[Federal Register Volume 64, Number 248 (Tuesday, December 28, 1999)]
[Notices]
[Pages 72710-72712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33546]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42242; File No. SR-NASD-99-68]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. Relating to Head Trader Alert 1999-60
Regarding the Nasdaq Application of the OptiMark System
December 16, 1999.
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, 1999, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association''), through its wholly-owned subsidiary
The Nasdaq Stock Market, Inc. (``Nasdaq'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by Nasdaq. Nasdaq submitted Amendment No. 1 on November
23, 1999.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, Nasdaq explained the ``N'' modifier that
may be attached to a SelectNet order that is the result of an
OptiMark match, and clarified the use of the C999 modifier by market
participants outside of the OptiMark system. Letter from Peter R.
Geraghty, Assistant General Counsel, Nasdaq, to Richard Strasser,
Assistant Director, Division of Market Regulation (``Division''),
Commission, dated November 22, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Nasdaq is filing an interpretation of NASD Rule 4991(h) that was
issued in Head Trader Alert Number 1999-60. The interpretation affects
the Nasdaq Application of the OptiMark System (the ``Nasdaq
Application''). The text of the proposed rule change is available at
the Association and at the Commission.
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,
[[Page 72711]]
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 SEC recently approved a proposed rule change filed by the NASD
to implement the Nasdaq Application.\4\ The Nasdaq Application permits
NASD members and their customers to enter large orders in Nasdaq stocks
into an anonymous matching system that has been designed, developed,
and patented by OptiMark Technologies, Inc. (``OptiMark Match'') and
has been integrated into Nasdaq's facilities in Trumbull, Connecticut.
The NASD believes that the anonymity offered by this facility limits
the market impact of trading in large size and provides NASD members
with a new, additional tool to trade Nasdaq securities more
effectively.
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\4\ Securities Exchange Act Release No. 41967 (September 30,
1999), 64 FR 54704 (October 7, 1999).
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The Nasdaq Application allows NASD members (and if sponsored by
NASD members, customers of such members) to enter trading interests,
called profiles, into Nasdaq-operated systems where those profiles are
collected and matched periodically by the OptiMark Match. As currently
approved, these matches occur no more frequently than every five
minutes. In addition to matching profiles entered directly into the
system, the Nasdaq Application incorporates bids and offers in the
Nasdaq Quote Montage, creates profiles for such quotes, and includes
the profiles in the next match. The OptiMark Match then attempts to
match contra interests at the best prices and sizes according to the
rules of the match process. If the system finds that a Nasdaq Quota
Montage profile matched with another profile, the system sends a
message to the market participant via the Nasdaq SelectNet system,
seeking to trade at the market participant's quoted price or better and
at round lot sizes, up to the amount quoted by that market participant.
Nasdaq believes that the rules approved by the SEC in October 1999
\5\ clearly implied that Nasdaq subscribers that respond to SelectNet
messages sent as a result of OptiMark entered profiles matching with
quoted interest displayed in the Nasdaq Quote Montage profiles must
respond in round lot sizes only. Specifically, Nasdaq intended that
Rule 4991(h) require such a response in that Rule 4991(h) stated that
orders in the Nasdaq Application ``shall be in round lots equal to or
greater than 1,000 shares, except for * * * Quote Montage Profiles * *
* that may be in any round lot size. * * *''
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\5\Id.
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Therefore, Nasdaq issued a Head Trader Alert to firms explaining
that the rules related to the OptiMark system specifically intended to
require that responses to SelectNet messages sent as a result of an
OptiMark Match with a Nasdaq Quote Montage profile must be made in
round lot sizes, and that the C999 modifier is intended to signal the
receiving market participant that it must respond in round lots only.
The Head Trader Alert also noted that Rule 3380(b) should not be
interpreted as permitting an ECN to reject a SelectNet message from an
OptiMark match with the C999 modifier. Nasdaq notes that the
requirement that an ECN or other market participant deal only in round
lots when responding to a SelectNet message sent as a result of an
OptiMark match is implied only by the rules governing the Nasdaq
Application of the OptiMark System. Other market participants sending
SelectNet messages to ECNs are not permitted to use the C999 modifier
in such circumstances.
In addition, the Head Trader Alert explained another modifier that
is attached to SelectNet orders sent as a result of OptiMark matches.
This modifier is the letter ``N'' which is intended to convey to the
recipient of the order that the order is non-negotiable. However the
Not Negotiable modifier ``N'' on a SelectNet order following the price
allows the recipient of the order to price improve the order and
execute it at a price better than that found in the price field. The
``N'' modifier does not allow the recipient to enter a counter offer at
an inferior price against the order. For example, a firm receiving an
order to sell at 10 with the Not Negotiable indicator may not send a
counter offer on the order at 9\7/8\, but they may price improve the
order at 10\1/16\.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
Section 15A\6\ of the Act in general and furthers the objectives of
Section 15A(b)(6) \7\ in particular because it is designed to promote
just and equitable principles of trade, to facilitate transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system, and to protect
investors and the public interest.\8\
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\6\ 15 U.S.C. 78o-3.
\7\ 15 U.S.C. 78o-3(b)(c).
\8\ In reviewing this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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Nasdaq believes that the proposed rule change is consistent with
provisions of Section 11A \9\ of the Act in general and furthers the
objectives of Section 11A(a)(1)(C) \10\ in particular because it is in
the public interest and appropriate for the protection of investors and
the maintenance of fair and orderly markets to assure economically
efficient execution of securities transactions, fair competition among
brokers and dealers, availability to brokers, dealers and investors of
information with respect to quotations and transactions in securities,
and practicability of brokers executing investors' orders in the best
market.
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\9\ 15 U.S.C. 78k-1.
\10\ 15 U.S.C. 78k-1(a)(1)(C).
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Nasdaq believes that the proposal is consistent with Section
15A(b)(6) \11\ and Section 11A(a)(1)(C) \12\ of the Act because it will
inform firms about two modifiers that may be attached to SelectNet
messages sent as a result of an Optimark match related to round lot
only messages and price improvement, and will clarify a firm's
obligations in responding to SelectNet orders generated by an OptiMark
match.
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\11\ 15 U.S.C. 78o-3(b)(6).
\12\ 15 U.S.C. 78k-1(a)(1)(C).
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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 inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Nasdaq has neither solicited nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The foregoing rule change constitutes a stated policy, practice or
interpretation with respect to the meaning, administration, or
enforcement of an existing rule of the Exchange and therefore, has
become effective pursuant to Section 19(b)(3)(A)(i) of the Act \13\ and
subparagraph (f)(l) of Rule 19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A)(i).
\14\ 17 CFR 240.19b-4(f)(1).
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At any time within 60 days of the filing of the proposed rule
change, the
[[Page 72712]]
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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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 SR-NASD-99-68 and should be
submitted by January 18, 2000.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-33546 Filed 12-27-99; 8:45 am]
BILLING CODE 8010-01-M
