[Federal Register Volume 67, Number 130 (Monday, July 8, 2002)]
[Pages 45162-45164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16985]



[Release No. 34-46140; File No. SR-NASD-2002-81]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness by the National Association of Securities Dealers, Inc. 
Relating to the Time In Force and Cancellation Parameters for Directed 
Orders and the Summary Scan Functionality of Nasdaq's SuperMontage 

June 28, 2002.
    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 June 13, 2002, 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 (``Commission'') the proposed rule change as described in 
Items I, II, and III 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.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to add NASD Rule 4701(hh), and amend paragraphs 
(b)(2) of NASD Rule 4706 (``Order Entry Parameters''), and (d) of NASD 
Rule 4707 (``Entry and Display of Quotes/Orders''), which govern the 
time in force parameters for Directed Orders, and the summary scan 
functionality of Nasdaq's future Order Display and Collector Facility 
(``NNMS'' or ``SuperMontage''), respectively. Nasdaq proposes to 
implement this proposed rule change within 30 days after successful 
completion of SuperMontage user acceptance testing. Below is the text 
of the proposed rule change. Proposed new language is in italics; 
proposed deletions are in [brackets].
* * * * *
4701. Definitions
    (a) through (gg) No Change.
    (hh) The term ``Day'' shall mean, for orders so designated, that if 
after entry into the NNMS, the order is not fully executed, the order 
(or unexecuted portion thereof) shall remain available for potential 
display and/or execution until market close (4:00 p.m. Eastern Time), 
after which it shall be returned to the entering party.
4706. Order Entry Parameters
    (a) No Change.
    (b) Directed Orders A participant may enter a Directed Order into 
the NNMS to access a specific Attributable Quote/Order displayed in the 
Nasdaq Quotation Montage, subject to the following conditions and 
    (1) Unless the Quoting Market Participant to which a Directed Order 
is being sent has indicated that it wishes to receive Directed Orders 
that are Liability Orders, a Directed Order must be a Non-Liability 
Order, and as such, at the time of entry must be designated as:
    (A) an ``All-or-None'' order (``AON'') that is at least one normal 
unit of trading (e.g. 100 shares) in excess of the Attributable Quote/
Order of the Quoting Market Participant to which the order is directed; 
    (B) a ``Minimum Acceptable Quantity'' order (``MAQ''), with a MAQ 
value of at least one normal unit of trading in excess of Attributable 
Quote/Order of the Quoting Market Participant to which the order is 
directed. Nasdaq will append an indicator to the quote of a Quoting 
Market Participant that has indicated to Nasdaq that it wishes to 
receive Directed Orders that are Liability Orders.
    (2) A Directed Order may have a time in force of [1] 3 to 99 
minutes[.], or may be designated as a ``Day'' order.
    (3) Directed Orders shall be processed pursuant to Rule 4710(c).
    (c) through (f) No Change.
4707. Entry and Display of Quotes/Orders
    (a) through (c) No Change.
    (d) Summary Scan--The ``Summary Scan'' functionality, which is a 
query only non-dynamic functionality, displays without attribution to 
Quoting Market Participants' MMIDs the aggregate size of Attributable 
and Non-Attributable Quotes/Orders for all levels (on both the bid and 
offer side of the market) [below] including the number of price levels 
authorized for aggregation and display pursuant to Rule 4701 (ee).
    (e) No Change.
* * * * *

[[Page 45163]]

