Federal Register: October 21, 2002 (Volume 67, Number 203)
DOCID: FR Doc 02-26685
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-46652; File No. SR-NASD-2002-133]
NOTICE: NOTICES
ACTION: Self-regulatory organizations; proposed rule changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change and Amendment Nos. 1 and 2 by the National Association of Securities Dealers, Inc. To Establish an Execution Price Governor in SuperMontage
DOCUMENT SUMMARY:
October 11, 2002.
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 September 30, 2002, 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'') a proposed rule change, as described in Items I and II
below, which Items have been prepared by the NASD. The NASD amended its
proposal on October 9, 2002 \3\ and October 10, 2002.\4\ The Commission
is publishing this notice to solicit comments on the proposed rule
change and Amendment Nos. 1 and 2 from interested persons and to approve the proposal, as amended, on an accelerated basis.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See letter from Mary M. Dunbar, Vice President and Deputy
General Counsel, Nasdaq, to Katherine A. England, Assistant
Director, Division of Market Regulation (``Division''), Commission,
dated September 27, 2002 (``Amendment No. 1''). In Amendment No. 1,
the NASD submitted the proposal on a pilot basis under Section
19(b)(2) of the Act, requested accelerated approval, and replaced in
its entirety the original rule filing submitted to the Commission dated on September 27, 2002.
\4\ See letter from Thomas P. Moran, Associate General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division,
Commission, dated October 10, 2002 (``Amendment No. 2). In Amendment
No. 2, the NASD made minor technical corrections to the rule text.
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
Nasdaq is proposing to establish, for a 60day pilot period, a
SuperMontage execution price governor to prevent inadvertent executions
significantly away from the inside market. The text of the proposed rule change is below. Proposed new language is italicized.
* * * * *
4710. Participant Obligations in NNMS
(a) No Change.
(b) NonDirected Orders
(1) General ProvisionsA Quoting Market Participant in an NNMS
Security shall be subject to the following requirements for Non Directed Orders:
(A) No Change.
(i) No Change.
(ii) No Change.
(iii) No Change.
(B) Processing of NonDirected OrdersNo Change.
(i) through (iii) No Change.
(iv) ExceptionsThe following exceptions shall apply to the above execution parameters:
(a) If a Nasdaq Quoting Market Participant enters a NonDirected
Order into the system, before sending such NonDirected 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
own Quote/Order if the participant is at the best bid/best offer in Nasdaq.
(b) If an NNMS Market Participant enters a Preferenced Order, the
order shall be executed against (or delivered in an amount equal to)
both the Displayed Quote/Order and Reserve Size of the Quoting Market
Participant to which the order is being directed, if that Quoting
Market Participant is at the best bid/best offer when the Preferenced
Order is next in line to be delivered (or executed). Any unexecuted
portion of a Preferenced Order shall be returned to the entering NNMS
Market Participant. If the Quoting Market Participant is not at the
best bid/best offer when the Preferenced Order is next in line to be
delivered (or executed), the Preferenced Order shall be returned to the entering NNMS Market Participant.
(c) If an NNMS Market Participant enters a Quote or NonDirected
Order that would result in NNMS either: 1) delivering an execution to a
Quoting Market Participant(s) that participates in the automatic
execution functionality of the system at a price substantially away
from the current inside bid/offer in that security; or 2) delivering a Liability
[[Page 64682]]
Order to a Quoting Market Participant(s) that participates in the
orderdelivery functionality of the system at a price substantially
away from the current inside bid/offer in that security, the system
shall instead process only those portions of the order that will not
result in either an execution or delivery at a price substantially away
from the current inside best bid/offer in the security and return the
remainder to the entering party. For purposes of this subsection only,
an execution or delivery based on a sell order shall be deemed to be
substantially away from the current inside bid if it is to be done at a
price lower than a breakprice established by taking the inside bid,
reducing it by 10% of the bid's value, and then subtracting $0.01. For
example, in a stock with a current inside bid of $10.00, the maximum
price at which a single sell order could be executed would be $8.99
calculated as follows: ($10.00($10.00 x .10 e.g. $1)$.01 = $8.99).
