01-17134. Self-Regulatory Organizations; Order Granting Accelerated Approval to a Proposal Rule Change and Amendment Nos. 1 and 2 Thereto by the National Association of Securities Dealers, Inc. Relating to the Elimination of the Interval Delay ...

July 2, 2001.

On May 10, 2001, the National Association of Securities Dealers, Inc. (“NASD” or “Association”), through its subsidiary, the Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“SEC” or “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, “Participant Obligations in NNMS,” to: (i) Eliminate the interval delay between executions against the same market maker at the same price level in the Nasdaq National Market Execution System (“NNMS” or “SuperSOES”); ^[3] and (ii) decrement a market maker's displayed quotation when the sum of the number of shares executed against a displayed quotation as a result of odd lot orders and the portion of mixed lot orders in excess of a round lot equals one normal unit of trading. On May 24, 2001, Nasdaq filed Amendment No. 1 to the proposed rule change.^[4] The proposed rule change and Amendment No. 1 were published for comment in the Federal Register on June 5, 2001.^[5] No comments were received regarding the proposal, as amended.

On June 5, 2001, Nasdaq filed Amendment No. 2 to the proposed rule change.^[6] This order approves the proposed rule change, as amended, on an accelerated basis.

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association ^[7] and, in particular, the requirements of section 15A of the Act ^[8] and the rules and regulations thereunder. Specifically, the Commission finds that the proposal to eliminate the interval delay between executions against a market maker's quotation at the same price level for all transactions in SuperSOES is consistent with section 15A(b)(6) of the Act ^[9] because it may minimize the risk of orders queuing within SuperSOES, thereby helping to ensure the efficient and orderly operation of SuperSOES.^[10] In addition, the Commission believes that the prompt execution of orders in SuperSOES should facilitate the price discovery process, to the benefit of all market participants. The Commission expects Nasdaq to carefully monitor the effect on the Nasdaq market and on market participants of eliminating the interval delay between executions in SuperSOES.

The Commission also finds that the proposed change in the decrementation feature of SuperSOES will facilitate the maintenance of a fair and orderly market by providing more accurate information about the size of market maker's displayed quotations, and by helping market makers to manage their quotations.

Nasdaq seeks to implement the proposed changed with the planned implementation of SuperSOES on July 9, 2001. To provide market participants with adequate notice of the changes and to allow sufficient time for broker-dealers and service bureaus to modify their electronic systems to conform to the proposed changes, Nasdaq has requested that the Commission find good cause for approving the proposal, as amended, prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register.

The Commission notes that the proposal and Amendment No. 1 were noticed for the full 21-day comment period and the Commission received no comments regarding the proposal, as amended. As discussed more fully above, the Commission believes that the proposed changes are designed to facilitate the efficient and orderly operation of the Nasdaq market. The Commission also believes that it is important to provide market participants with adequate time to modify their electronic systems to conform to the proposed changes. Accordingly, the Commission finds good cause pursuant to section 19(b)(2) of the Act ^[11] to approve the proposed rule change, as amended, on an accelerated basis, prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register.

For the foregoing reasons, the Commission finds that the proposal, 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,^[12] that the proposed rule change (SR-NASD-2001-35), as amended, is approved on an accelerated basis.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[13]

Jonathan G. Katz,

Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  The Commission approved the NNMS, a new platform for trading Nasdaq National Market (“NNM”) securities, on January 14, 2000. See Securities Exchange Act Release No. 42344 (January 14, 2000), 65 FR 3897 (January 25, 2000) (order approving File No. SR-NASD-99-11). Nasdaq plans to implement SuperSOES on July 9, 2001.

4.  See Letter from John M. Yetter, Assistant General Counsel, Nasdaq, to Katherine A. England, Division of Market Regulation, Commission, dated May 22, 2001 (“Amendment No. 1”). In Amendment No. 1, Nasdaq revised the text of NASD Rule 4710(b)(1) to replace a reference to an “NNMS security” with a reference to “NNM security.”

5.  See Securities Exchange Act Release No. 44365 (May 29, 2001), 66 FR 30252.

6.  See Letter from Johm M. Yetter, Assistant General Counsel, Nasdaq, to Katherine A. England, Division of Market Regulation, Commission, dated June 4, 2001 (“Amendment No. 2”). In Amendment No. 2, the Nasdaq added “the sum of” to the proposed rule text of NASD Rule 4710(b)(1)(C)(ii) to clarify the operation of the revised decrementation feature of SuperSOES. This is a technical amendment and is not subject to notice and comment.

7.  In approving this proposal, 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. 78c(f).

9.  15 U.S.C. 78 o-3(b)(6).

10.  In response to market participants' concerns that significant order flow could potentially produce queuing within the system, Nasdaq previously filed proposals with the Commission that revised the interval delay parameter in SuperSOES to: (i) Reduce the interval delay between executions against a market maker's quotation in Nasdaq 100 Index securities from five seconds to two seconds; and (ii) eliminate the interval delay between executions against a market maker's quotation during the first day of trading of securities of initial public offerings and secondary offerings. See Securities Exchange Act Release Nos. 43720 (December 13, 2000), 65 FR 79909 (December 20, 2000) (notice of filing and immediate effectiveness of File No. SR-NASD-00-67); and 44142 (April 2, 2001), 66 FR 18331 (April 6, 2001) (order approving File No. SR-NASD-01-03). According to Nasdaq, market participants support the current proposal to eliminate the interval delay for all transactions in SuperSOES to further minimize the risk of queuing within the system.

11.  15 U.S.C. 78s(b)(2).

12.  15 U.S.C. 78s(b)(2).

13.  17 CFR 200.30-3(a)(12).