[Federal Register: March 23, 2004 (Volume 69, Number 56)]
[Notices]
[Page 13606-13608]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23mr04-124]
[[Page 13606]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49427; File No. SR-NASD-2004-032]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by
the National Association of Securities Dealers, Inc. To Modify NASD
Rule 4619 With Respect to Certain Excused Withdrawal Requests
March 16, 2004.
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 February 24, 2004, the National Association of Securities
Dealers, Inc. (``NASD''), through its subsidiary, the Nasdaq Stock
Market, Inc. (``Nasdaq''), submitted to the Securities and Exchange
Commission (``Commission'' and ``SEC'') the proposed rule change as
described in items I, II and III below, which items have been prepared
by Nasdaq. On March 15, 2004, the NASD filed Amendment No. 1 to the
proposed rule change.\3\ Nasdaq filed this proposal pursuant to section
19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(3) \5\ thereunder, as
one concerned solely with the administration of the self-regulatory
organization, which renders the proposal effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\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
March 12, 2004 (``Amendment No. 1''). Amendment No. 1 replaces the
original filing in its entirety.
\4\ 15 U.S.C. 78s(b)(3)(A)(iii).
\5\ 17 CFR 240.19b-4(f)(3).
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to modify NASD Rule 4619, which will shift the
administration of a limited subset of existing excused withdrawal
requests from one department to another department.
Below is the text of the proposed rule change. Proposed new
language is italics; proposed deletions are in [brackets].
* * * * *
4619. Withdrawal of Quotations and Passive Market Making
(a) [A]Except as provided in paragraph (b) of this Rule, a market
maker that wishes to withdraw quotations in a security or have its
quotations identified as the quotations of a passive market maker shall
contact Nasdaq MarketWatch to obtain excused withdrawal status prior to
withdrawing its quotations or identification as a passive market maker.
Withdrawals of quotations or identifications of quotations as those of
a passive market maker shall be granted by Nasdaq MarketWatch only upon
satisfying one of the conditions specified in this Rule.
(b) A market maker that wishes to obtain excused withdrawal status
based on a market maker's systemic equipment problems, such as defects
in a market maker's software or hardware systems or connectivity
problems associated with the circuits connecting Nasdaq's systems with
the market maker's systems, shall contact Nasdaq Market Operations.
Nasdaq Market Operations may grant excused withdrawal status based on
systemic equipment problems for up to five (5) business days, unless
extended by Nasdaq Market Operations.
(c) Excused withdrawal status based on circumstances beyond the
market maker's control, other than systemic equipment problems, may be
granted for up to five (5) business days, unless extended by Nasdaq
MarketWatch. Excused withdrawal status based on demonstrated legal or
regulatory requirements, supported by appropriate documentation and
accompanied by a representation that the condition necessitating the
withdrawal of quotations is not permanent in nature, may, upon
notification, be granted for not more than sixty (60) days (unless such
request is required to be made pursuant to paragraph (d) below).
Excused withdrawal status based on religious holidays may be granted
only if written notice is received by the Association one business day
in advance and is approved by the Association. Excused withdrawal
status based on vacation may be granted only if:
(1) The written request for withdrawal is received by the
Association one business day in advance, and is approved by the
Association
(2) The request includes a list of the securities for which
withdrawal is requested; and
(3) The request is made by a market maker with three (3) or fewer
Nasdaq level 3 terminals. Excused withdrawal status may be granted to a
market maker that has withdrawn from an issue prior to the public
announcement of a merger or acquisition and wishes to re-register in
the issue pursuant to the same-day registration procedures contained in
Rule 4611 above, provided the market maker has remained registered in
one of the affected issues. The withdrawal of quotations because of
pending news, a sudden influx of orders or price changes, or to effect
transactions with competitors shall not constitute acceptable reasons
for granting excused withdrawal status.
