Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto by the National Association of Securities Dealers, Inc. Seeking to Modify the Nasdaq Market Center Execution Service to Add an Optional Routing Feature, 19538-19543 [E5-1743]
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19538
Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / Notices
Paper Comments:
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609. All Submissions should
refer to File Number SR–CBOE–2004–
54. 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. 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 CBOE. 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–CBOE–2004–54 and should
be submitted on or before May 4, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.9
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 05–7375 Filed 4–12–05; 8:45 am]
BILLING CODE 8010–01–M
[Release No. 34–51504; File No. SR–NASD–
2004–033]
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change and
Amendment Nos. 1, 2, and 3 Thereto
by the National Association of
Securities Dealers, Inc. Seeking to
Modify the Nasdaq Market Center
Execution Service to Add an Optional
Routing Feature
April 7, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to modify the
Nasdaq Market Center execution service
(formerly known as SuperMontage or
the Nasdaq National Market Execution
System) to provide an optional routing
feature that will route orders in Nasdaqlisted securities to other markets
accessible by the router when these
markets are displaying quotes at prices
that are superior to those available on
Nasdaq. Pending Commission approval,
Nasdaq is scheduled to implement the
routing feature on or about May 9, 2005.
Below is the text of the proposed rule
change, as amended. Proposed new
language is italicized; proposed
deletions are in [brackets].
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4700. NASDAQ MARKET CENTER—
EXECUTION SERVICES
4701.
SECURITIES AND EXCHANGE
COMMISSION
9 17
notice is hereby given that on February
25, 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. On July
15, 2004, Nasdaq submitted
Amendment No. 1 to the proposed rule
change.3 On February 23, 2005, Nasdaq
submitted Amendment No. 2 to the
proposed rule change.4 On April 7,
2005, Nasdaq submitted Amendment
No. 3 to the proposed rule change.5 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
Definitions
Unless stated otherwise, the terms
described below shall have the
following meaning:
(a) The term ‘‘active Nasdaq Market
Center securities’’ shall mean those
Nasdaq Market Center eligible securities
in which at least one Nasdaq Market
Maker or ITS/CAES Market Maker is
currently active in the Nasdaq Market
Center, or at least one exchange or the
Association’s Alternative Display
Facility is actively quoting the security
and Nasdaq has access to the quotes of
these markets under Rule 4714. A
security will not be considered an
3 Amendment No. 1 replaced and superseded the
originally filed proposed rule change.
4 Amendment No. 2 replaced and superseded the
originally filed proposed rule change, as amended.
5 Amendment No. 3 replaced and superseded the
originally filed proposed rule change, as amended.
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‘‘active Nasdaq Market Center security’’
when trading on Nasdaq has been
halted pursuant to Rule 4120 and the
interpretations thereunder.
(b)–(z) No change
(aa) The term ‘‘Preferenced Order’’
shall mean an order that is entered into
the Non-Directed Order Process and is
designated to be delivered to or
executed against a particular Quoting
Market Participant’s Attributable Quote/
Order if the Quoting Market Participant
is at the best bid/best offer when the
Preferenced Order is the next in line to
be executed or delivered. Preferenced
Orders shall be executed subject to the
conditions set out in Rule 4710(b).
Preferenced Orders shall not be eligible
for routing as set out in Rule 4714.
(bb)–(jj) No change
(kk) The term ‘‘Auto-Ex’’ shall mean,
for orders in Nasdaq listed securities so
designated, an order that (except when
it is displayed or interacts with a
displayed Discretionary Order at a price
in its discretionary price range) will
execute solely against the Quotes/
Orders of Nasdaq Market Center
Participants that participate in the
automatic execution functionality of the
Nasdaq Market Center and that do not
charge a separate quote access fee to
Nasdaq Market Center Participants
accessing their Quotes/Orders through
the Nasdaq Market Center. An Auto-Ex
Order may be designated as ‘‘Immediate
or Cancel’’ (an ‘‘IOC Auto-Ex Order’’) or
‘‘Day’’ or ‘‘GTC’’ (a ‘‘Postable Auto-Ex
Order’’). A party entering a Postable
Auto-Ex Order may (but is not required
to) specify that the order will utilize the
functionality associated with
Discretionary Orders. Auto-Ex orders
shall not be eligible for routing as set out
in Rule 4714.
(ll) The term ‘‘Fill or Return’’ shall
mean for orders in ITS Securities so
designated, an order that is to be
delivered to or executed by Nasdaq
Market Center Participants without
delivering the order to an ITS Exchange
and without trading through the
quotations of ITS Exchanges. Fill or
Return orders shall not be eligible for
routing as set out in Rule 4714.
(mm) The term ‘‘Pegged’’ shall mean,
for priced limit orders so designated,
that after entry into the Nasdaq Market
Center, the price of the order is
automatically adjusted by the Nasdaq
Market Center in response to changes in
the Nasdaq Market Center inside bid or
offer, as appropriate. The Nasdaq
Market Center Participant entering a
Pegged Order may specify that the price
of the order will either equal the inside
quote on the same side of the market (a
‘‘Regular Pegged Order’’) or equal a
price that deviates from the inside quote
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on the contra side of the market by
$0.01 (i.e., $0.01 less than the inside
offer or $0.01 more than the inside bid)
(a ‘‘Reverse Pegged Order’’). The market
participant entering a Pegged Order may
(but is not required to) specify a cap
price, to define a price at which pegging
of the order will stop and the order will
be permanently converted into an
unpegged limit order. Pegged Orders
shall not be available for ITS Securities.
Pegged orders shall not be eligible for
routing as set out in Rule 4714.
(nn) The term ‘‘Discretionary’’ shall
mean,
(1) for priced limit orders in Nasdaq
listed securities so designated, an order
that when entered into the Nasdaq
Market Center has both a displayed bid
or offer price, as well as a non-displayed
discretionary price range in which the
participant is also willing to buy or sell,
if necessary. The displayed price may be
fixed or may be pegged to equal the
inside quote on the same side of the
market. The pegging of the Discretionary
Order may be capped in the same
manner as that of a Pegged Order. The
discretionary price range of a
Discretionary Order that is pegged will
be adjusted to follow the pegged
displayed price. Discretionary Orders
for Nasdaq listed securities shall be
eligible for routing as set out in Rule
4714.
(2) for orders in ITS Securities so
designated, an order that when entered
into the Nasdaq Market Center has both
a displayed bid or offer price, as well as
a non-displayed discretionary price
range in which the participant is also
willing to buy or sell, if necessary. The
display price must be fixed. A
Discretionary Order in an ITS Security
may not result in a quote that locks or
crosses the national best bid and offer
and shall not be executed at a price that
trades through the quotation of an ITS
Exchange unless it is designated as a
Sweep Order. Discretionary Orders for
ITS Securities shall not be eligible for
routing as set out in Rule 4714.
(oo) The term ‘‘Summary’’ shall mean,
for priced limit orders so designated,
that if an order is marketable upon
receipt by the Nasdaq Market Center, it
shall be rejected and returned to the
entering party. Summary Orders may
only be entered by Nasdaq OrderDelivery ECNs. Summary orders shall
not be eligible for routing as set out in
Rule 4714.
(pp)–(qq) No change
(rr) The term ‘‘Sweep Order’’ shall
mean, for orders in ITS Securities so
designated, an order that may be
delivered to or executed by Nasdaq
Market Center Participants at multiple
price levels. Sweep Orders shall not be
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eligible for routing as set out in Rule
4714.
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4706.
Order Entry Parameters
(a) Non-Directed Orders—
(1) General. The following
requirements shall apply to NonDirected 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’’, ‘‘AutoEx’’, ‘‘Fill or Return’’, ‘‘Pegged’’,
‘‘Discretionary’’, ‘‘Sweep’’, ‘‘Total Day’’,
‘‘Total Good till Cancelled’’, or ‘‘Total
Immediate or Cancel,’’ or ‘‘Summary.’’