For offers, an execution or delivery based on a buy order shall be
deemed to be substantially away from the current inside offer if it is
done a price higher than a breakprice established by taking the inside
offer, adding 10% of the offer's value to it, and then adding $0.01.
For example, in a stock with a current inside offer of $10.00, the
highest price at which a single sell order could be executed would be
$11.01 calculated as follows: ($10.00 + ($10.00 x .10 e.g. $1) + $.01 = $11.01.
(C) Decrementation ProceduresNo Change.
(i) through (iv) No Change.
(D) through (E) No Change.
(2) Refresh Functionality
(A) Reserve Size RefreshNo Change.
(B) Auto Quote Refresh (``AQR'')No change.
(i) through (iv) No Change.
(3) through (8) No Change.
(c) through (f) 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, as amended. The text of these statements may be examined at the
places specified in Item III below. Nasdaq has prepared summaries, set
forth in Sections A, B, and C below, of the most significant aspects of such statements.
A. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq's SuperMontage system allows the entry of individual orders of up to 999,999 shares in size and quotes of 99,900 shares. Once entered, SuperMontage immediately processes those quotes/orders against the quotes and orders of other market participants then residing in the system. If warranted by the price of the quote/order, and the trading interest on the other side of the market, the system automatically and continuously moves to inferior price levels until the entered quote/ order is executed in full or until there is no longer any quotes or orders that would satisfy the terms of the quote/order.
While this processing dramatically increases the speed and efficiency of the Nasdaq market, in certain limited circumstances it may also have a material negative impact on market quality. This could occur when a very large market quote/order, or a marketable limit order priced significantly away from the inside, is entered into the system and quickly executes through numerous price levels and establishes a new inside wholly unrelated to previous trading activity in the security.\5\ In turn, the resulting abnormal execution prices and quotes can create new historic high and/or low prices for the particular security at issue, as well as potentially trigger the automatic execution of other customer orders in electronic systems that monitor the last sale and inside prices disseminated by Nasdaq. \5\ Nasdaq's experience with similar orders in the SuperSoes environment indicates that the overwhelming majority of such quote/ orders are not entered intentionally, but are generally simple mistakes in price or size terms made by entering party.
In response, Nasdaq has determined to incorporate into
SuperMontage, for a 60day pilot period commencing on October 14, 2002,
an execution price governor to reduce the impact of grossly mispriced
or missized quotes/orders.\6\ In short, SuperMontage will, using the
formula outlined below, establish a maximum execution or breakpoint
price a little over 10% away from a security's current inside price
(for both the bid and offer side) and will execute a single quote/order
only up to that price level, and reject the remaining unexecuted
portion of the quote/order (if any) back to entering party for re
submission if desired. The following specific threshold formula is proposed:
\6\ Nasdaq has separately filed with the Commission a proposal,
pursuant to Section 19(b)(2) of the Act, to make the execution price governor permanent. See SRNASD2002142.
[sbull] For incoming sell quotes/orders, the break price will be the current Inside Bid less 10% less $.01.\7\
\7\ Values resulting from the application of the formula will
not be taken into consideration beyond two decimal places. Telephone
conversation between Thomas P. Moran, Associate General Counsel,
Nasdaq, and Terri Evans, Assistant Director, Division, Commission, October 10, 2002.
[sbull] For incoming buy quotes/orders, the break price will be the current Inside Offer plus 10% plus $.01.\8\
\8\ When approving this formula, the Nasdaq Board of Directors
also authorized the Chief Executive Officer of Nasdaq and/or the
President of Nasdaq to alter the base percentages used in the
threshold formula by 10% in either direction for a particular
security or securities if its trading activity or share price
warrants it. If Nasdaq Senior Management determines to alter this
standard, Nasdaq will submit a proposed rule change to the
Commission and alert market participants by posting the new
percentages on NasdaqTrader.com. Telephone conversation between
Thomas P. Moran, Associate General Counsel, Nasdaq, and Terri Evans,
Assistant Director, Division, Commission, October 10, 2002.