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As part of its ongoing preparation for the launch of SuperMontage, 
Nasdaq is engaging in a continuing review of the system's 
functionality, and rules thereof, with a view towards constant 
improvement. As a result of this review, and in consultation with 
industry professionals, Nasdaq proposes to modify certain SuperMontage 
parameters, functionality, and rules as they relate to time in force of 
Directed Orders and SuperMontage's summary scan feature.
a. Directed Orders
    Nasdaq proposes to provide additional flexibility for SuperMontage 
participants in determining the life of Directed Orders sent to the 
system. Directed Orders are orders that are sent to a specific market 
maker or electronic communications network. In SuperMontage, a firm 
that receives a Directed Order has the ability to choose whether it 
will consider those Directed Orders as a liability order or a non-
liability order.
    Currently, a Directed Order in SuperMontage may have a time in 
force from 1 to 99 minutes. Nasdaq proposes to amend the time in force 
provision to a 3 to 99 minute standard, and also provide the capability 
for SuperMontage users to designate Directed Orders as a ``Day'' order. 
As defined in proposed NASD Rule 4701 (hh), a Day order designation 
would indicate that the order is to remain in force until the Nasdaq 
market closes (currently 4:00 p.m. Eastern Time) on the day the order 
was submitted. Under the proposal, unexecuted Day orders would be 
cancelled and returned by Nasdaq to the sender at market close.
    Like other Directed Orders, a Directed Order with a Day designation 
may be entered starting at 8:00 a.m. Eastern Time. According to Nasdaq, 
since quotes are not open or considered firm at this time, a Directed 
Order with a Day designation entered prior to the 9:30 a.m. market open 
will not obligate the receiving party to execute that order. However, 
such orders may be accepted, countered, or otherwise may commence 
negotiations leading to a transaction between the parties. Directed 
Orders with a Day designation may not be entered or executed during 
Nasdaq's after-hours session (4:00 p.m. to 6:30 p.m. Eastern Time),\3\ 
nor will they participate in the pre-open unlocking and uncrossing 
process recently proposed by Nasdaq in File No. SR-NASD-2002-56.\4\

    \3\ Nasdaq anticipates submitting a proposed rule change to 
extend the operation of the After Hours Pilot program to 
SuperMontage. See Securities Exchange Act Release No. 42003 (October 
13, 1999), 64 FR 56554 (October 20, 1999) (Approval of After Hours 
Pilot program for the Nasdaq SelectNet Service).
    \4\ See Securities Exchange Act Release No. 45965 (May 20, 
2002), 67 FR 36659 (May 24, 2002).

    Nasdaq believes that the proposed amendments to the time in force 
parameters for Directed Orders will provide an additional degree of 
flexibility to market participants to manage their Directed Order flow. 
Nasdaq believes that the ability to set a specific time period that an 
order will remain in effect, including the ability to have an order 
remain in effect for the entire day, are long-standing industry 
functionalities used by many market participants that accept and retain 
orders. In addition, Nasdaq believes that these new SuperMontage 
standards are consistent with current time in force practices in 
Nasdaq's SelectNet service, and can be expected to reduce technological 
burdens on firms converting to SuperMontage and thereby assist and 
simplify the transition to the system.
b. Summary Scan
    Nasdaq also proposes to improve the SuperMontage summary scan 
feature. Currently, the summary scan feature allows SuperMontage 
participants to query the system and see the aggregate attributed and 
unattributed size of quotes/orders for all price levels in a particular 
security, below the best five price levels in SuperMontage.\5\ In 
response to input from market participants, Nasdaq proposes to modify 
the summary scan feature to combine all aggregate quote/order 
information, including the aggregate of the five best price levels 
displayed in SuperMontage. Nasdaq's proposal seeks to alleviate 
concerns that the separation of aggregated price level information from 
the remainder of aggregate interest could lead to potential confusion 
among users of the summary scan feature as to what constitutes the best 
price in Nasdaq at a particular time. According to Nasdaq, the proposed 
changes to the summary scan combines information, already available 
separately through SuperMontage, into a single integrated information 

    \5\ Nasdaq recently expanded the aggregated price levels 
available through the Nasdaq Order Display Facility from three to 
five. See Securities Exchange Act Release No. 45790 (April 19, 
2002), 67 FR 21007 (April 29, 2002).

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\6\ in general, and Section 
15A(b)(6) of the Act,\7\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principals of trade, to foster cooperation 
and coordination with person engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.

    \6\ 15 U.S.C. 78o-3.
    \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

    Nasdaq has neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \8\ and Rule 19b[dash]4(f)(6) thereunder 
\9\ because the proposal: (1) Does not significantly affect the 
protection of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) does not become operative 
for 30 days from the date of filing, provided

[[Page 45164]]

that Nasdaq has given the Commission written notice of its intent to 
file the proposed rule change at least five business days prior to the 
filing date of the proposed rule change.\10\ At any time within 60 days 
of the filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ As required under Rule 19b-4(f)(6)(iii), Nasdaq provided 
the Commission with written notice of its intent to file the 
proposed rule change at least five business days prior to the filing 

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
    All submissions should refer to File No. SR-NASD-2002-81 and should 
be submitted by July 29, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\ 17 CFR 200.30-3(a)(12).

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-16985 Filed 7-5-02; 8:45 am]