(i)–(xiii) No change
(C) The system will not process a
Non-Directed Order to sell short if the
execution of such order would violate
[NASD Rule 3350 or, in the case of ITS
Securities,] SEC Rule 10a–1, in the case
of ITS Securities. Non-Directed Orders
to sell short shall not be executed in the
Nasdaq Market Center if the execution
of such order would violate NASD Rule
3350. Non-Directed Orders to sell short
that cannot be executed in the Nasdaq
Market Center and that have elected to
be routed to other markets as set out in
Rule 4714 shall be routed to another
market and processed in accordance
with the short sale restrictions in effect
at the destination market.
(D)–(F) No change
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4707.
Entry and Display of Quotes/Orders
(a) Entry of Quotes/Orders—Nasdaq
Quoting Market Participants may enter
Quotes/Orders into the Nasdaq Market
Center, and Order Entry Firms may
enter Non-Attributable Orders into the
Nasdaq Market Center, subject to the
following requirements and conditions:
(1) No change
(2) Upon entry of a Quote/Order into
the system, the Nasdaq Market Center
shall time-stamp it, which time-stamp
shall determine the ranking of the
Quote/Order for purposes of processing
Non-Directed Orders as described in
Rules 4710(b) and 4714. For each
subsequent size increase received for an
existing quote at a given price, the
system will maintain the original timestamp for the original quantity of the
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19539
quote and assign a separate time-stamp
to that size increase. When a Pegged
Order (including a Discretionary Order
that is pegged) is displayed as a Quote/
Order, its time-stamp will be updated
whenever its price is adjusted.
(3)–(4) No change
(b) Display of Quotes/Orders in
Nasdaq—The Nasdaq Market Center
will display [a Nasdaq] Quotes/Orders
submitted to the system as follows:
(1)–(2) No change
(3) Exceptions—The following
exceptions shall apply to the display
parameters set forth in paragraphs (1)
and (2) above:
(A)–(C) No change
(D) Non-Directed Orders and
Routing—Non-Directed Orders marked
for routing as set out in Rule 4714 shall
not be displayed in the Nasdaq Market
Center while outside the Nasdaq Market
Center. Non-Directed Orders marked for
routing shall be displayed in the Nasdaq
Market Center as set out in Rules 4701
and 4707 while such orders are in the
Nasdaq Market Center.
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4710. Participant Obligations in the
Nasdaq Market Center
(a) No change
(b) Non-Directed Orders
(1) General Provisions—A Quoting
Market Participant in a Nasdaq Market
Center eligible security, as well as Order
Entry Firms, shall be subject to the
following requirements for NonDirected Orders:
(A) No change
(B) Processing of Non-Directed
Orders—Upon entry of a Non-Directed
Order into the system, the Nasdaq
Market Center will ascertain who the
next Quoting Market Participant or
Order Entry Firm in queue to receive an
order is and shall deliver an execution
to Quoting Market Participants or Order
Entry Firms that participate in the
automatic-execution functionality of the
system, or shall deliver a Liability Order
to Quoting Market Participants that
participate in the order-delivery
functionality of the system. NonDirected Orders entered into the Nasdaq
Market Center system shall be delivered
to or automatically executed against
Quoting Market Participants’ or Order
Entry Firms’ Displayed Quotes/Orders
and Reserve Size, in strict price/time
priority, as described in the algorithm
contained in subparagraph (b)(B)(i) of
this rule. The individual time priority of
each Quote/Order submitted to the
Nasdaq Market Center shall be assigned
by the system based on the date and
time such Quote/Order was received.
Remainders of Quote/Orders reduced by
execution, if retained by the system,
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shall retain the time priority of their
original entry. For purposes of the
execution algorithms described in
paragraphs (i), (ii) and (iii) below,
‘‘Displayed Quotes/Orders’’ shall also
include any odd-lot, odd-lot portion of
a mixed-lot, or any odd-lot remainder of
a round-lot(s) reduced by execution,
share amounts that while not displayed
in the quotation montage of the Nasdaq
Market Center, remain in system and
available for execution.
(i) Execution Algorithm—Price/
Time—The system will default to a
strict price/time priority within Nasdaq,
and will attempt to access interest in the
system in the following priority and
order:
a. Displayed Quotes/Orders of Nasdaq
Market Makers, ITS/CAES Market
Makers, and Nasdaq ECNs, displayed
Non-Attributable Quotes/Orders of
Order Entry Firms, and displayed nonattributable agency Quotes/Orders of
UTP Exchanges (as permitted by
subparagraph (f) of this rule), in time
priority between such participants’
Quotes/Orders;
b. Reserve Size of Nasdaq Quoting
Market Participants and Order Entry
Firms, in time priority between such
participants’ Quotes/Orders; and
c. Principal Quotes/Orders of UTP
Exchanges, in time priority between
such participants’ Quotes/Orders.
(ii) Exceptions—The following
exceptions shall apply to the above
execution parameters:
a. If a Nasdaq Quoting Market
Participant or Order Entry Firm enters a
Non-Directed Order into the system,
before sending such Non-Directed Order
to the next Quoting Market Participants
in queue, the Nasdaq Market Center will
first attempt to match off the order
against the Nasdaq Quoting Market
Participant’s or Order Entry Firm’s own
Quote/Order if the participant is at the
best bid/best offer in Nasdaq. Nasdaq
Quoting Market Participants and Order
Entry Firms may avoid any attempted
automatic system matching permitted
by this paragraph through the use of an
anti-internalization qualifier (AIQ)
quote/order flag containing the
following values: ‘‘Y’’ or ‘‘I’’, subject to
the following restrictions:
Y—if the Y value is selected, the
system will execute the flagged quote/
order solely against attributable and
non-attributable quotes/orders
(displayed and reserve) of Quoting
Market Participants and Order Entry
Firms other than the party entering the
AIQ ‘‘Y’’ flagged quote/order. If the only
available trading interest is that of the
same party that entered the AIQ ‘‘Y’’
flagged quote/order, the system will not
execute at an inferior price level, and
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will instead return the latest entered of
those interacting quote/orders (or
unexecuted portions thereof) to the
entering party or route the quote/order
to another market as set out in Rule
4714 if the quote/order is marked for
routing; provided, however, that in the
case of a Discretionary Order interacting
with a bid/offer entered by the system
pursuant to Rule 4710(b)(5), the
Discretionary Order (or unexecuted
portions thereof) will be returned.
I—if the I value is selected, the system
will execute against all available trading
interest, including the quote/orders of
the Order Entry Firm or Nasdaq Quoting
Market Participant that entered the AIQ
‘‘I’’ flagged order, based on the price/
time execution algorithm
b. No change
c. No change
d. No change
e. If a Nasdaq Market Center
Participant enters a Discretionary Order,
the Discretionary Order shall first be
executed against (or delivered in an
amount equal to) the Quotes/Orders and
Reserve Size of Nasdaq Market Center
Participants (including displayed
Discretionary Orders at their displayed
prices) in conformity with this rule and
subject to any applicable exceptions. If
the full size of the incoming
Discretionary Order cannot be executed
at its displayed price, the order may also
be executed against (or delivered in an
amount equal to) the Quotes/Orders and
Reserve Size of Nasdaq Market Center
Participants within the incoming
Discretionary Order’s discretionary
price range (including displayed
Discretionary Orders at their displayed
prices), in conformity with this rule and
subject to any applicable exception. If
the full size of the incoming
Discretionary Order cannot be executed
in this manner, the order may also be
executed by (or receive delivery of)
displayed Discretionary Orders with
discretionary price ranges that overlap
with the incoming Discretionary Order’s
discretionary price range, in conformity
with this rule and subject to any
applicable exception. The unexecuted
portion of a Discretionary Order will
then be retained by the Nasdaq Market
Center for potential display in
conformity with Rule 4707(b). To the
extent a Discretionary Order designated
for routing is not executed in full in
accordance with the procedures
described above upon submission to the
Nasdaq Market Center the order shall be
routed as set out in Rule 4714.