For example, in a stock with a current Inside Bid of $10.00, the maximum or break price at which a single sell order could be executed would be $8.99 calculated as follows: ($10.00($10.00 x .10 e.g. $1) $.01 = $8.99). In turn, this price determines how many shares of a particular quote/order can be executed based on the trading interest on the other side of the market residing in SuperMontage. For example, if the sell order discussed here was for 10,000 shares and there was only a total of 6,000 shares available between the current inside bid price of $10.00 and the threshold price of $8.99, SuperMontage would execute a total of 6,000 shares and reject the remaining 4,000 back to the entering party. Market participants receiving such a reject would be able to reenter the rejected portion of their original order, if desired, with a new maximum breakpoint for that quote/order being calculated using the current inside price at the time of reentry.
Nasdaq believes that the above approach best balances the goals of rapid execution and price discovery while protecting market participants, and the public investors they represent, from excessive volatility and market confusion that can result from the entry and execution of a grossly mispriced or missized quotes/orders in an automated and linked trading environment.
2. Statutory Basis
Nasdaq believes that the proposed rule change, as amended, is
consistent with Section 15A of the Act \9\ in general, and furthers the objectives of Section
[[Page 64683]]
15A(b)(6)\10\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, to protect investors and the public interest.
\9\ 15 U.S.C. 78o3.
\10\ 15 U.S.C. 78o3(b)(6).
B. SelfRegulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change, as amended,
will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
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. III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change and Amendment Nos. 1 and 2 are 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 number SRNASD2002133 and should be submitted by November 12, 2002.
IV. Commission Findings and Order Granting Accelerated Approval of the Proposed Rule Change
Nasdaq has asked the Commission to approve the proposal and Amendment Nos. 1 and 2 on an accelerated basis for a 60day pilot period to reduce the impact of grossly mispriced or missized quotes/ orders.
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities association
and, in particular, with the requirements of section 15A(b)(6) of the
Act,\11\ in that it is designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
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.\12\ The Commission believes that the
establishment of a SuperMontage execution price governor pilot may
prevent inadvertent executions significantly away from the inside
market. The Commission also agrees with Nasdaq that this approach may
act to balance the goals of rapid execution and price discovery while
protecting market participants and the public investors they represent
from excessive volatility and market confusion that can result from
grossly mispriced/sized quotes/orders in an automated and linked trading environment.
\11\ 15 U.S.C. 78o3(b)(6).
\12\ In approving the proposed rule, the Commission has
considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
The Commission finds good cause for approving the proposed rule
change, as amended, prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register. The
Commission believes that accelerated approval of the pilot will enable
the Commission and Nasdaq to gain experience with the execution price
governor before the Commission considers permanent approval of the
pilot.\13\ Furthermore, the Commission believes that granting
accelerated approval to the proposed rule change and Amendment Nos. 1
and 2 would ensure that the execution price governor is in place for
the start of the SuperMontage system rollout scheduled for October 14, 2002.
\13\ Approval of the 60day pilot should not be interpreted as
suggesting that the Commission is predisposed to approving the proposal on a permanent basis.
Accordingly, the Commission believes that there is good cause,
consistent with sections 15A(b)(6) and 19(b)(2) of the Act \14\ to
approve the proposal and Amendment Nos. 1 and 2 on an accelerated basis.
\14\ 15 U.S.C. 78o3(b)(6) and 78s(b)(2).
