[Federal Register: November 26, 2003 (Volume 68, Number 228)]
[Notices]
[Page 66518-66520]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no03-148]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48810: File No. SR-NASD-2003-161]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. To
Establish a Nasdaq Official Opening Price
November 19, 2003.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 28, 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.
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).
\1\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is filing a proposed rule change to establish a Nasdaq
Official Opening Price that would be made available for wholly
voluntary use by NASD members and the public. Nasdaq represents that it
would calculate and disseminate the Nasdaq Official Opening Price using
its proprietary systems, and that the Nasdaq Official Opening Price
would not affect the dissemination of last sale information pursuant to
the national market system plan governing trading of Nasdaq securities,
the Nasdaq UTP Plan.
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
[[Page 66519]]
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
Nasdaq proposes to calculate and disseminate a Nasdaq Official
Opening Price for Nasdaq-listed securities. Nasdaq would disseminate
the Nasdaq Official Opening Price over the Nasdaq Index Dissemination
Service data feed (``NIDS''), a proprietary data feed of Nasdaq.
Because the Nasdaq Official Opening Price would be neither a quotation
nor a last sale report, it would not be disseminated over either the
UTP Quote data feed or the UTP Trade data feed. The Nasdaq Official
Opening Price message would contain the prevailing inside quote and the
Nasdaq Official Opening Price value. Nasdaq states that the fees for
the NIDS feed have previously been filed with the Commission, and that
it is not proposing to change those fees.
The Nasdaq Official Opening Price would be equal to the reported
price of the first trade executed in the Nasdaq National Market
Execution System (``SuperMontage''), which would be based upon orders
that are in queue when SuperMontage begins trading at 9:30 a.m. ET
(``SuperMontage Opening Match''). SuperMontage executions that are in
queue when SuperMontage begins trading at 9:30 a.m. but that are not
executed until after 9:30:05 (as a result of being delivered to an
order delivery participant that has not responded) would not be
eligible to be the SuperMontage Opening Match. SuperMontage executions
that result from orders entered into the system after 9:30 also would
not be eligible to be the SuperMontage Opening Match.
If there were to be no SuperMontage Opening Match within five
seconds after the system opens at 9:30, the Nasdaq Official Opening
Price for that security would be based upon the first, last sale
eligible trade (``Predicate Trade'')\3\ that is reported to Nasdaq's
Automated Confirmation Transaction System (``ACT''). The Predicate
Trade could be an internalized execution reported to ACT or a
SuperMontage execution resulting from an order entered into the system
after 9:30, and also reported to ACT. The Predicate Trade could also be
a SuperMontage execution based on an order that was in queue in
SuperMontage at 9:30 but not executed until after 9:30:05 as a result
of being sent to an order delivery participant.
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\3\ Four types of trade reports are not last sale elibible and,
thus, would not be eligible to affect the Nasdaq Official Opening
Price: cash sales (which include the ``C'' trade report modifier),
next day sales (.ND), seller trades (.S), and after hours trades
(.T).
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If the Nasdaq Official Opening Price were to be based upon a
Predicate Trade rather than a SuperMontage Opening Match, Nasdaq would
be able to use the same normalization process that currently applies to
the Nasdaq Official Closing Price.\4\ Specifically, if the price of the
Predicate Trade were to be within the best bid and offer quote entered
in the SuperMontage system at the time the trade is reported, the
Nasdaq Official Opening Price would equal the reported price of the
Predicate Trade. If the price of the Predicate Trade were to be lower
than the Nasdaq inside bid, the Nasdaq Official Opening Price would
equal the Nasdaq inside bid. Likewise, if the price of the Predicate
Trade were to be higher than the Nasdaq inside ask, the Nasdaq Official
Opening Price would be the Nasdaq inside ask.
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\4\ See Securities Exchange Act Release No. 47517 (March 18,
2003), 68 FR 14446 (March 25, 2003) (SR-NASD-2002-158).
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Nasdaq believes that bounding the first ACT trade report by the
Nasdaq inside would reduce the extent to which market participants
could deliberately affect the Nasdaq Official Opening Price, since
firms would need to affect not only the inside quotes but also the
Predicate Trade. On the other hand, SuperMontage executions occur only
at the prevailing inside bid or ask; therefore, such executions would
not need to be bound by a SuperMontage quotation. To be consistent in
the delivery of the opening message to market data vendors, the
prevailing Nasdaq inside bid and ask would be disseminated with the
Nasdaq Official Opening Price whether a SuperMontage trade or an ACT
trade sets it.\5\
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\5\ In the event that a security is in a trading halt prior to
market open and that halt continues past 9:30, the Nasdaq Official
Opening Price for that security would equal the reported trade price
of the first last sale eligible trade reported after the trading
halt is lifted and the inside market for the security is uncrossed.
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To illustrate the bounding of an ACT trade report, consider the
following example. There is no SuperMontage Opening Match. However, at
9:30:10 a.m., the first, last sale eligible ACT trade is reported with
a price of 19.98. The Nasdaq inside bid and ask at 9:30:10 is 20.00 to
20.02. Under the proposal, the Nasdaq Official Opening Price would be
equal to the Nasdaq inside bid, in this case 20.00. If the first, last
sale eligible ACT trade price were 20.04 instead of 19.98, the Nasdaq
Official Opening Price would equal the Nasdaq inside ask at the time of
the trade report, in this case 20.02.
The Nasdaq Official Opening Price value would be disseminated as
soon as it is calculated, and changes to the underlying trade report
would not affect the Nasdaq Official Opening Price. \6\
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\6\ Nasdaq represents that it will make an effort to inform
users of Nasdaq of when the Nasdaq Official Opening Price is based
upon a trade executed in SuperMontage or a Predicate Trade that may
have been normalized. Telephone conversation among Jeffrey S. Davis,
Associate Vice President and Associate General Counsel, Nasdaq,
Alton S. Harvey, Office Head, Office of Market Watch, Division of
Market Regulation (``Division''), Commission, and Cyndi Rodriguez,
Special Counsel, Division, Commission on November 13, 2003.
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\7\ in general, and with
section 15A(b)(6) of the Act,\8\ in particular, which requires the
NASD's rules to be designed, among other things, to protect investors
and the public interest. Nasdaq believes that its current proposal is
consistent with the NASD's obligations under these provisions of the
Act because Nasdaq believes the proposal would result in the public
dissemination of information that more accurately reflects the trading
in a particular security at the open. Furthermore, to the extent a
security is a component of an index, Nasdaq believes the index would
more accurately reflect the value of the market, or segment of the
market, the index is designed to measure. Nasdaq believes that the
corresponding result should be trades, or other actions, executed at
prices more reflective of the current market when the price of an
execution, or other action, is based on the last sale, the high price
or low price of a security, or the value of an index.
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\7\ 15 U.S.C. 78o-3.
\8\ 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.
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.
[[Page 66520]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change 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 the filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to File No. SR-NASD-2003-161 and
should be submitted by December 17, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29512 Filed 11-25-03; 8:45 am]
BILLING CODE 8010-01-P