[Federal Register: November 26, 2002 (Volume 67, Number 228)]
[Notices]
[Page 70794-70796]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no02-98]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46851; File No. SR-NASD-2002-159]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by National Association of
Securities Dealers, Inc., to Extend a Pilot Amendment to NASD Rule 4120
Regarding Nasdaq's Authority To Initiate and Continue Trading Halts
November 19, 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 November 5, 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'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by Nasdaq. Nasdaq filed
the proposal as a ``non-controversial'' rule change pursuant to Section
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which
renders the proposal effective upon filing with the Commission.\5\ 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).
\5\ Nasdaq asked the Commission to waive the five-day pre-filing
notice requirement and the 30-day operative delay. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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[[Page 70795]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to extend a pilot amendment to NASD Rule 4120,
which clarified Nasdaq's authority to initiate and continue trading
halts in circumstances where Nasdaq believes that extraordinary market
activity in a security listed on Nasdaq may be caused by the misuse or
malfunction of an electronic quotation, communication, reporting, or
execution system operated by, or linked to, Nasdaq. The purpose of this
filing is to extend the pilot until May 15, 2003. Accordingly, there is
no new proposed rule language. Nasdaq will implement the proposed rule
change immediately.
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
On May 11, 2001, Nasdaq filed with the Commission a proposed rule
change to clarify Nasdaq's authority to initiate and continue trading
halts in circumstances where Nasdaq believes that extraordinary market
activity in a security listed on Nasdaq may be caused by the misuse or
malfunction of an electronic quotation, communication, reporting, or
execution system operated by, or linked to, Nasdaq.\6\ On July 27,
2001, Nasdaq filed Amendment No. 1 to the proposed rule change, which
requested that the Commission approve the proposed rule change on a
three-month pilot basis expiring on October 27, 2001.\7\ Also on July
27, 2001, the Commission approved the proposed rule change and
Amendment No. 1 \8\ after finding that the proposed rule change was
consistent with the requirements of the Act, including Section 15A of
the Act.\9\ Since that time, the pilot period for the rule has been
extended on several occasions.\10\
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\6\ Securities Exchange Act Release No. 44307 (May 15, 2001), 66
FR 28209 (May 22, 2001) (SR-NASD-2001-37).
\7\ Letter from Thomas P. Moran, Associate General Counsel,
Nasdaq, to Alton Harvey, Division of Market Regulation, Commission
(July 27, 2001).
\8\ Securities Exchange Act Release No. 44609 (July 27, 2001),
66 FR 40761 (August 3, 2001) (SR-NASD-2001-37).
\9\ 15 U.S.C. 78o-3.
\10\ Securities Exchange Act Release No. 44870 (September 28,
2001), 66 FR 50701 (October 4, 2001) (SR-NASD-2001-60); Securities
Exchange Act Release No. 45344 (January 28, 2002), 67 FR 5022
(February 3, 2002) (SR-NASD-2002-14); Securities Exchange Act
Release No. 45851 (April 30, 2002), 67 FR 31858 (May 10, 2002) (SR-
NASD-2002-57); Securities Exchange Act Release No. 46559 (September
26, 2002), 67 FR 63003 (Ocobter 9, 2002) (SR-NASD-2002-125).
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According to Nasdaq, as a result of the decentralized and
electronic nature of the market operated by Nasdaq, the price and
volume of transactions in a Nasdaq-listed security may be affected by
the misuse or malfunction of electronic systems, including systems that
are linked to, but not operated by, Nasdaq. In circumstances where
misuse or malfunction results in extraordinary market activity, Nasdaq
believes that it may be appropriate to halt trading in an affected
security until the system problem can be rectified. In the period
during which the rule change has been in effect, Nasdaq has not had
occasion to initiate a trading halt under the rule. Nevertheless,
Nasdaq believes that the rule is an important component of its
authority to maintain the fairness and orderly structure of the Nasdaq
market. Accordingly, Nasdaq believes that the rule should remain in
effect on an uninterrupted basis.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\11\ including Section
15A(b)(6) of the Act,\12\ which requires, among other things, that a
registered national securities association's rules must be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, and, in general, to protect
investors and the public interest. Nasdaq believes that the proposed
rule change provides Nasdaq with clearer authority to respond to and
alleviate market disruptions and thereby protect investors and the
public interest.
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\11\ 15 U.S.C. 78o-3.
\12\ 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 result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
In a letter dated July 27, 2001, Instinet Corporation
(``Instinet'') commented on the proposed rule change as originally
proposed and currently in effect. Nasdaq has filed a proposed rule
change--SR-NASD-2001-75--to modify the rule in certain respects and to
make the rule permanent.\13\ Nasdaq believes that the amendments to the
rule proposed in SR-NASD-2001-75 respond to the concerns expressed by
Instinet without impairing the flexibility that the rule must retain in
order for the rule to assist Nasdaq in meeting its overarching
responsibility to maintain the fairness and orderly structure of the
Nasdaq market. On October 2, 2002, the American Stock Exchange
(``Amex'') submitted a letter commenting on SR-NASD-2001-75. Nasdaq
plans to file an amendment to SR-NASD-2001-75 that will respond to
Amex's comments. Pending the filing of this amendment and final
Commission action on SR-NASD-2001-75, however, Nasdaq believes that the
pilot period of the current rule should be extended to allow the rule
to remain in effect on an uninterrupted basis.
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\13\ Securities Exchange Act Release No. 45355 (January 29,
2002), 67 FR 5351 (February 5, 2002) (SR-NASD-2001-75).
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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, it has
become effective pursuant to section 19(b)(3)(A) of the Act \14\ and
Rule 19b-4(f)(6) thereunder.\15\ 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.\16\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6).
\16\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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Nasdaq has requested that the Commission waive the pre-filing
notice requirement of at least five business
[[Page 70796]]
days and the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii).\17\ The Commission believes waiving the five-day pre-
filing notice requirement and the 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 operate continuously
through May 15, 2003, while the Commission considers Nasdaq's request
for permanent approval. For these reasons, the Commission waives both
the five-day pre-filing requirement and the 30-day operative waiting
period.\18\
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\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ 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 the NASD. All
submissions should refer to file number SR-NASD-2002-159 and should be
submitted by December 17, 2002.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29941 Filed 11-25-02; 8:45 am]
BILLING CODE 8010-01-P