V. Conclusion
It is Therefore Ordered, pursuant to section 19(b)(2) of the Act \15\, that the proposed rule change, as amended, (File No. SRNASD 2002133) be, and it hereby is, approved until December 13, 2002. \15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\16\
\16\ 17 CFR 200.303(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 0226685 Filed 101802; 8:45 am]
BILLING CODE 801001P
SUMMARY:
National Association of Securities Dealers, Inc.,
DOCUMENT BODY 2:
October 11, 2002.
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 September 30, 2002, 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'') a proposed rule change, as described in Items I and II
below, which Items have been prepared by the NASD. The NASD amended its
proposal on October 9, 2002 \3\ and October 10, 2002.\4\ The Commission
is publishing this notice to solicit comments on the proposed rule
change and Amendment Nos. 1 and 2 from interested persons and to approve the proposal, as amended, on an accelerated basis.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See letter from Mary M. Dunbar, Vice President and Deputy
General Counsel, Nasdaq, to Katherine A. England, Assistant
Director, Division of Market Regulation (``Division''), Commission,
dated September 27, 2002 (``Amendment No. 1''). In Amendment No. 1,
the NASD submitted the proposal on a pilot basis under Section
19(b)(2) of the Act, requested accelerated approval, and replaced in
its entirety the original rule filing submitted to the Commission dated on September 27, 2002.
\4\ See letter from Thomas P. Moran, Associate General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division,
Commission, dated October 10, 2002 (``Amendment No. 2). In Amendment
No. 2, the NASD made minor technical corrections to the rule text.
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
Nasdaq is proposing to establish, for a 60day pilot period, a
SuperMontage execution price governor to prevent inadvertent executions
significantly away from the inside market. The text of the proposed rule change is below. Proposed new language is italicized.
* * * * *
4710. Participant Obligations in NNMS
(a) No Change.
(b) NonDirected Orders
(1) General ProvisionsA Quoting Market Participant in an NNMS
Security shall be subject to the following requirements for Non Directed Orders:
(A) No Change.
(i) No Change.
(ii) No Change.
(iii) No Change.
(B) Processing of NonDirected OrdersNo Change.
(i) through (iii) No Change.
(iv) ExceptionsThe following exceptions shall apply to the above execution parameters:
(a) If a Nasdaq Quoting Market Participant enters a NonDirected
Order into the system, before sending such NonDirected 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
own Quote/Order if the participant is at the best bid/best offer in Nasdaq.
(b) If an NNMS Market Participant enters a Preferenced Order, the
order shall be executed against (or delivered in an amount equal to)
both the Displayed Quote/Order and Reserve Size of the Quoting Market
Participant to which the order is being directed, if that Quoting
Market Participant is at the best bid/best offer when the Preferenced
Order is next in line to be delivered (or executed). Any unexecuted
portion of a Preferenced Order shall be returned to the entering NNMS
Market Participant. If the Quoting Market Participant is not at the
best bid/best offer when the Preferenced Order is next in line to be
delivered (or executed), the Preferenced Order shall be returned to the entering NNMS Market Participant.
(c) If an NNMS Market Participant enters a Quote or NonDirected
Order that would result in NNMS either: 1) delivering an execution to a
Quoting Market Participant(s) that participates in the automatic
execution functionality of the system at a price substantially away
from the current inside bid/offer in that security; or 2) delivering a Liability
[[Page 64682]]
Order to a Quoting Market Participant(s) that participates in the
orderdelivery functionality of the system at a price substantially
away from the current inside bid/offer in that security, the system
shall instead process only those portions of the order that will not
result in either an execution or delivery at a price substantially away
from the current inside best bid/offer in the security and return the
remainder to the entering party. For purposes of this subsection only,
an execution or delivery based on a sell order shall be deemed to be
substantially away from the current inside bid if it is to be done at a
price lower than a breakprice established by taking the inside bid,
reducing it by 10% of the bid's value, and then subtracting $0.01. For
example, in a stock with a current inside bid of $10.00, the maximum
price at which a single sell order could be executed would be $8.99
calculated as follows: ($10.00($10.00 x .10 e.g. $1)$.01 = $8.99).