[(c)](d) Excused withdrawal status may be granted to a market maker
that fails to maintain a clearing arrangement with a registered
clearing agency or with a member of such an agency and is withdrawn
from participation in the Automated Confirmation Transaction service,
thereby terminating its registration as a market maker in Nasdaq
issues. Provided however, that if the Association finds that the market
maker's failure to maintain a clearing arrangement is voluntary, the
withdrawal of quotations will be considered voluntary and unexcused
pursuant to Rule 4620 and the Rule 4700 Series governing the Nasdaq
National Market Execution System. Market makers that fail to maintain a
clearing relationship will have their NNMS system status set to
``suspend'' and be thereby prevented from entering, or executing
against, any quotes/orders in the system.
[(d)](e) Excused withdrawal status or passive market maker status
may be granted to a market maker that is a distribution participant
(or, in the case of excused withdrawal status, an affiliated purchaser)
in order to comply with SEC Rule 101, 103, or 104 under the Act on the
following conditions:
(1) A member acting as a manager (or in a similar capacity) of a
distribution of a Nasdaq security that is a subject security or
reference security under SEC Rule 101 and any member that is a
distribution participant or an affiliated purchaser in such a
distribution that does not have a manager shall provide written notice
to Nasdaq MarketWatch and the Market Regulation D[d]epartment of NASD
Regulation, Inc. no later than the business day prior to the first
entire trading session of the one-day or five-day restricted period
under SEC [r]Rule 101, unless later notification is necessary under the
specific circumstances.
(A) [t]The notice required by subparagraph [(d)](e)(1) of this Rule
shall be provided by submitting a completed Underwriting Activity
Report that includes a request on behalf of each market maker that is a
distribution
[[Page 13607]]
participant or an affiliated purchaser to withdraw the market maker's
quotations, or that includes a request on behalf of each market maker
that is a distribution participant (or an affiliated purchaser of a
distribution participant) that its quotations be identified as those of
a passive market maker and includes the contemplated date and time of
the commencement of the restricted period.
(B) The managing underwriter shall advise each market maker that it
has been identified as a distribution participant or an affiliated
purchaser to Nasdaq MarketWatch and that its quotations will be
automatically withdrawn or identified as passive market maker
quotations, unless a market maker that is a distribution participant
(or an affiliated purchaser of a distribution participant) notifies
Nasdaq MarketWatch as required by subparagraph [(d)](e)(2), below.
(2) A market maker that has been identified to Nasdaq MarketWatch
as a distribution participant (or an affiliated purchaser of a
distribution participant) shall promptly notify Nasdaq MarketWatch and
the manager of its intention not to participate in the prospective
distribution or not to act as a passive market maker in order to avoid
having its quotations withdrawn or identified as the quotations of a
passive market maker.
(3) If a market maker that is a distribution participant withdraws
its quotations in a Nasdaq security in order to comply with the net
purchases limitation of SEC Rule 103 or with any other provision of SEC
Rules 101, 103, or 104 and promptly notifies Nasdaq MarketWatch of its
action, the withdrawal shall be deemed an excused withdrawal. Nothing
in this subparagraph shall prohibit the Association from taking such
action as is necessary under the circumstances against a member and its
associated persons for failure to contact Nasdaq MarketWatch to obtain
an excused withdrawal as required by subparagraphs (a) and [(d)](e) of
this Rule.
(4) The quotations of a passive market maker shall be identified on
Nasdaq as those of a passive market maker.
(5) A member acting as a manager (or in a similar capacity of a
distribution subject to subparagraph [(d)](e)(1) of this R[r]ule shall
submit a request [a] to Nasdaq MarketWatch and the M[m]arket Regulation
Department of NASD Regulation, Inc. to rescind the excused withdrawal
status or passive market making status of distribution participants and
affiliated purchasers, which request shall include the date and time of
the pricing of the offering, the offering price, and the time the
offering terminated, and, if not in writing, shall be confirmed in
writing no later than the close of business the day the offering
terminates. The request by this subparagraph may be submitted on the
Underwriting Activity Report.
[(e)](f) The Market Operations Review Committee shall have
jurisdiction over proceedings brought by [M]market [M]makers seeking
review of the denial of an excused withdrawal pursuant to this Rule
4619, or the conditions imposed on their reentry.