When a Discretionary Order is
displayed as a Quote/Order, NonDirected Orders or Quotes/Orders
entered at the displayed price
(including incoming Discretionary
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Orders with a displayed or discretionary
price equal to the displayed
Discretionary Order’s displayed price)
may be executed against (or delivered
to) the displayed Discretionary Order,
and market orders may be executed
against (or delivered to) the displayed
Discretionary Order when its displayed
price is at the inside. Non-Directed
Orders or Quotes/Orders (other than
Discretionary Orders) entered at a price
within the displayed Discretionary
Order’s discretionary price range may be
executed by (or receive delivery of) the
displayed Discretionary Order at the
price of the incoming Non-Directed
Order or Quote/Order if there are no
displayed Quotes/Orders at that price or
better. Incoming Discretionary Orders
with a discretionary price range that
overlaps with the displayed
Discretionary Order’s discretionary
price range may be executed by (or
receive delivery of) the displayed
Discretionary Order at the overlapping
price most favorable to the displayed
Discretionary Order. A displayed
Discretionary Order that may be
executed at a price in its discretionary
price range will execute against NonDirected Orders and Quotes/Orders
entered by Nasdaq Market Center
Participants in the automatic execution
functionality of the Nasdaq Market
Center, and will be delivered to NonDirected Orders and Quotes/Orders
entered by Nasdaq Order-Delivery
ECNs.
For purposes of determining
execution priority, the price priority of
a displayed Discretionary Order will be
based on its displayed price when it
may be executed at its displayed price.
When displayed Discretionary Orders
may be executed at prices within their
discretionary price ranges, their price
´
priority vis-a-vis one another will be
based on their most aggressive
discretionary prices, and their price
´
priority vis-a-vis Quotes/Orders that are
not Discretionary Orders will be based
upon the price at which they are
executable.
f. No change
g. Non-Directed Orders marked for
routing shall be processed in
accordance with Rule 4714.
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(e) UTP Exchanges—Direct
Participation in Nasdaq Market Center
Direct [P]participation in the Nasdaq
Market Center by UTP Exchanges is
voluntary. If a UTP Exchange does not
participate directly in the Nasdaq
Market Center, the UTP Exchange’s
quotes may nevertheless be accessible in
accordance with Rule 4714 [will not be
accessed through the Nasdaq Market
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Center, and the Nasdaq Market Center
will not include the UTP Exchange’s
quotation for order processing and
execution purposes].
A UTP Exchange may voluntarily
participate in the Nasdaq Market Center
directly if it executes a Nasdaq
Workstation Subscriber Agreement, as
amended, for UTP Exchanges, and
complies with the terms of this
subparagraph [(e)] (f) of this rule. The
terms and conditions of such access and
participation, including available
functionality and applicable rules and
fees, shall be set forth in and governed
by the Nasdaq Workstation Subscriber
Agreement, as amended for UTP
Exchanges. The Nasdaq Workstation
Subscriber Agreement, as amended for
UTP Exchanges may expand but shall
not contract the rights and obligations
set forth in these rules. Access to UTP
Exchanges may be made available on
terms that differ from the terms
applicable to members but may not
unreasonably discriminate among
similarly situated UTP Exchanges. The
following provisions shall apply to UTP
Exchanges that choose to participate in
the Nasdaq Market Center.
*
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4714.
Routing—Nasdaq-Listed Securities
If a Non-Directed Order for a Nasdaqlisted security is not executed in its
entirety in the Nasdaq Market Center
and such order is designated for routing,
the order (or the unfilled portion
thereof—referred to hereinafter as an
‘‘order’’) shall be processed as follows:
(a) The order shall be routed to those
markets accessible through the Nasdaq
Market Center router that are displaying
quotes priced better than the Quotes/
Orders available in the Nasdaq Market
Center as a limit order. Routed orders
shall be executed pursuant to the rules
and regulations of the destination
market.
(b) In the event an order routed from
the Nasdaq Market Center to another
market is not executed in its entirety,
the remaining portion of the order shall
be returned to the Nasdaq Market
Center and shall be eligible for
execution, or re-routing, if marketable.
A market order that is converted to a
limit order for routing will become a
market order again upon return to the
Nasdaq Market Center.
(c) In the event an order becomes nonmarketable while it is in the execution
queue, or the order is not marketable
upon return to Nasdaq, the order shall
be included in the Nasdaq Market
Center book (if consistent with the
order’s time in force condition) in
accordance with the time priority
established by the time-stamp assigned
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to the order when it was initially
submitted to the Nasdaq Market Center.
Once an order is placed in the Nasdaq
Market Center book it shall not be
routed outside the Nasdaq Market
Center.
(d) An order that has been routed to
another market shall have no time
standing in the Nasdaq Market Center
execution queue relative to other orders
in the Nasdaq Market Center. A request
from a Nasdaq Market Center
Participant to cancel an order while it
is outside the Nasdaq Market Center
shall be processed subject to the
applicable rules of the market to which
the order has been routed.
(e) Orders shall not be routed to other
markets during the Nasdaq Market
Center Opening and Closing Crosses, as
described in Rules 4704 and 4709.
(f) Orders shall not be routed to other
markets at prices that exceed the
execution price governors described in
Rule 4710(b)(1)(B)(ii)(c).
*
*
*
*
*
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, as amended, and
discussed any comments it received on
the proposed rule change, as amended.
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 modify the
Nasdaq Market Center execution service
to create an optional routing feature that
will route orders in Nasdaq-listed
securities to other markets when those
markets are displaying quotes at prices
that are superior to those displayed in
Nasdaq and that are accessible through
the router.6 Under the proposal, Nasdaq
6 Nasdaq states that the routing feature will be
optional; members can continue to use other routers
to reach other markets. In general, Non-Directed
market orders and limit orders will be eligible for
routing. In addition, Discretionary Non-Directed
Orders will be eligible for routing. Members also
will be able to use the following time in force
conditions on Non-Directed Orders eligible for
routing: Immediate or Cancel, Day, Good-tillCancelled, Total Day, Total Good till Cancelled,
Total Immediate or Cancel, and End of Day. Other
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19541
Market Center Participants will be able
to choose on an order-by-order basis
whether they want an order routed
outside the Nasdaq Market Center.7
Routed orders would be executed
pursuant to the rules and regulations of
the destination market. Nasdaq states
that there will be no change in the
processing of orders not marked for
routing; these orders will continue to be
processed through the normal Nasdaq
Market Center execution service
execution algorithm.
According to Nasdaq, the processing
of an order marked for routing will
differ depending on whether there are
quotes on other markets at prices
unique Non-Directed Order types, such as Pegged
orders, are not eligible for routing. Finally, routing
will not be available for Directed Orders and
Preferenced Orders.
Non-Directed orders will not be routed outside
the Nasdaq Market Center during Nasdaq’s Opening
and Closing Crosses, which are described in NASD
Rules 4704 and 4709. Nasdaq believes that routing
orders outside Nasdaq during the opening and
closing crosses would be inconsistent with the
purpose of these auctions, which is to arrive at a
single price that is based on the maximum number
of shares that can be executed on Nasdaq.