For offers, an execution or delivery based on a buy order shall be
deemed to be substantially away from the current inside offer if it is
done a price higher than a breakprice established by taking the inside
offer, adding 10% of the offer's value to it, and then adding $0.01.
For example, in a stock with a current inside offer of $10.00, the
highest price at which a single sell order could be executed would be
$11.01 calculated as follows: ($10.00 + ($10.00 x .10 e.g. $1) + $.01 = $11.01.
(C) Decrementation ProceduresNo Change.
(i) through (iv) No Change.
(D) through (E) No Change.
(2) Refresh Functionality
(A) Reserve Size RefreshNo Change.
(B) Auto Quote Refresh (``AQR'')No change.
(i) through (iv) No Change.
(3) through (8) No Change.
(c) through (f) 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, as amended. The text of these statements may be examined at the
places specified in Item III below. Nasdaq has prepared summaries, set
forth in Sections A, B, and C below, of the most significant aspects of such statements.
A. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq's SuperMontage system allows the entry of individual orders of up to 999,999 shares in size and quotes of 99,900 shares. Once entered, SuperMontage immediately processes those quotes/orders against the quotes and orders of other market participants then residing in the system. If warranted by the price of the quote/order, and the trading interest on the other side of the market, the system automatically and continuously moves to inferior price levels until the entered quote/ order is executed in full or until there is no longer any quotes or orders that would satisfy the terms of the quote/order.
While this processing dramatically increases the speed and efficiency of the Nasdaq market, in certain limited circumstances it may also have a material negative impact on market quality. This could occur when a very large market quote/order, or a marketable limit order priced significantly away from the inside, is entered into the system and quickly executes through numerous price levels and establishes a new inside wholly unrelated to previous trading activity in the security.\5\ In turn, the resulting abnormal execution prices and quotes can create new historic high and/or low prices for the particular security at issue, as well as potentially trigger the automatic execution of other customer orders in electronic systems that monitor the last sale and inside prices disseminated by Nasdaq. \5\ Nasdaq's experience with similar orders in the SuperSoes environment indicates that the overwhelming majority of such quote/ orders are not entered intentionally, but are generally simple mistakes in price or size terms made by entering party.
In response, Nasdaq has determined to incorporate into
SuperMontage, for a 60day pilot period commencing on October 14, 2002,
an execution price governor to reduce the impact of grossly mispriced
or missized quotes/orders.\6\ In short, SuperMontage will, using the
formula outlined below, establish a maximum execution or breakpoint
price a little over 10% away from a security's current inside price
(for both the bid and offer side) and will execute a single quote/order
only up to that price level, and reject the remaining unexecuted
portion of the quote/order (if any) back to entering party for re
submission if desired. The following specific threshold formula is proposed:
\6\ Nasdaq has separately filed with the Commission a proposal,
pursuant to Section 19(b)(2) of the Act, to make the execution price governor permanent. See SRNASD2002142.
[sbull] For incoming sell quotes/orders, the break price will be the current Inside Bid less 10% less $.01.\7\
\7\ Values resulting from the application of the formula will
not be taken into consideration beyond two decimal places. Telephone
conversation between Thomas P. Moran, Associate General Counsel,
Nasdaq, and Terri Evans, Assistant Director, Division, Commission, October 10, 2002.
[sbull] For incoming buy quotes/orders, the break price will be the current Inside Offer plus 10% plus $.01.\8\
\8\ When approving this formula, the Nasdaq Board of Directors
also authorized the Chief Executive Officer of Nasdaq and/or the
President of Nasdaq to alter the base percentages used in the
threshold formula by 10% in either direction for a particular
security or securities if its trading activity or share price
warrants it. If Nasdaq Senior Management determines to alter this
standard, Nasdaq will submit a proposed rule change to the
Commission and alert market participants by posting the new
percentages on NasdaqTrader.com. Telephone conversation between
Thomas P. Moran, Associate General Counsel, Nasdaq, and Terri Evans,
Assistant Director, Division, Commission, October 10, 2002.
