Source: http://www.thefederalregister.com/d.p/2003-10-16-03-26099
Timestamp: 2013-05-24 19:58:42
Document Index: 223661859

Matched Legal Cases: ['art 7114', 'art 3944', 'art 6726', 'art 140', 'art 5250', 'art 1739', 'art 30206', 'art 514', 'art 9740', 'art 180']

14 CFR Part 7114 CFR Part 3944 CFR Part 6726 CFR Part 140 CFR Part 5250 CFR Part 1739 CFR Part 30206 CFR Part 514 CFR Part 9740 CFR Part 180	Federal Register: October 16, 2003 (Volume 68, Number 200)
DOCID: FR Doc 03-26099
DOCUMENT ID: [Release No. 34-48606; File No. SR-NASD-2003-134]
SUBJECT CATEGORY: Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the National Association of Securities Dealers, Inc. To Amend Rule 4710 To Allow Nasdaq National Market Execution System Order Entry Firms To Automatically Internalize in SuperMontage DOCUMENT SUMMARY: October 8, 2003. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b4 thereunder,\2\ notice is hereby given that on August 22, 2003, 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, II and III below, which Items have been prepared by Nasdaq. On September 26, 2003, Nasdaq amended the proposed rule change.\3\ 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 240.19b4.
\3\ See letter from Thomas P. Moran, Associate General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (``Division''), Commission, dated September 25, 2003 (``Amendment No. 1''). In Amendment No. 1, Nasdaq expands upon the purpose of the proposed rule change.
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes to amend Rule 4710 to allow the Nasdaq National Market Execution System (``NNMS'' or ``SuperMontage'') to automatically [[Page 59660]]
match any nondirected buy and sell quotes/orders entered by an NNMS Order Entry Firm against the quotes/orders of that same NNMS Order Entry Firm on the other side of the market if such a quote/order on the other side of the market is at the best bid/offer in Nasdaq. Nasdaq expects to implement the proposed rule change within 60 days after approval by the Commission. The text of the proposed rule change is set forth below. Proposed new language is in italic; proposed deletions are in [brackets]. 4710. Participant Obligations in NNMS (a) No change. (b) NonDirected Orders (1) No change. (A) No change. (B) No change. (i) through (iii) No change.
(a) If a Nasdaq Quoting Market Participant or NNMS Order Entry Firm enters a NonDirected Order into the system, before sending such Non
Directed Order to the next Quoting Market Participants in queue, the NNMS will first attempt to match off the order against the Nasdaq Quoting Market Participant's or NNMS Order Entry Firm's own Quote/Order if the participant is at the best bid/best offer in Nasdaq. [This exception shall not apply to NonDirected Orders entered by NNMS Order Entry Firms.] Nasdaq Quoting Market Participants and NNMS Order Entry Firms may [, and NNMS Order Entry Firms must,] avoid any attempted automatic system matching permitted by this paragraph through the use of an antiinternalization qualifier (AIQ) quote/order flag containing the following values: ``Y'' or ``I'', subject to the following restrictions: Yif the Y value is selected, the system will execute the flagged quote/order solely against attributable and nonattributable quotes/
orders (displayed and reserve) of Quoting Market Participants and NNMS Order Entry Firms other than the party entering the AIQ ``Y'' flagged quote/order. If the only available trading interest is that of the same party that entered the AIQ ``Y'' flagged quote/order, the system will not execute at an inferior price level, and will instead return the latest entered of those interacting quote/orders (or unexecuted portions thereof) to the entering party. Iif the I value is selected, the system will execute against all available trading interest, including the quote/orders of the NNMS Order Entry Firm or Nasdaq Quoting Market Participant that entered the AIQ ``I'' flagged order, based exclusively on the execution algorithm selected when entering the AIQ I flagged quote/order.
[The I value described above shall be available for the use of Nasdaq Quoting Market Participants on May 12, 2003.] (b) No change. (2) through (8) No change. (c) through (e) No change. * * * * *
II. SelfRegulatory 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, as amended, 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.
Currently, SuperMontage rules provide a general exception to the system's execution algorithms that allow nondirected orders entered by NNMS Market Makers and NNMS ECNs to first match off against any quotes/
order previously entered by that same party on the opposite side of the market if that previously entered quote/order is at the best bid/offer in Nasdaq.\4\ Market participants can voluntarily avoid or control this automatic matching functionality through use of antiinternalization qualifiers that will either skip quotes/orders entered by them on the opposite side of the market or execute against them based solely on the execution algorithm selected.
\4\ Nasdaq clarified that the rules governing UTP Exchanges do not explicitly permit this function, although NASD Rule 4710(e) contemplates that such a function may be provided by Nasdaq to a UTP Exchange pursuant to contract. Consequently, at the request of Nasdaq, Commission staff has removed a reference to UTP Exchanges contained in the original filing. Telephone conversation between Thomas P. Moran, Associate General Counsel, Nasdaq, and Ann E. Leddy, Attorney, Division, Commission (October 8, 2003). NNMS Order Entry Firms are currently prohibited from using this automatic matching functionality and are instead required to enter all nondirected orders with an antiinternalization qualifier that prevents an automatic match. Nasdaq represents that, in response to requests from NNMS Order Entry Firms, it seeks to give NNMS Order Entry Firms the same capability as all other NNMS users to have their non
directed orders match off against quote/orders previously entered by them on the opposite side of the market if those previously entered quotes/orders are at the best bid or offer price in Nasdaq, as appropriate. Like all other system users, NNMS Order Entry Firms would have the voluntary ability to prohibit or control any automatic matching through the use of an antiinternalization qualifier. Nasdaq believes that providing NNMS Order Entry Firms with the opportunity to have their quotes/orders on opposite sides of the market match off against each other will provide an additional incentive for such firms to post increased liquidity in the SuperMontage system, thereby benefiting all users.\5\ \5\ See Amendment No. 1, supra note 3.
Nasdaq believes that the proposed rule change, as amended, 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, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with person engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments 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. \6\ 15 U.S.C. 78o3. \7\ 15 U.S.C. 78o3(b)(6).
C. SelfRegulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. [[Page 59661]]
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 205490609. 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. SRNASD2003134 and should be submitted by November 6, 2003. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\8\ \8\ 17 CFR 200.303(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. 0326099 Filed 101503; 8:45 am]
SUMMARY: National Association of Securities Dealers, Inc., DOCUMENT BODY 2: October 8, 2003. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b4 thereunder,\2\ notice is hereby given that on August 22, 2003, 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, II and III below, which Items have been prepared by Nasdaq. On September 26, 2003, Nasdaq amended the proposed rule change.\3\ 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 240.19b4.