Nasdaq states that it also will not route orders at
prices that exceed the execution price governors
that limit the prices at which orders can execute in
the Nasdaq Market Center (NASD Rule
4710(b)(1)(B)(ii)(c)). The governors prevent large
market orders and marketable limit orders priced
significantly away from the inside, which in many
instances are entered in error, from executing
through numerous price levels automatically
without any restraint and thus establishing a new
inside market and potentially a new historic high
or low price for a security that is not truly reflective
of current market trading. Nasdaq adopted the
governors to balance the goals of rapid execution
and price discovery against the need to protect
investors from excessive volatility and market
confusion that can result from these orders. For
these very same reasons, Nasdaq believes it should
not route orders to other markets at prices that
exceed these price limitations.
7 By default, eligible Non-Directed Orders will be
marked for routing. Members, however, will be able
to override the default by indicating that an order
should not be routed.
While Nasdaq initially expects to access through
its router those quotes that would qualify as
‘‘automated quotations’’ as under Regulation NMS,
Nasdaq may route to non-automated quotations as
appropriate. Nasdaq will access the quotes of
exchanges through its broker-dealer subsidiary,
Brut, which may not be a member of all exchanges
(Brut’s quotes are displayed in the Nasdaq Market
Center, thus the liquidity in the Brut ECN will be
accessible as part of the liquidity in the Nasdaq
Market Center). Routing done by Brut for the
Nasdaq Market Center is conducted separately from
routing the Brut Facility performs for its
subscribers. Nasdaq also will route orders to
exchanges in which Brut is not a member, to the
extent Brut has access to the market participants
displaying quotes in these other markets. For
example, one national securities exchange’s quotes
can be accessed indirectly by routing orders to the
ECN that is the predominant, if not sole, market
participant displaying quotes on that exchange. In
addition, Nasdaq also may route orders to market
centers that display their quotes through the
NASD’s Alternative Display Facility (‘‘ADF’’) and
market centers that do not display their quotes
through exchanges or the ADF.
E:\FR\FM\13APN1.SGM
13APN1
19542
Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / Notices
superior to those displayed on Nasdaq
and such quotes are accessible by
Nasdaq. For each order flagged for
routing, the Nasdaq Market Center will
determine whether Nasdaq is at the best
`
price vis-a-vis other markets that are
accessible through Nasdaq’s router. If
Nasdaq is displaying the best prices, the
order will be executed in full or up to
the maximum amount of shares
available in Nasdaq at the price levels
that are superior to the prices at these
other markets. Nasdaq would route any
unfilled portion of the order to one of
the other markets that are displaying
superior quotes and that is accessible by
the Nasdaq router. If more than one
market is at a price level that is superior
to Nasdaq’s displayed price, the
computer algorithm of the Nasdaq
Market Center router will determine the
market, or markets, to which the order
will be sent, based on several factors
including the number of shares being
displayed, response time, likelihood of
undisplayed trading interest, and the
cost of accessing the market.
If other markets accessible through
the router have prices superior to those
on Nasdaq when an order is next in line
to be processed, the order will by-pass
the Nasdaq Market Center execution
algorithm and will be routed to a market
or markets displaying the superior
priced quotes.8 If an order (or a portion
of the order) remains unfilled after being
routed, it will be returned to Nasdaq
where, if the order is marketable, it will
be returned to the Non-Directed Order
processing queue, where it can be
executed in Nasdaq, or routed again, if
Nasdaq is not at the best price when the
order is next in line in the processing
queue.9 Once a routed limit order is no
longer marketable, whether it becomes
non-marketable upon return to Nasdaq
or while in the execution queue, it will
be placed on the Nasdaq Market Center
book, if consistent with the order’s time
in force condition.10 Once on the book,
however, an order will not be routed out
8 Nasdaq states that when a member submits a
market order to the Nasdaq Market Center and has
chosen to have the order routed, if routed, the
market order will be routed to another market as a
limit order. An order that has been routed to
another market shall have no time standing in the
Nasdaq Market Center execution queue relative to
other orders in the Nasdaq Market Center.
9 Nasdaq states that a market order that is
converted to a limit order when it is routed to
another market will become a market order again
upon return to Nasdaq. However, if after being
placed back in the order execution queue the order
is routed yet again, it will be re-converted to a limit
order.
10 Nasdaq states that orders returned to Nasdaq
will be placed on the Nasdaq Market Center book
on the basis of the time-stamp assigned to the order
when it was originally submitted to the Nasdaq
Market Center.
VerDate jul<14>2003
19:24 Apr 12, 2005
Jkt 205001
of the Nasdaq Market Center, even if it
becomes marketable against the quotes
of another market.
2. Statutory Basis
Nasdaq believes that the proposed
rule change, as amended, is consistent
with Section 15A of the Act,11 in
general, and furthers the objectives of
Section 15A(b)(6),12 in particular, in
that Section 15A(b)(6) requires the
NASD’s rules to be designed, among
other things, to protect investors and the
public interest. In addition, Nasdaq
believes its proposal is consistent with
Section 11A(a)(1)(C)(ii) of the Act,13
which states that it is in the public
interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure, among other things, fair
competition among brokers and dealers,
among exchange markets, and between
exchange markets and markets other
than exchange markets. Finally, Nasdaq
believes its proposal is consistent with
the Commission’s Regulation NMS,
which supports the concept of selfregulatory organizations (‘‘SROs’’)
accessing the quotes of other SROs
through broker-dealers.14
Nasdaq believes this proposal is
consistent with the NASD’s obligations
under Section 15A of the Act because it
would enable members to use the
Nasdaq Market Center to access other
markets that are displaying prices
superior to those available on Nasdaq.
In addition, Nasdaq also believes that
the proposal is consistent with Section
11A because it should allow Nasdaq to
compete with a national securities
exchange that offers a similar routing
feature through its broker-dealer
subsidiary. Further, Nasdaq believes
that the proposal would allow Nasdaq to
implement the method envisioned by
the Commission in Regulation NMS for
accessing other SROs’ quotes.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change, as amended, will
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
U.S.C. 78o–3.
U.S.C. 78o–3(b)(6).
13 15 U.S.C. 78k–1(a)(1)(C)(ii).
14 Securities Exchange Act Release Nos. 49325
(Feb. 26, 2004), 69 FR 11126 (Mar. 9, 2004); 49749
(May 20, 2004), 69 FR 30142 (May 26, 2004); 50870
(Dec. 16, 2004), 69 FR 77424 (Dec. 27, 2004).
PO 00000
11 15
12 15
Frm 00131
Fmt 4703
Sfmt 4703
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding, or
(ii) as to which Nasdaq consents, the
Commission will:
(A) By order approve such proposed
rule change, as amended; or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2004–033 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–NASD–2004–033. 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 (https://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
E:\FR\FM\13APN1.SGM
13APN1
Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / Notices
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 also will be
available for inspection and copying at
the principal office of Nasdaq. 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–2004–033 and
should be submitted on or before May
4, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1743 Filed 4–12–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51498; File No. SR-NASD–
2005–038]
Self-Regulatory Organizations; Notice
of Filing and Order Granting
Accelerated Approval of Proposed
Rule Change by the National
Association of Securities Dealers, Inc.
to Modify the Pricing for Non-NASD
Members Using Nasdaq’s Brut Facility
April 6, 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 March 28,
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. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons, and at
the same time is granting accelerated
approval of the proposed rule change.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to modify the
pricing for non-NASD members using
Nasdaq’s Brut Facility. Nasdaq requests
approval to implement the proposed
rule change retroactively as of April 1,
2005. The text of the proposed rule
change is available on the NASD’s Web
site (https://www.nasd.com), at the
NASD’s Office of the Secretary, and at
the Commission’s Public Reference
Room.
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 III below. Nasdaq has prepared
summaries, set forth in sections A, B
and C below, of the most significant
aspects of such statements.
