[Federal Register: October 3, 2005 (Volume 70, Number 190)]
[Notices]
[Page 57636-57638]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03oc05-153]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52511; File No. SR-NASD-2005-113]
Self-Regulatory Organizations; National Association of Securities
Dealers; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Related to Proactive Limit Orders
September 27, 2005.
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 22, 2005, 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 and
II below, which Items have been prepared by Nasdaq. Pursuant to Section
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ Nasdaq
has designated the proposed rule change as non-controversial, and
therefore the proposed rule change is effective upon filing. 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 the
Substance of the Proposed Rule Change
Nasdaq proposes to create a voluntary proactive limit order type
that, if locked or crossed by another accessible market center, will
automatically be routed to that market center for potential execution.
Nasdaq intends to implement the proposed rule change promptly and
[[Page 57637]]
will inform market participants of the exact implementation date via a
Head Trader Alert on http://www.nasdaqtrader.com.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
4701. Definitions
Unless stated otherwise, the terms described below shall have the
following meaning:
(a) through (uu) No Change.
(vv) The term ``Proactive'' shall mean, for priced limit orders so
designated, that if marketable upon entry into the Nasdaq Market
Center, the order will first attempt to execute in the Nasdaq Market
Center and thereafter be sent to available external execution venues
until it is fully executed or no longer marketable. The order will
thereafter be added to the Nasdaq Market Center Book. Once on the book,
if another accessible execution venue displays an order that locks or
crosses the Proactive Limit Order, the order will be removed from the
Nasdaq Market Center book and routed to that locking or crossing
execution venue for potential execution.
* * * * *
4706. Order Entry Parameters
(a) Non-Directed Orders--
(1) General. The following requirements shall apply to Non-Directed
Orders Entered by Nasdaq Market Center Participants:
(A) A Nasdaq Market Center Participant may enter into the Nasdaq
Market Center a Non-Directed Order in order to access the best bid/best
offer as displayed in Nasdaq and other markets as set out in Rule 4714.
(B) A Non-Directed Order must be a market or limit order, must
indicate whether it should be not routed to another market in
accordance with Rule 4714, whether it is a buy, short sale, short-sale
exempt, or long sale, and may be designated as ``Immediate or Cancel'',
``Day'', ``Good-till-Cancelled'', ``Auto-Ex'', ``Fill or Return'',
``Pegged'', ``Discretionary'', ``Sweep'', ``Total Day'', ``Total Good
till Cancelled'', [or] ``Total Immediate or Cancel[,]'', [or]
``Summary[.]'', or ``Proactive''.
(i) through (xiii) No change.
(xiv) A limit order may be designated as ``Proactive,'' in which
case the order shall be designated as Day, GTC, X, or GTX. A Proactive
Order that is marketable upon entry into the Nasdaq Market Center will
first attempt to execute in the Nasdaq Market Center and thereafter be
sent to available external execution venues until it is fully executed
or no longer marketable. The order will thereafter be added to the
Nasdaq Market Center book. Once on the book, if another accessible
execution venue displays an order that locks or crosses the Proactive
Limit Order, the order will be removed from the Nasdaq Market Center
book and routed to that locking or crossing execution venue for
potential execution.
(C) through (F) No Change.
(2) No Change.
(b)-(e) No Change.
* * * * *
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
Nasdaq is proposing to implement the Proactive Order, an order
option that will allow Nasdaq users to enter limit order(s) that
execute against interest posted on the Nasdaq Market Center book, are
posted on the book, and then are routed to another available market
center if the limit order's price is locked or crossed by that market
center.
Currently, limit orders in the Nasdaq Market Center that are locked
or crossed by other market centers remain inside the Nasdaq system and
are not routed based on their price being locked or crossed. Under this
proposal, users would have the option of directing that if their limit
orders posted on the book subsequently become locked or crossed by
prices displayed in another market center, the orders will be routed to
the locking/crossing market center for potential execution.
Specifically, the process would operate as follows:
If marketable upon entry, the order will be executed either
internally in the Nasdaq Market Center or routed to available external
execution venues until it is fully executed or no longer marketable.
The order will thereafter be added to the Nasdaq Market Center Book.
Once on the book, if another accessible execution venue displays an
order that locks or crosses the Proactive Limit Order, the order will
be removed from the Nasdaq Market Center book and routed to that
locking or crossing execution venue for potential execution. This
proactive routing capability shall be available as an option on all
Nasdaq Market Center order types that are eligible for routing to other
execution venues.
Nasdaq notes that a similar order functionality is already offered
by Nasdaq's Brut Facility as a Super Aggressive Cross Order.\5\ Nasdaq
also believes that this functionality will reduce the incidence and
duration of locked or crossed markets and improve the quality of
executions for Nasdaq Market Center users. Because of the similarities
between the proposed functionality and orders already in use in the
marketplace as well as the important market quality benefits the
functionality provides, Nasdaq requests that the Commission waive the
30-day pre-operative waiting period contained in Rule 19b-4(f)(6)(iii)
under the Act.\6\
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\5\ See NASD Rule 4903(b)(1)(C).
\6\ 17 CFR 240.19b-4(f)(6)(iii).
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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, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, remove impediments to a free
and open market and a national market system, and, in general, to
protect investors and the public interest. In particular, the proposal
will limit the length of locked or crossed markets and improve the
quality of executions for all Nasdaq Market Center participants.
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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 57638]]
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 \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6).
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Nasdaq has requested that the Commission waive the 30-day operative
delay. The Commission believes that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest
because the proposed change rule would permit Nasdaq to implement an
order type similar to one already in use in the marketplace that may
offer market quality benefits. Therefore, the Commission designates the
proposal to be effective and operative upon filing with the
Commission.\11\
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\11\ For purposes of waiving the 30-day operative delay, 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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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.
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. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-113 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-113. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 also will be available for inspection and copying at the
principal office of the NASD. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly.
All submissions should refer to File Number SR-NASD-2005-113 and
should be submitted on or before October 24, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-5346 Filed 9-30-05; 8:45 am]
BILLING CODE 8010-01-P