secondary offerings, the lead

underwriter of the secondary offering shall

communicate its request in writing to the Nasdaq

Market Operations Department no later than the

business day immediately prior to the start of the

trading in the secondary offering. Failure to do so

may result in the secondary offering being

processed pursuant to the interval delay time

frames applicable to the currently trading shares of

the issuer.]

7The implementation of SuperSOES is currently

scheduled for July 9, 2001.

8See Securities Exchange Act Release No. 43720

(December 13, 2000), 65 FR 79909 (December 20,

2000) (notice of filing and immediate effectiveness

of File No. SR–NASD–00–67).

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, II, and

III below, which Items have been

prepared by Nasdaq. On May 24, 2001,

the NASD, through Nasdaq, filed

Amendment No. 1 to the proposed rule

change.3 The Commission is publishing

this notice to solicit comments on the

proposed rule change and Amendment

No. 1 from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Nasdaq proposes to amend NASD

Rule 4710, ‘‘Participant Obligations in

NNMS,’’ to: (1) Eliminate the interval

delay between executions against the

same market maker at the same price

level in the Nasdaq National Market

Execution System (‘‘NNMS’’ or

‘‘SuperSOES’’),4 and (2) establish rules

governing the decrementation of market

makers’ displayed quotations by odd-lot

orders in the NNMS.

Proposed new language is italicized;

proposed deletions are in brackets.

* * * * *

4710. Participant Obligations in NNMS

(a) No Change

(b) Market Makers

(1) An NNMS Market Maker in an

NNM[S] [S]security 5 shall be subject to

the following requirements.

(A) No change.

(B) No change.

(C) (i) The size of the displayed

quotation will be decremented upon the

execution of an NNMS order in an

amount equal to or greater than one

normal unit of trading[; provided,

however that the execution of an NNMS

order that is a mixed lot (i.e., an order

that is for more than a normal unit of

trading but not a multiple thereof) will

only decrement a displayed quotation’s

size] by the member of shares

represented by the number of round lots

contained in the [mixed lot] order.

(ii) The size of the displayed

quotation will also be decremented by

the number of shares represented by one

normal unit of trading when the number

of shares executed against a displayed

quotation as the result of:

a. orders in an amount less than a

round lot, and 

b. the portion of an order for a mixed

lot (i.e., an order that is for more than

a normal unit of trading but not a

multiple thereof) that is in excess of the

number of shares represented by the

number of round lots contained in such

mixed-lot order, equals one normal unit

of trading.

(D) [(1) Except as provided in

subparagraphs (2) and (3) below, after

the NNMS system has executed an order

against a market maker’s displayed

quote and reserve size (if applicable),

that market maker shall not be required

to execute another order at its bid or

offer in the same security until 5

seconds has elapsed from the time the

order was executed, as measured by the

time of execution in the Nasdaq system.]

[(2) For securities included in the

Nasdaq 100 Index, after the NNMS

system has executed an order against a

market maker’s displayed quote and

reserve size (if applicable), that market

maker shall not be required to execute

another order at its bid or offer in the

same security until 2 seconds has

elapsed from the time the order was

executed, as measured by the time of

execution in the Nasdaq system.]

[(3) For both the first day of trading

of the securities of initial public

offerings and the first day of trading of

the securities of secondary offerings,6

a]After the NNMS system has executed

an order against a market maker’s

displayed quote and reserve size (if

applicable), that market maker shall be

required to execute another order at its

posted bid or offer in that same security

as soon as the NNMS system delivers

another order to that market maker’s

quote. [After the first day of trading,

subsequent multiple executions against

the same market maker’s quote at the

same price level in such securities shall

be processed pursuant to subparagraph

(D)(2) of this rule if the security is

included in the Nasdaq 100 Index, or if

not included in that index, multiple

executions against the same market

maker’s quote at the same price level in

such securities shall be processed

pursuant to subparagraph (D)(1) of this

rule.]

* * * * *

(c) Through (e)—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

Elimination of Interval Delays.