19543
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose On March 28, 2005, Nasdaq
filed with the Commission SR-NASD–
2005–035, modifying the fee structure
applicable to NASD members using the
Nasdaq Market Center (‘‘NMC’’) or
Nasdaq’s Brut Facility (‘‘Brut’’). This
filing seeks to impose, effective April 1,
2005, that exact same fee structure on
non-NASD members using Brut. As set
forth in SR-NASD–2005–035, fees in
both the NMC and Brut are based upon
multiple volume-based usage tiers that
take into account the volume of a
market participant across both systems.
Currently, market participants must
provide more than 500,000 shares of
average daily liquidity each month to
reduce their per-share execution costs or
routing charges. In order to receive a
higher liquidity provider credit, users
must provide in excess of 1,000,000
shares of average daily liquidity each
month in Nasdaq and/or Brut.
Just like the fees applicable to NASD
members in SR-NASD–2005–035, for
non-NASD members, Nasdaq proposes
in this filing to: 1 Increase to just over
2,000,000 shares the amount of average
daily liquidity needed to be provided by
a market participant to have its pershare execution or routing costs
reduced; and 2 increase to 2,000,000
shares the number of shares of average
daily liquidity needed to be provided
each month before a market participant
becomes eligible for an increased
liquidity provider credit. The resulting
modified fee structure is summarized
below:
Charge to member entering order:
Average daily shares of liquidity provided through the Nasdaq Market
Center and/or Nasdaq’s Brut Facility by the member during the
month:.
Greater than 10 million .............................................................................
Greater than 2,000,000 but less than or equal to 10,000,000 ................
2,000,000 or less ......................................................................................
Average daily shares of liquidity provided through the Nasdaq Market
Center and/or Nasdaq’s Brut Facility by the member during the
month:.
Greater than 20 million .............................................................................
Greater than 2,000,000 but less than or equal to 20,000,000 ................
Less than or equal to 2,000,000 ..............................................................
15 17
CFR 200.30–3(a)(12).
VerDate jul<14>2003
18:37 Apr 12, 2005
1 15
Jkt 205001
PO 00000
$0.0027
trades
$0.0028
trades
$0.0030
trades
$0.0025 per share executed (but no more than $100 per trade for
trades in securities executed at $1.00 or less per share).
$0.0022 per share executed (but no more than $88 per trade for trades
in securities executed at $1.00 or less per share).
$0.0020 per share executed (but no more than $80 per trade for trades
in securities executed at $1.00 or less per share).
U.S.C. 78s(b)(1).
Frm 00132
Fmt 4703
per share executed (but no more than $108 per trade for
in securities executed at $1.00 or less per share).
per share executed (but no more than $112 per trade for
in securities executed at $1.00 or less per share).
per share executed (but no more than $120 per trade for
in securities executed at $1.00 or less per share).
2 17
Sfmt 4703
E:\FR\FM\13APN1.SGM
CFR 240.19b-4.
13APN1
]]>Agencies
[Federal Register Volume 70, Number 70 (Wednesday, April 13, 2005)]
[Notices]
[Pages 19538-19543]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1743]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51504; File No. SR-NASD-2004-033]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1, 2, and 3 Thereto by the National
Association of Securities Dealers, Inc. Seeking to Modify the Nasdaq
Market Center Execution Service to Add an Optional Routing Feature
April 7, 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 February 25, 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. On July 15,
2004, Nasdaq submitted Amendment No. 1 to the proposed rule change.\3\
On February 23, 2005, Nasdaq submitted Amendment No. 2 to the proposed
rule change.\4\ On April 7, 2005, Nasdaq submitted Amendment No. 3 to
the proposed rule change.\5\ The Commission is publishing this notice
to solicit comments on the proposed rule change, as amended, from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaced and superseded the originally filed
proposed rule change.
\4\ Amendment No. 2 replaced and superseded the originally filed
proposed rule change, as amended.
\5\ Amendment No. 3 replaced and superseded the originally filed
proposed rule change, as amended.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to modify the Nasdaq Market Center execution
service (formerly known as SuperMontage or the Nasdaq National Market
Execution System) to provide an optional routing feature that will
route orders in Nasdaq-listed securities to other markets accessible by
the router when these markets are displaying quotes at prices that are
superior to those available on Nasdaq. Pending Commission approval,
Nasdaq is scheduled to implement the routing feature on or about May 9,
2005. Below is the text of the proposed rule change, as amended.
Proposed new language is italicized; proposed deletions are in
[brackets].
* * * * *
4700. NASDAQ MARKET CENTER--EXECUTION SERVICES
4701. Definitions
Unless stated otherwise, the terms described below shall have the
following meaning:
(a) The term ``active Nasdaq Market Center securities'' shall mean
those Nasdaq Market Center eligible securities in which at least one
Nasdaq Market Maker or ITS/CAES Market Maker is currently active in the
Nasdaq Market Center, or at least one exchange or the Association's
Alternative Display Facility is actively quoting the security and
Nasdaq has access to the quotes of these markets under Rule 4714. A
security will not be considered an ``active Nasdaq Market Center
security'' when trading on Nasdaq has been halted pursuant to Rule 4120
and the interpretations thereunder.
(b)-(z) No change
(aa) The term ``Preferenced Order'' shall mean an order that is
entered into the Non-Directed Order Process and is designated to be
delivered to or executed against a particular Quoting Market
Participant's Attributable Quote/Order if the Quoting Market
Participant is at the best bid/best offer when the Preferenced Order is
the next in line to be executed or delivered. Preferenced Orders shall
be executed subject to the conditions set out in Rule 4710(b).
Preferenced Orders shall not be eligible for routing as set out in Rule
4714.
(bb)-(jj) No change
(kk) The term ``Auto-Ex'' shall mean, for orders in Nasdaq listed
securities so designated, an order that (except when it is displayed or
interacts with a displayed Discretionary Order at a price in its
discretionary price range) will execute solely against the Quotes/
Orders of Nasdaq Market Center Participants that participate in the
automatic execution functionality of the Nasdaq Market Center and that
do not charge a separate quote access fee to Nasdaq Market Center
Participants accessing their Quotes/Orders through the Nasdaq Market
Center. An Auto-Ex Order may be designated as ``Immediate or Cancel''
(an ``IOC Auto-Ex Order'') or ``Day'' or ``GTC'' (a ``Postable Auto-Ex
Order''). A party entering a Postable Auto-Ex Order may (but is not
required to) specify that the order will utilize the functionality
associated with Discretionary Orders. Auto-Ex orders shall not be
eligible for routing as set out in Rule 4714.
(ll) The term ``Fill or Return'' shall mean for orders in ITS
Securities so designated, an order that is to be delivered to or
executed by Nasdaq Market Center Participants without delivering the
order to an ITS Exchange and without trading through the quotations of
ITS Exchanges. Fill or Return orders shall not be eligible for routing
as set out in Rule 4714.
(mm) The term ``Pegged'' shall mean, for priced limit orders so
designated, that after entry into the Nasdaq Market Center, the price
of the order is automatically adjusted by the Nasdaq Market Center in
response to changes in the Nasdaq Market Center inside bid or offer, as
appropriate. The Nasdaq Market Center Participant entering a Pegged
Order may specify that the price of the order will either equal the
inside quote on the same side of the market (a ``Regular Pegged
Order'') or equal a price that deviates from the inside quote
[[Page 19539]]
on the contra side of the market by $0.01 (i.e., $0.01 less than the
inside offer or $0.01 more than the inside bid) (a ``Reverse Pegged
Order''). The market participant entering a Pegged Order may (but is
not required to) specify a cap price, to define a price at which
pegging of the order will stop and the order will be permanently
converted into an unpegged limit order. Pegged Orders shall not be
available for ITS Securities. Pegged orders shall not be eligible for
routing as set out in Rule 4714.
