[Federal Register Volume 67, Number 197 (Thursday, October 10, 2002)]
[Notices]
[Pages 63181-63182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25745]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46586; File No. SR-NASD-2002-132]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc., To Extend the Pilot for Limit Order
Protection of Securities Priced in Decimals
October 2, 2002.
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 September 26, 2002, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association''), 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.
Nasdaq filed the proposal pursuant to Section 19(b)(3)(A) of the
Act,\3\ and Rule 19b-4(f)(6) \4\ thereunder, which renders the proposal
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to extend through January 31, 2003, the current
pilot price-improvement standards for decimalized securities contained
in NASD Interpretative Material 2110-2--Trading Ahead of Customer Limit
Order (``Manning Interpretation'' or ``Interpretation''). Without such
an extension these standards would terminate on September 30, 2002.
Nasdaq does not propose to make any substantive changes to the pilot;
the only change is an extension of the pilot's expiration date through
January 31, 2003. Nasdaq requests that the Commission waive both the 5-
day notice and 30-day operative requirements contained in Rule 19b-
4(f)(6)(iii) \5\ of the Act. If such waivers are granted by the
Commission, Nasdaq will implement this rule change immediately.
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\5\ 17 CFR 240.19b-4(f)(6)(iii).
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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 its proposal and discussed any
comments it received regarding the proposal. 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
NASD's Manning Interpretation requires NASD member firms to provide
a minimum level of price improvement to incoming orders in NMS and
SmallCap securities if the firm chooses to trade as principal with
those incoming orders at prices superior to customer limit orders they
currently hold. If a firm fails to provide the minimum level of price
improvement to the incoming order, the firm must execute its held
customer limit orders. Generally, if a firm fails to provide the
requisite amount of price improvement and also fails to execute its
held customer limit orders, it is in violation of the Manning
Interpretation.
On April 6, 2001,\6\ the Commission approved, on a pilot basis,
Nasdaq's proposal to establish the following price improvement
standards whenever a market maker wished to trade proprietarily in
front of its held customer limit orders without triggering an
obligation to also execute those orders:
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\6\ See Securities Exchange Act Release No. 44165 (April 6,
2001), 66 FR 19268 (April 13, 2001) (order approving proposed rule
change modifying NASD's Interpretative Material 2110-2--Trading
Ahead of Customer Limit Order).
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(1) For customer limit orders priced at or inside the best inside
market displayed in Nasdaq, the minimum amount of price improvement
required is $0.01; and
(2) For customer limit orders priced outside the best inside market
displayed in Nasdaq, the market maker must price improve the incoming
order by executing the incoming order at a price at least equal to the
next superior minimum quotation increment in Nasdaq (currently
$0.01).\7\
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\7\ Pursuant to the terms of the Decimals Implementation Plan
for the Equities and Options Markets, the minimum quotation
increment for Nasdaq securities (both National Market and SmallCap)
at the outset of decimal pricing is $0.01. As such, Nasdaq displays
priced quotations to two places beyond the decimal point (to the
penny). Quotations submitted to Nasdaq that do not meet this
standard are rejected by Nasdaq systems. See Securities Exchange Act
Release No. 43876 (January 23, 2001), 66 FR 8251 (January 30, 2001).
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[[Page 63182]]
Since approval, these standards have operated on a pilot basis and
are currently scheduled to terminate on September 30, 2002. After
consultation with Commission staff, Nasdaq seeks an extension of its
current Manning pilot until January 31, 2003. Nasdaq believes that such
an extension provides for an appropriate continuation of the current
Manning price-improvement standard while the Commission analyzes the
issues related to customer limit order protection for decimalized
securities, and reviews Nasdaq's separately filed rule proposal to make
this pilot permanent.\8\
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\8\ See SR-NASD 2002-10.
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act \9\ in that it is
designed to: (1) Promote just and equitable principles of trade; (2)
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to and
facilitating transactions in securities; (3) perfect the mechanism of a
free and open market and a national market system; and (4) protect
investors and the public interest.
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\9\ 15 U.S.C. 78o-3 (b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will impose
any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest, it
has become effective pursuant to Section 19(b)(3)(A) of the Act \10\
and Rule 19b-4(f)(6) thereunder.\11\ 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.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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Nasdaq has requested that the Commission waive both the 5-day
notice and the 30-day operative delay. The Commission believes waiving
the 5-day notice and 30-day operative delay is consistent with the
protection of investors and the public interest. Acceleration of the
operative date will allow the pilot to continue uninterrupted through
January 31, 2003, and will allow Nasdaq and the Commission to analyze
the issues related to customer limit order protection in a decimals
environment. For these reasons, the Commission designates the proposal
to be effective and operative upon filing with the Commission.\12\
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\12\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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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 Nasdaq. All
submissions should refer to file number SR-NASD-2002-132 and should be
submitted by October 31, 2002.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25745 Filed 10-9-02; 8:45 am]
BILLING CODE 8010-01-P