03-29802. Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval of Proposed Rule Change and Amendment Nos. 1 and 2 thereto by the National Association of Securities Dealers, Inc. To Amend Rule 4710 ...

November 21, 2003.

On August 22, 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”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change to amend NASD Rule 4710 to allow the Nasdaq National Market Execution System (“NNMS” or “SuperMontage”) to automatically match any non-directed buy and sell quotes/orders entered by an NNMS Order Entry Firm against the quotes/orders of that same NNMS Order Entry Firm on the other side of the market if such a quote/order on the other side of the market is at the best bid/offer in Nasdaq. On September 26, 2003, Nasdaq amended the proposed rule change.^[3]

The proposed rule change and Amendment No. 1 were published for comment in the Federal Register on October 16, 2003.^[4] The Commission received no comments on the proposal, as amended. On November 19, 2003, Nasdaq filed Amendment No. 2 to the proposed rule change.^[5] This order approves the proposed rule change, as amended by Amendment Nos. 1 and 2.^[6]

The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.^[7] In particular, the Commission believes that the proposed rule change, as amended, is consistent with Section 15A(b) of the Act ^[8] in general, and furthers the objectives of Section 15A(b)(6) ^[9] in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, 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. Specifically, the Commission finds that Nasdaq's proposal, as amended, provides NNMS Order Entry Firms with the same opportunity as other Nasdaq market participants to have their quotes/orders on opposite sides of the market match off against each other.

For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and rules and regulations thereunder.

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,^[10] that the proposed rule change (SR-NASD-2003-134) and Amendment Nos. 1 and 2 are approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[11]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Thomas P. Moran, Associate General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated September 25, 2003 (“Amendment No. 1”).

4.  See Securities Exchange Act Release No. 48606 (October 8, 2003), 68 FR 59659 (“Notice”).

5.  See letter from Thomas P. Moran, Associate General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated November 19, 2003 (“Amendment No. 2”). In Amendment No. 2, Nasdaq revised the text of the proposed rule change to correct a typographical error and to clarify that there would be no change to paragraphs (b)(1)(B)(iv)(c), (b)(1)(C) or (b)(1)(D) of NASD Rule 4710. This was a technical amendment and is not subject to notice and comment.

6.  Nasdaq represented that it would implement the proposed rule change, as amended, within 60 days after approval by the Commission. See Notice, supra note 4.

7.  In approving the proposed rule change, as amended, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

8.  15 U.S.C. 78 o-3(b).

9.  15 U.S.C. 78 o-3(b)(6).

10.  15 U.S.C. 78s(b)(2).

11.  17 CFR 200.30-3(a)(12).