(nn) The term ``Discretionary'' shall mean,
(1) for priced limit orders in Nasdaq listed securities so
designated, an order that when entered into the Nasdaq Market Center
has both a displayed bid or offer price, as well as a non-displayed
discretionary price range in which the participant is also willing to
buy or sell, if necessary. The displayed price may be fixed or may be
pegged to equal the inside quote on the same side of the market. The
pegging of the Discretionary Order may be capped in the same manner as
that of a Pegged Order. The discretionary price range of a
Discretionary Order that is pegged will be adjusted to follow the
pegged displayed price. Discretionary Orders for Nasdaq listed
securities shall be eligible for routing as set out in Rule 4714.
(2) for orders in ITS Securities so designated, an order that when
entered into the Nasdaq Market Center has both a displayed bid or offer
price, as well as a non-displayed discretionary price range in which
the participant is also willing to buy or sell, if necessary. The
display price must be fixed. A Discretionary Order in an ITS Security
may not result in a quote that locks or crosses the national best bid
and offer and shall not be executed at a price that trades through the
quotation of an ITS Exchange unless it is designated as a Sweep Order.
Discretionary Orders for ITS Securities shall not be eligible for
routing as set out in Rule 4714.
(oo) The term ``Summary'' shall mean, for priced limit orders so
designated, that if an order is marketable upon receipt by the Nasdaq
Market Center, it shall be rejected and returned to the entering party.
Summary Orders may only be entered by Nasdaq Order-Delivery ECNs.
Summary orders shall not be eligible for routing as set out in Rule
4714.
(pp)-(qq) No change
(rr) The term ``Sweep Order'' shall mean, for orders in ITS
Securities so designated, an order that may be delivered to or executed
by Nasdaq Market Center Participants at multiple price levels. Sweep
Orders shall not be eligible for routing as set out in Rule 4714.
* * * * *
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.''
(i)-(xiii) No change
(C) The system will not process a Non-Directed Order to sell short
if the execution of such order would violate [NASD Rule 3350 or, in the
case of ITS Securities,] SEC Rule 10a-1, in the case of ITS Securities.
Non-Directed Orders to sell short shall not be executed in the Nasdaq
Market Center if the execution of such order would violate NASD Rule
3350. Non-Directed Orders to sell short that cannot be executed in the
Nasdaq Market Center and that have elected to be routed to other
markets as set out in Rule 4714 shall be routed to another market and
processed in accordance with the short sale restrictions in effect at
the destination market.
(D)-(F) No change
* * * * *
4707. Entry and Display of Quotes/Orders
(a) Entry of Quotes/Orders--Nasdaq Quoting Market Participants may
enter Quotes/Orders into the Nasdaq Market Center, and Order Entry
Firms may enter Non-Attributable Orders into the Nasdaq Market Center,
subject to the following requirements and conditions:
(1) No change
(2) Upon entry of a Quote/Order into the system, the Nasdaq Market
Center shall time-stamp it, which time-stamp shall determine the
ranking of the Quote/Order for purposes of processing Non-Directed
Orders as described in Rules 4710(b) and 4714. For each subsequent size
increase received for an existing quote at a given price, the system
will maintain the original time-stamp for the original quantity of the
quote and assign a separate time-stamp to that size increase. When a
Pegged Order (including a Discretionary Order that is pegged) is
displayed as a Quote/Order, its time-stamp will be updated whenever its
price is adjusted.
(3)-(4) No change
(b) Display of Quotes/Orders in Nasdaq--The Nasdaq Market Center
will display [a Nasdaq] Quotes/Orders submitted to the system as
follows:
(1)-(2) No change
(3) Exceptions--The following exceptions shall apply to the display
parameters set forth in paragraphs (1) and (2) above:
(A)-(C) No change
(D) Non-Directed Orders and Routing--Non-Directed Orders marked for
routing as set out in Rule 4714 shall not be displayed in the Nasdaq
Market Center while outside the Nasdaq Market Center. Non-Directed
Orders marked for routing shall be displayed in the Nasdaq Market
Center as set out in Rules 4701 and 4707 while such orders are in the
Nasdaq Market Center.
* * * * *
4710. Participant Obligations in the Nasdaq Market Center
(a) No change
(b) Non-Directed Orders
(1) General Provisions--A Quoting Market Participant in a Nasdaq
Market Center eligible security, as well as Order Entry Firms, shall be
subject to the following requirements for Non-Directed Orders:
(A) No change
(B) Processing of Non-Directed Orders--Upon entry of a Non-Directed
Order into the system, the Nasdaq Market Center will ascertain who the
next Quoting Market Participant or Order Entry Firm in queue to receive
an order is and shall deliver an execution to Quoting Market
Participants or Order Entry Firms that participate in the automatic-
execution functionality of the system, or shall deliver a Liability
Order to Quoting Market Participants that participate in the order-
delivery functionality of the system. Non-Directed Orders entered into
the Nasdaq Market Center system shall be delivered to or automatically
executed against Quoting Market Participants' or Order Entry Firms'
Displayed Quotes/Orders and Reserve Size, in strict price/time
priority, as described in the algorithm contained in subparagraph
(b)(B)(i) of this rule. The individual time priority of each Quote/
Order submitted to the Nasdaq Market Center shall be assigned by the
system based on the date and time such Quote/Order was received.
Remainders of Quote/Orders reduced by execution, if retained by the
system,
[[Page 19540]]
shall retain the time priority of their original entry. For purposes of
the execution algorithms described in paragraphs (i), (ii) and (iii)
below, ``Displayed Quotes/Orders'' shall also include any odd-lot, odd-
lot portion of a mixed-lot, or any odd-lot remainder of a round-lot(s)
reduced by execution, share amounts that while not displayed in the
quotation montage of the Nasdaq Market Center, remain in system and
available for execution.
(i) Execution Algorithm--Price/Time--The system will default to a
strict price/time priority within Nasdaq, and will attempt to access
interest in the system in the following priority and order:
a. Displayed Quotes/Orders of Nasdaq Market Makers, ITS/CAES Market
Makers, and Nasdaq ECNs, displayed Non-Attributable Quotes/Orders of
Order Entry Firms, and displayed non-attributable agency Quotes/Orders
of UTP Exchanges (as permitted by subparagraph (f) of this rule), in
time priority between such participants' Quotes/Orders;
b. Reserve Size of Nasdaq Quoting Market Participants and Order
Entry Firms, in time priority between such participants' Quotes/Orders;
and
c. Principal Quotes/Orders of UTP Exchanges, in time priority
between such participants' Quotes/Orders.
(ii) Exceptions--The following exceptions shall apply to the above
execution parameters:
a. If a Nasdaq Quoting Market Participant or Order Entry Firm
enters a Non-Directed Order into the system, before sending such Non-
Directed Order to the next Quoting Market Participants in queue, the
Nasdaq Market Center will first attempt to match off the order against
the Nasdaq Quoting Market Participant's or Order Entry Firm's own
Quote/Order if the participant is at the best bid/best offer in Nasdaq.
Nasdaq Quoting Market Participants and Order Entry Firms may avoid any
attempted automatic system matching permitted by this paragraph through
the use of an anti-internalization qualifier (AIQ) quote/order flag
containing the following values: ``Y'' or ``I'', subject to the
following restrictions:
Y--if the Y value is selected, the system will execute the flagged
quote/order solely against attributable and non-attributable quotes/
orders (displayed and reserve) of Quoting Market Participants and Order
Entry Firms other than the party entering the AIQ ``Y'' flagged quote/
order. If the only available trading interest is that of the same party
that entered the AIQ ``Y'' flagged quote/order, the system will not
execute at an inferior price level, and will instead return the latest
entered of those interacting quote/orders (or unexecuted portions
thereof) to the entering party or route the quote/order to another
market as set out in Rule 4714 if the quote/order is marked for
routing; provided, however, that in the case of a Discretionary Order
interacting with a bid/offer entered by the system pursuant to Rule
4710(b)(5), the Discretionary Order (or unexecuted portions thereof)
will be returned.