Currently, the rules governing the

Nasdaq Small Order Execution System

establish a delay of 17 seconds (15

seconds for quote management and two

seconds for system processing) between

executions against the same market

maker in the same security at the same

price level. It was originally anticipated

that with the launch of SuperSOES 7

this delay would be reduced to five

seconds (plus two seconds system

processing time) for the vast majority of

NNM securities. Nasdaq market

participants, however, raised concerns

that significant order flow could

potentially produce queuing within the

system, especially for Nasdaq 100

securities and securities that have

recently been the subject of initial

public offerings or secondary offerings.

Accordingly, Nasdaq filed proposals

with the Commission to: (i) Reduce the

interval delay between executions in

Nasdaq 100 securities to two seconds,8

and (ii) reduce the interval delay

between round-lot executions for the

first day of trading of all SuperSOESeligible initial public offerings and

30254 Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices

9See Securities Exchange Act Release No. 44142

(April 2, 2001), 66 FR 18331 (April 6, 2001) (order

approving File No. SR–NASD–01–03.) 10 15 U.S.C. 78o–3(b)(6).

11 17 CFR 200.30–30–3(a)(12).

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

2 17 CFR 240.19b–4.

secondary offerings to zero seconds

(plus system processing time).9

Nasdaq has now determined that it is

technically feasible to reduce the

interval delay to zero seconds (plus

system processing time) for all

transactions on SuperSOES. This would

mean that a market maker would be

available for executions as quickly as

the system an transmit instructions

between the execution and quote-update

engines, an operation that generally

requires from one to one an one-half

seconds. Nasdaq market participants

have indicated to Nasdaq that they

would support elimination of the

interval delay for all transactions on

SuperSOES because this would further

minimize the risk of queuing within the

system. Accordingly, the proposed rule

change would provide that market

makers will be required to execute

orders against their displayed quotes

whenever the SuperSOES system

delivers such orders.

Decrementation of Market Makers’

Quotations. The rules governing the

NNMS currently provide that an NNMS

market maker’s displayed quotation will

be decremented upon the execution of

an NNMS order in an amount equal to

or greater than a round lot, and that in

the event of the execution of an NNMS

order for a mixed lot (i.e., an order that

is for more than a round lot but not a

multiple thereof), the displayed

quotation size will be decremented only

by the number of shares represented by

the number of round lots contained in

the mixed-lot order.

The proposed rule change would

establish a mechanism for decrementing

the displayed quotation size to take

account of odd-lot orders and the

portion of mixed-lot orders that is not

covered by the current rule. Nasdaq has

determined that it is technically feasible

for SuperSOES to track the number of

shares executed against a displayed

quotation as the result of: (i) Orders in

an amount less than a round lot, and (ii)

the portion of an order for a mixed lot

that is in excess of the number of shares

represented by the number of round lots

contained in the mixed-lot order. When

the total quantity of such shares equals

a round lot, the size of the displayed

quotation would then be decremented

accordingly. Nasdaq market participants

have indicated that they would support

this change because it will guard against

the possibility that a market participant

could execute multiple odd-lot orders

against a market maker’s quote without

the size of the displayed quotation being

decremented.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with Section

15A(b)(6) 10 of the Act, in that the

proposed rule change is designed to

promote just and equitable principles of

trade, foster cooperation and

coordination with persons engaged in

processing information with respect to

and facilitating transactions in

securities, as well as to remove

impediments to and perfect the

mechanism of a free and open market,

and, in general, to protect investors and

the public interest.

Nasdaq believes that eliminating the

interval delay between executions on

the NNMS will ensure that customer

orders are processed in the most

expeditious manner possible. Similarly,

providing a mechanism for

decrementing market makers’ displayed

quotations for all orders executed

against such quotations will allow the

NNMS to provide more up-to-date

information about the size of displayed

quotations. In turn, these improvements

in order processing and display will

improve market function and aid in the

crucial price discovery process.

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.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization consents, the Commission

will:

A. By order approve such proposed

rule change, or

B. Institute proceedings to determine

whether the proposed rule change

should be disapproved.

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. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609. 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 will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to File No.

SR–NASD–2001–35 and should be

submitted by June 26, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14029 Filed 6–4–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44363; File No. SR–NASD–

2001–32]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.

Relating to Level 1 Market Data Fees

May 29, 2001.

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 4,

2001, the Nasdaq Stock Market, Inc.

(‘‘Nasdaq’’) filed with the Securities and

Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

changes as described in Items I and II