For example, in a stock with a current Inside Bid of $10.00, the maximum or break price at which a single sell order could be executed would be $8.99 calculated as follows: ($10.00($10.00 x .10 e.g. $1) $.01 = $8.99). In turn, this price determines how many shares of a particular quote/order can be executed based on the trading interest on the other side of the market residing in SuperMontage. For example, if the sell order discussed here was for 10,000 shares and there was only a total of 6,000 shares available between the current inside bid price of $10.00 and the threshold price of $8.99, SuperMontage would execute a total of 6,000 shares and reject the remaining 4,000 back to the entering party. Market participants receiving such a reject would be able to reenter the rejected portion of their original order, if desired, with a new maximum breakpoint for that quote/order being calculated using the current inside price at the time of reentry.
Nasdaq believes that the above approach best balances the goals of rapid execution and price discovery while protecting market participants, and the public investors they represent, from excessive volatility and market confusion that can result from the entry and execution of a grossly mispriced or missized quotes/orders in an automated and linked trading environment.
2. Statutory Basis
Nasdaq believes that the proposed rule change, as amended, is
consistent with Section 15A of the Act \9\ in general, and furthers the objectives of Section
[[Page 64683]]
15A(b)(6)\10\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, to protect investors and the public interest.
\9\ 15 U.S.C. 78o3.
\10\ 15 U.S.C. 78o3(b)(6).
B. SelfRegulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change, as amended,
will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
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. III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change and Amendment Nos. 1 and 2 are 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 number SRNASD2002133 and should be submitted by November 12, 2002.
IV. Commission Findings and Order Granting Accelerated Approval of the Proposed Rule Change
Nasdaq has asked the Commission to approve the proposal and Amendment Nos. 1 and 2 on an accelerated basis for a 60day pilot period to reduce the impact of grossly mispriced or missized quotes/ orders.
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities association
and, in particular, with the requirements of section 15A(b)(6) of the
Act,\11\ in that it is designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
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.\12\ The Commission believes that the
establishment of a SuperMontage execution price governor pilot may
prevent inadvertent executions significantly away from the inside
market. The Commission also agrees with Nasdaq that this approach may
act to balance the goals of rapid execution and price discovery while
protecting market participants and the public investors they represent
from excessive volatility and market confusion that can result from
grossly mispriced/sized quotes/orders in an automated and linked trading environment.
\11\ 15 U.S.C. 78o3(b)(6).
\12\ In approving the proposed rule, the Commission has
considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
The Commission finds good cause for approving the proposed rule
change, as amended, prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register. The
Commission believes that accelerated approval of the pilot will enable
the Commission and Nasdaq to gain experience with the execution price
governor before the Commission considers permanent approval of the
pilot.\13\ Furthermore, the Commission believes that granting
accelerated approval to the proposed rule change and Amendment Nos. 1
and 2 would ensure that the execution price governor is in place for
the start of the SuperMontage system rollout scheduled for October 14, 2002.
\13\ Approval of the 60day pilot should not be interpreted as
suggesting that the Commission is predisposed to approving the proposal on a permanent basis.
Accordingly, the Commission believes that there is good cause,
consistent with sections 15A(b)(6) and 19(b)(2) of the Act \14\ to
approve the proposal and Amendment Nos. 1 and 2 on an accelerated basis.
\14\ 15 U.S.C. 78o3(b)(6) and 78s(b)(2).
V. Conclusion
It is Therefore Ordered, pursuant to section 19(b)(2) of the Act \15\, that the proposed rule change, as amended, (File No. SRNASD 2002133) be, and it hereby is, approved until December 13, 2002. \15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\16\
\16\ 17 CFR 200.303(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 0226685 Filed 101802; 8:45 am]
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