I--if the I value is selected, the system will execute against all
available trading interest, including the quote/orders of the Order
Entry Firm or Nasdaq Quoting Market Participant that entered the AIQ
``I'' flagged order, based on the price/time execution algorithm
b. No change
c. No change
d. No change
e. If a Nasdaq Market Center Participant enters a Discretionary
Order, the Discretionary Order shall first be executed against (or
delivered in an amount equal to) the Quotes/Orders and Reserve Size of
Nasdaq Market Center Participants (including displayed Discretionary
Orders at their displayed prices) in conformity with this rule and
subject to any applicable exceptions. If the full size of the incoming
Discretionary Order cannot be executed at its displayed price, the
order may also be executed against (or delivered in an amount equal to)
the Quotes/Orders and Reserve Size of Nasdaq Market Center Participants
within the incoming Discretionary Order's discretionary price range
(including displayed Discretionary Orders at their displayed prices),
in conformity with this rule and subject to any applicable exception.
If the full size of the incoming Discretionary Order cannot be executed
in this manner, the order may also be executed by (or receive delivery
of) displayed Discretionary Orders with discretionary price ranges that
overlap with the incoming Discretionary Order's discretionary price
range, in conformity with this rule and subject to any applicable
exception. The unexecuted portion of a Discretionary Order will then be
retained by the Nasdaq Market Center for potential display in
conformity with Rule 4707(b). To the extent a Discretionary Order
designated for routing is not executed in full in accordance with the
procedures described above upon submission to the Nasdaq Market Center
the order shall be routed as set out in Rule 4714.
When a Discretionary Order is displayed as a Quote/Order, Non-
Directed Orders or Quotes/Orders entered at the displayed price
(including incoming Discretionary Orders with a displayed or
discretionary price equal to the displayed Discretionary Order's
displayed price) may be executed against (or delivered to) the
displayed Discretionary Order, and market orders may be executed
against (or delivered to) the displayed Discretionary Order when its
displayed price is at the inside. Non-Directed Orders or Quotes/Orders
(other than Discretionary Orders) entered at a price within the
displayed Discretionary Order's discretionary price range may be
executed by (or receive delivery of) the displayed Discretionary Order
at the price of the incoming Non-Directed Order or Quote/Order if there
are no displayed Quotes/Orders at that price or better. Incoming
Discretionary Orders with a discretionary price range that overlaps
with the displayed Discretionary Order's discretionary price range may
be executed by (or receive delivery of) the displayed Discretionary
Order at the overlapping price most favorable to the displayed
Discretionary Order. A displayed Discretionary Order that may be
executed at a price in its discretionary price range will execute
against Non-Directed Orders and Quotes/Orders entered by Nasdaq Market
Center Participants in the automatic execution functionality of the
Nasdaq Market Center, and will be delivered to Non-Directed Orders and
Quotes/Orders entered by Nasdaq Order-Delivery ECNs.
For purposes of determining execution priority, the price priority
of a displayed Discretionary Order will be based on its displayed price
when it may be executed at its displayed price. When displayed
Discretionary Orders may be executed at prices within their
discretionary price ranges, their price priority vis-[aacute]-vis one
another will be based on their most aggressive discretionary prices,
and their price priority vis-[aacute]-vis Quotes/Orders that are not
Discretionary Orders will be based upon the price at which they are
executable.
f. No change
g. Non-Directed Orders marked for routing shall be processed in
accordance with Rule 4714.
* * * * *
(e) UTP Exchanges--Direct Participation in Nasdaq Market Center
Direct [P]participation in the Nasdaq Market Center by UTP
Exchanges is voluntary. If a UTP Exchange does not participate directly
in the Nasdaq Market Center, the UTP Exchange's quotes may nevertheless
be accessible in accordance with Rule 4714 [will not be accessed
through the Nasdaq Market
[[Page 19541]]
Center, and the Nasdaq Market Center will not include the UTP
Exchange's quotation for order processing and execution purposes].
A UTP Exchange may voluntarily participate in the Nasdaq Market
Center directly if it executes a Nasdaq Workstation Subscriber
Agreement, as amended, for UTP Exchanges, and complies with the terms
of this subparagraph [(e)] (f) of this rule. The terms and conditions
of such access and participation, including available functionality and
applicable rules and fees, shall be set forth in and governed by the
Nasdaq Workstation Subscriber Agreement, as amended for UTP Exchanges.
The Nasdaq Workstation Subscriber Agreement, as amended for UTP
Exchanges may expand but shall not contract the rights and obligations
set forth in these rules. Access to UTP Exchanges may be made available
on terms that differ from the terms applicable to members but may not
unreasonably discriminate among similarly situated UTP Exchanges. The
following provisions shall apply to UTP Exchanges that choose to
participate in the Nasdaq Market Center.
* * * * *
4714. Routing--Nasdaq-Listed Securities
If a Non-Directed Order for a Nasdaq-listed security is not
executed in its entirety in the Nasdaq Market Center and such order is
designated for routing, the order (or the unfilled portion thereof--
referred to hereinafter as an ``order'') shall be processed as follows:
(a) The order shall be routed to those markets accessible through
the Nasdaq Market Center router that are displaying quotes priced
better than the Quotes/Orders available in the Nasdaq Market Center as
a limit order. Routed orders shall be executed pursuant to the rules
and regulations of the destination market.
(b) In the event an order routed from the Nasdaq Market Center to
another market is not executed in its entirety, the remaining portion
of the order shall be returned to the Nasdaq Market Center and shall be
eligible for execution, or re-routing, if marketable. A market order
that is converted to a limit order for routing will become a market
order again upon return to the Nasdaq Market Center.
(c) In the event an order becomes non-marketable while it is in the
execution queue, or the order is not marketable upon return to Nasdaq,
the order shall be included in the Nasdaq Market Center book (if
consistent with the order's time in force condition) in accordance with
the time priority established by the time-stamp assigned to the order
when it was initially submitted to the Nasdaq Market Center. Once an
order is placed in the Nasdaq Market Center book it shall not be routed
outside the Nasdaq Market Center.
(d) An order that has been routed to another market shall have no
time standing in the Nasdaq Market Center execution queue relative to
other orders in the Nasdaq Market Center. A request from a Nasdaq
Market Center Participant to cancel an order while it is outside the
Nasdaq Market Center shall be processed subject to the applicable rules
of the market to which the order has been routed.
(e) Orders shall not be routed to other markets during the Nasdaq
Market Center Opening and Closing Crosses, as described in Rules 4704
and 4709.
(f) Orders shall not be routed to other markets at prices that
exceed the execution price governors described in Rule
4710(b)(1)(B)(ii)(c).
* * * * *
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, as
amended, and discussed any comments it received on the proposed rule
change, as amended. 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 modify the Nasdaq Market Center execution
service to create an optional routing feature that will route orders in
Nasdaq-listed securities to other markets when those markets are
displaying quotes at prices that are superior to those displayed in
Nasdaq and that are accessible through the router.\6\ Under the
proposal, Nasdaq Market Center Participants will be able to choose on
an order-by-order basis whether they want an order routed outside the
Nasdaq Market Center.\7\ Routed orders would be executed pursuant to
the rules and regulations of the destination market. Nasdaq states that
there will be no change in the processing of orders not marked for
routing; these orders will continue to be processed through the normal
Nasdaq Market Center execution service execution algorithm.