* * * * *
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
The proposed rule change seeks to reflect the administrative shift
of certain responsibilities under NASD Rule 4619 from Nasdaq
MarketWatch to Nasdaq Market Operations. NASD Rule 4619 identifies
Nasdaq MarketWatch as the Nasdaq department responsible for
administration of this rule. Nasdaq has determined that, in order to
ensure continued and effective administration of NASD Rule 4619, it
would be appropriate and desirable to transfer responsibility of
handling excused withdrawal requests based on systemic equipment
problems that prevent a market maker from meeting its obligations from
Nasdaq MarketWatch to Nasdaq Market Operations. Systemic equipment
problems include, but are not limited to, defects in the software or
hardware of a market maker's systems or connectivity problems
associated with the circuits connecting Nasdaq's systems with a market
maker's systems. Nasdaq believes that excused withdrawal requests based
on systemic equipment problems are more appropriately handled by Nasdaq
Market Operations because of that department's particular expertise in
technology and connectivity related issues. The proposed rule change
does not create a new basis for excused withdrawals. Excused
withdrawals based on systemic equipment problems are currently granted
under existing NASD Rule 4619. The proposed rule change is only
intended to separate out a limited subset of current excused withdrawal
requests for administration by Nasdaq Market Operations.
The transfer of the administration of excused withdrawal requests
based on systemic equipment problems from Nasdaq MarketWatch to Nasdaq
Market Operations will not adversely impact Nasdaq's record keeping and
surveillance efforts with respect to excused withdrawals. Both Nasdaq
MarketWatch and Nasdaq Market Operations maintain detailed databases of
all excused withdrawals. The databases for excused withdrawals tracks
detailed information of each excused withdrawal, including the reason
for the excused withdrawal, the date an excused withdrawal is
requested, the name of the requester, the firm name, the security or
securities involved, the date for the excused withdrawal, and the date
reinstated. Nasdaq MarketWatch and Nasdaq Market Operations review the
excused withdrawal databases on a periodic basis and have begun to
develop procedures for inter-departmental communications and reviews of
these databases, which are expected to be implemented by the end of
April. All excused withdrawals granted by Nasdaq Market Operations are
communicated to Nasdaq MarketWatch through same-day announcements made
over Nasdaq's internal intercom system. Finally, additional
surveillance is provided by the NASD, which receives a copy of the
excused withdrawal databases from Nasdaq MarketWatch and Nasdaq Market
Operations on a quarterly basis.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
section 15A of the Act,\6\ in general, and with section 15A(b)(6) of
the Act,\7\ in particular, in that the proposal 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. Because
Nasdaq Market Operations has particular expertise in technology and
connectivity issues, Nasdaq believes
[[Page 13608]]
that this department, rather than Nasdaq MarketWatch, is the most
appropriate department to handle excused withdrawal requests based on a
market maker's systemic equipment problems. As such, the organizational
realignment and the corresponding proposed rule change are consistent
with the requirements of the Act.
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\6\ 15 U.S.C. 78o-3.
\7\ 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 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
The foregoing proposal has become effective pursuant to section
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(3) \9\ thereunder as
one concerned solely with the administration of the self-regulatory
organization. At any time within 60 days of the filing of such 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.\10\
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\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(f)(3).
\10\ For purposes of calculating the 60-day abrogation period,
the Commission considers the abrogation period to have begun on
March 15, 2004, the date Nasdaq submitted Amendment No. 1. See 15
U.S.C. 78s(b)(3)(C).
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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 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. Comments may also be submitted electronically at the
following e-mail address: rule-comments@sec.gov. All comment letters
should refer to File No. SR-NASD-2004-032. The file number should be
included on the subject line if e-mail is used. To help the Commission
process and review comments more efficiently, comments should be sent
in hardcopy or by e-mail but not by both methods. Copies of the
submission, all subsequent amendments, all written statements with
respect to the proposed rule change, as amended, that are filed with
the Commission, and all written communications relating to the proposed
rule change, as amended, 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 Exchange. All submissions should refer to the
File No. SR-NASD-2004-032 and should be submitted by April 13, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-6407 Filed 3-22-04; 8:45 am]
BILLING CODE 8010-01-P