[Federal Register Volume 69, Number 76 (Tuesday, April 20, 2004)]
[Notices]
[Pages 21172-21174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8861]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49556; File No. SR-NASD-2004-059]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by the National Association of
Securities Dealers, Inc. Regarding an Interpretation to Its Trade
Through Rule for Exchange-Listed Securities
April 12, 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 April 2, 2004, 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. Nasdaq has
designated this proposal as a stated policy, practice, or
interpretation with respect to the meaning, administration, or
enforcement of an existing rule pursuant to section 19(b)(3)(A) of the
Act,\3\ and Rule 19b-4(f)(1) \4\ thereunder, which renders the proposal
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\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)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes an interpretation to Rule 5262 (``Trade-Throughs'')
establishing that certain executions in exchange-listed securities will
not be considered trade-throughs if a commitment to trade is sent
contemporaneously via the Intermarket Trading System (``ITS'') with the
execution to another market center to fully satisfy that other market's
quotation.
The text of the proposed rule change is below. Proposed new
language is
[[Page 21173]]
italicized; proposed deletions are in brackets.
* * * * *
Rule 5262. Trade-Throughs
(a)-(c) No Change.
* * * * *
IM 5262-1. Contemporaneous Sending of Commitments
The terms ``trade-through'' and ``third participating market center
trade-through'' do not include the situation where a member who
initiates the purchase (sale) of an ITS Security, at a price which is
higher (lower) than the price at which the security is being offered
(bid) in another ITS participating market, sends contemporaneously
through ITS to such ITS participating market a commitment to trade at
such offer (bid) price or better and for at least the number of shares
displayed with that market center's better-priced offer (bid). A trade-
through complaint sent in these circumstances is not valid, even if the
commitment sent in satisfaction cancels or expires, and even if there
is more stock behind the quote in the other market.
* * * * *
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Nasdaq market center operates facilities for quoting and
trading exchange-listed securities. Nasdaq's facilities are linked with
exchanges that trade these securities via the Intermarket Trading
System (``ITS''), which is governed by a national market system plan
(``ITS Plan'').\5\ The ITS Plan requires each participant, including
Nasdaq, to adopt a rule--Rule 5262--prohibiting participants from
trading ITS securities at a price which is lower than the bid or higher
than the offer displayed from an ITS Participant Exchange or ITS/CAES
Market Maker.\6\ The rationale for the so-called ``Trade-Through Rule''
is that superior priced quotations in a security displayed from other
participant markets should be protected or satisfied if, in another
participant market, an execution in the security occurs at an inferior
price. Under Rule 5262, one remedy for a trade-through is that, upon a
valid complaint of a trade-through, a commitment to trade, at the price
and for the number of shares in the disseminated quotation, must be
sent to the other participant market to fully satisfy such quotation.
---------------------------------------------------------------------------
\5\ The ITS Plan was approved on a permanent basis on January
27, 1983. See Securities Exchange Act Release No. 19456 (January 27,
1983), 48 FR 4938. Signatories to the ITS Plan include the American
Stock Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago
Board Options Exchange, Inc., the Chicago Stock Exchange, Inc., the
Cincinnati Stock Exchange, Inc. (now known as the National
Securities Exchange), the NASD, the New York Stock Exchange, Inc.
(``NYSE''), the Pacific Exchange, Inc., and the Philadelphia Stock
Exchange, Inc.
\6\ Capitalized terms are defined in NASD Rule 5210.
---------------------------------------------------------------------------
The proposed interpretation of Rule 5262 recognizes that superior
quotations are fully protected/satisfied if an ITS commitment is sent
to trade with a bid/offer that would otherwise appear to have been
traded through. That is, a trade will not be considered a trade-through
if an ITS commitment is sent contemporaneously from the participant
executing the trade for the purpose of being executed against the
better-priced displayed bid or offer. A complaint is not valid even if
a commitment cancels or expires and even if there is more stock behind
the quote in the other market. Furthermore, the interpretation
recognizes the impracticality of having to wait for the other market to
revise its quotation as a result of trading with a satisfying
commitment before trading activity may occur in other markets.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the Act, including section 15A(b)(6) \7\ of the Act, which requires,
among other things, that a registered national securities association's
rules be designed 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 mechanisms of a free and open market and a national market
system, and to protect investors and the public interest. Nasdaq
believes that the proposed rule change is consistent with these
requirements because it will facilitate transactions in securities,
remove impediments to a free and open market, and protect investors by
improving the transparency and efficiency of transactions.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(i) \8\ of the Act, and subparagraph (f)(1) of Rule 19b-4
thereunder,\9\ because it is concerned solely with the interpretation
of the meaning, administration or enforcement of existing NASD Rule
5262.
---------------------------------------------------------------------------
\8\ 15 U.S.C 78s(b)(3)(A)(i).
\9\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
At any time within 60 days of the filing of a rule change pursuant
to section 19(b)(3)(A) of the Act, the Commission may summarily
abrogate the 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 [email protected] Please
include File Number SR-NASD-2004-059 on the subject line.
Paper comments:
<> Send paper comments in triplicate to Jonathan G.
Katz, Secretary,
[[Page 21174]]
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609.
All submissions should refer to File Number SR-NASD-2004-059. 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 Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such 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-2004-059 and should be
submitted on or before May 11, 2004.
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-8861 Filed 4-19-04; 8:45 am]
BILLING CODE 8010-01-P