---------------------------------------------------------------------------
\6\ Nasdaq states that the routing feature will be optional;
members can continue to use other routers to reach other markets. In
general, Non-Directed market orders and limit orders will be
eligible for routing. In addition, Discretionary Non-Directed Orders
will be eligible for routing. Members also will be able to use the
following time in force conditions on Non-Directed Orders eligible
for routing: Immediate or Cancel, Day, Good-till-Cancelled, Total
Day, Total Good till Cancelled, Total Immediate or Cancel, and End
of Day. Other unique Non-Directed Order types, such as Pegged
orders, are not eligible for routing. Finally, routing will not be
available for Directed Orders and Preferenced Orders.
Non-Directed orders will not be routed outside the Nasdaq Market
Center during Nasdaq's Opening and Closing Crosses, which are
described in NASD Rules 4704 and 4709. Nasdaq believes that routing
orders outside Nasdaq during the opening and closing crosses would
be inconsistent with the purpose of these auctions, which is to
arrive at a single price that is based on the maximum number of
shares that can be executed on Nasdaq.
Nasdaq states that it also will not route orders at prices that
exceed the execution price governors that limit the prices at which
orders can execute in the Nasdaq Market Center (NASD Rule
4710(b)(1)(B)(ii)(c)). The governors prevent large market orders and
marketable limit orders priced significantly away from the inside,
which in many instances are entered in error, from executing through
numerous price levels automatically without any restraint and thus
establishing a new inside market and potentially a new historic high
or low price for a security that is not truly reflective of current
market trading. Nasdaq adopted the governors to balance the goals of
rapid execution and price discovery against the need to protect
investors from excessive volatility and market confusion that can
result from these orders. For these very same reasons, Nasdaq
believes it should not route orders to other markets at prices that
exceed these price limitations.
\7\ By default, eligible Non-Directed Orders will be marked for
routing. Members, however, will be able to override the default by
indicating that an order should not be routed.
While Nasdaq initially expects to access through its router
those quotes that would qualify as ``automated quotations'' as under
Regulation NMS, Nasdaq may route to non-automated quotations as
appropriate. Nasdaq will access the quotes of exchanges through its
broker-dealer subsidiary, Brut, which may not be a member of all
exchanges (Brut's quotes are displayed in the Nasdaq Market Center,
thus the liquidity in the Brut ECN will be accessible as part of the
liquidity in the Nasdaq Market Center). Routing done by Brut for the
Nasdaq Market Center is conducted separately from routing the Brut
Facility performs for its subscribers. Nasdaq also will route orders
to exchanges in which Brut is not a member, to the extent Brut has
access to the market participants displaying quotes in these other
markets. For example, one national securities exchange's quotes can
be accessed indirectly by routing orders to the ECN that is the
predominant, if not sole, market participant displaying quotes on
that exchange. In addition, Nasdaq also may route orders to market
centers that display their quotes through the NASD's Alternative
Display Facility (``ADF'') and market centers that do not display
their quotes through exchanges or the ADF.
---------------------------------------------------------------------------
According to Nasdaq, the processing of an order marked for routing
will differ depending on whether there are quotes on other markets at
prices
[[Page 19542]]
superior to those displayed on Nasdaq and such quotes are accessible by
Nasdaq. For each order flagged for routing, the Nasdaq Market Center
will determine whether Nasdaq is at the best price vis-a-vis other
markets that are accessible through Nasdaq's router. If Nasdaq is
displaying the best prices, the order will be executed in full or up to
the maximum amount of shares available in Nasdaq at the price levels
that are superior to the prices at these other markets. Nasdaq would
route any unfilled portion of the order to one of the other markets
that are displaying superior quotes and that is accessible by the
Nasdaq router. If more than one market is at a price level that is
superior to Nasdaq's displayed price, the computer algorithm of the
Nasdaq Market Center router will determine the market, or markets, to
which the order will be sent, based on several factors including the
number of shares being displayed, response time, likelihood of
undisplayed trading interest, and the cost of accessing the market.
If other markets accessible through the router have prices superior
to those on Nasdaq when an order is next in line to be processed, the
order will by-pass the Nasdaq Market Center execution algorithm and
will be routed to a market or markets displaying the superior priced
quotes.\8\ If an order (or a portion of the order) remains unfilled
after being routed, it will be returned to Nasdaq where, if the order
is marketable, it will be returned to the Non-Directed Order processing
queue, where it can be executed in Nasdaq, or routed again, if Nasdaq
is not at the best price when the order is next in line in the
processing queue.\9\ Once a routed limit order is no longer marketable,
whether it becomes non-marketable upon return to Nasdaq or while in the
execution queue, it will be placed on the Nasdaq Market Center book, if
consistent with the order's time in force condition.\10\ Once on the
book, however, an order will not be routed out of the Nasdaq Market
Center, even if it becomes marketable against the quotes of another
market.
---------------------------------------------------------------------------
\8\ Nasdaq states that when a member submits a market order to
the Nasdaq Market Center and has chosen to have the order routed, if
routed, the market order will be routed to another market as a limit
order. An order that has been routed to another market shall have no
time standing in the Nasdaq Market Center execution queue relative
to other orders in the Nasdaq Market Center.
\9\ Nasdaq states that a market order that is converted to a
limit order when it is routed to another market will become a market
order again upon return to Nasdaq. However, if after being placed
back in the order execution queue the order is routed yet again, it
will be re-converted to a limit order.
\10\ Nasdaq states that orders returned to Nasdaq will be placed
on the Nasdaq Market Center book on the basis of the time-stamp
assigned to the order when it was originally submitted to the Nasdaq
Market Center.
---------------------------------------------------------------------------
2. Statutory Basis
Nasdaq believes that the proposed rule change, as amended, is
consistent with Section 15A of the Act,\11\ in general, and furthers
the objectives of Section 15A(b)(6),\12\ in particular, in that Section
15A(b)(6) requires the NASD's rules to be designed, among other things,
to protect investors and the public interest. In addition, Nasdaq
believes its proposal is consistent with Section 11A(a)(1)(C)(ii) of
the Act,\13\ which states that it is in the public interest and
appropriate for the protection of investors and the maintenance of fair
and orderly markets to assure, among other things, fair competition
among brokers and dealers, among exchange markets, and between exchange
markets and markets other than exchange markets. Finally, Nasdaq
believes its proposal is consistent with the Commission's Regulation
NMS, which supports the concept of self-regulatory organizations
(``SROs'') accessing the quotes of other SROs through broker-
dealers.\14\
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78o-3.
\12\ 15 U.S.C. 78o-3(b)(6).
\13\ 15 U.S.C. 78k-1(a)(1)(C)(ii).
\14\ Securities Exchange Act Release Nos. 49325 (Feb. 26, 2004),
69 FR 11126 (Mar. 9, 2004); 49749 (May 20, 2004), 69 FR 30142 (May
26, 2004); 50870 (Dec. 16, 2004), 69 FR 77424 (Dec. 27, 2004).
---------------------------------------------------------------------------
Nasdaq believes this proposal is consistent with the NASD's
obligations under Section 15A of the Act because it would enable
members to use the Nasdaq Market Center to access other markets that
are displaying prices superior to those available on Nasdaq. In
addition, Nasdaq also believes that the proposal is consistent with
Section 11A because it should allow Nasdaq to compete with a national
securities exchange that offers a similar routing feature through its
broker-dealer subsidiary. Further, Nasdaq believes that the proposal
would allow Nasdaq to implement the method envisioned by the Commission
in Regulation NMS for accessing other SROs' quotes.
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change, as amended,
will impose 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
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which Nasdaq consents, the Commission will:
(A) By order approve such proposed rule change, as amended; or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2004-033 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-NASD-2004-033. 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 (https://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
[[Page 19543]]
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 also will be available for inspection and copying at the
principal office of Nasdaq. 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-2004-033 and should be submitted on or before May
4, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1743 Filed 4-12-05; 8:45 am]
BILLING CODE 8010-01-P
