Sistema de roteamento comercial

Comércio Eletrônico: Super Display Book (Anteriormente SuperDOT)
O Super Display Book (SDBK) é o sistema automatizado da NYSE que exibe, grava e executa ordens de títulos. Anteriormente, era conhecido como o sistema SuperDOT (Super Designated Order Turnaround System), e antes disso, simplesmente DOT.
O sistema de roteamento de pedidos do Super Display Book é um programa de computador sofisticado que facilita a transmissão de pedidos de mercado e limite diretamente para a posição de negociação (e Designated Market Makers), onde uma segurança particular é negociada. Isso permite uma transação mais eficiente porque a ordem pode ser entregue diretamente ao DMM em vez de telefonar para um comerciante de piso e feito manualmente. Ele exibe informações como tipo de ordem, quantidade, preço e tempo. Os sistemas automatizados, como o SDBK, executam ordens com rapidez e precisão e fornecem uma camada de segurança contra fraudes - o que pode ajudar a controlar o risco.
Todos os títulos listados podem ser negociados através do sistema SDBK. Se um pedido pode ser executado imediatamente, o sistema envia uma confirmação eletrônica ao corretor-negociante de origem. Qualquer pedido de pré-mercado que pode ser combinado é automaticamente emparelhado pelo sistema e executado no preço de abertura; Se qualquer pedido de pré-mercado não puder ser emparelhado, o SDBK mantém o pedido na fila e envia uma confirmação eletrônica ao corretor de envio após a execução da ordem.
A maioria dos pedidos feitos por investidores individuais nunca são tratados por um intermediário. Em vez disso, essas ordens são encaminhadas através do SDBK, diretamente para um DMM para execução imediata. Os negociantes do piso geralmente lidam com os pedidos comerciais institucionais maiores e mais complexos.

Sistema de roteamento comercial
Os sistemas eletrônicos de negociação e roteamento de pedidos diferem dos métodos tradicionais de negociação de poços e métodos manuais de roteamento de pedidos. As transações usando um sistema eletrônico estão sujeitas às regras e regulamentos da (s) bolsa (s) que oferece o sistema e / ou listando o contrato. Antes de se envolver em transações usando um sistema eletrônico, você deve revisar cuidadosamente as regras e regulamentos das câmeras que oferecem o sistema e / ou listagem de contratos que você pretende negociar.
DIFERENÇAS ENTRE SISTEMAS DE NEGOCIAÇÃO ELETRÔNICA.
As ordens de negociação ou roteamento através de sistemas eletrônicos variam muito entre os diferentes sistemas eletrônicos. Você deve consultar as regras e regulamentos da troca oferecendo o sistema eletrônico e / ou listando o contrato negociado ou encomendado para entender, entre outras coisas, no caso de sistemas de negociação, o procedimento de correspondência de pedidos do sistema, procedimentos e preços de abertura e encerramento , políticas de comércio de erros e limitações ou requisitos de negociação, e no caso de todos os sistemas, qualificações de acesso e motivos de rescisão e limitações nos tipos de pedidos que podem ser inseridos no sistema. Cada uma dessas questões pode apresentar diferentes fatores de risco em relação ao comércio ou uso de um sistema específico. Cada sistema também pode apresentar riscos relacionados ao acesso ao sistema, tempos de resposta variados e segurança. No caso de sistemas baseados na Internet, pode haver outros tipos de riscos relacionados ao acesso ao sistema, a diferentes prazos de resposta e segurança, bem como aos riscos relacionados aos prestadores de serviços e ao recebimento e monitoramento do correio eletrônico.
RISCOS ASSOCIADOS À FALHA DO SISTEMA.
A negociação através de um sistema de roteamento eletrônico ou de roteamento de pedidos expõe você a riscos associados à falha no sistema ou componente. No caso de falha no sistema ou componente, é possível que, durante um determinado período de tempo, você não poderá inserir novos pedidos, executar ordens existentes ou modificar ou cancelar pedidos que foram previamente inseridos. A falha no sistema ou componente também pode resultar em perda de ordens ou prioridade de ordem.
LIMITAÇÃO DE RESPONSABILIDADE.
As trocas que oferecem um sistema eletrônico de negociação ou roteamento de pedidos e / ou listagem do contrato podem ter adotado regras para limitar sua responsabilidade, a responsabilidade das FCM e os fornecedores de software e sistemas de comunicação e a quantidade de danos que você pode coletar por falhas e atrasos no sistema. Essas limitações de provisões de responsabilidade variam entre as trocas. Você deve consultar as regras e regulamentos da (s) troca (s) relevante (s) para entender essas limitações de responsabilidade. * As regras relevantes de cada troca estão disponíveis mediante solicitação do profissional da indústria com quem você possui uma conta. As regras relevantes de algumas trocas também estão disponíveis nas páginas de internet das trocas.
Há riscos associados à negociação eletrônica e a falha do sistema inclui, mas não é limitado a: acesso ao sistema e colocação e execução comercial, que podem atrasar ou falhar devido à volatilidade e ao volume do mercado, atrasos de cotação, erros de sistema e software, tráfego na Internet, interrupções e outros fatores . Todo comerciante que executa ordens eletronicamente reconhece ler e entender os riscos associados à negociação eletronicamente. (AMP) não pode razoavelmente esperar que garanta que todas as ordens como computadores e redes são conhecidas como falíveis.
Existe um risco substancial de perda na negociação de futuros de commodities, opções e produtos em moeda estrangeira fora de bolsa.

Roteamento.
A ATS Route é um sistema que mantém um livro de citações interno de outros locais OTC disponíveis e pode rotear uma ordem recebida para o local correspondente para satisfazer as melhores obrigações de execução. As ordens rotuladas como roteáveis ​​serão comparadas com os dados BBO de outros locais de OTC e roteadas para o local exibindo o melhor preço para execução. Os assinantes têm a opção de identificar seus pedidos como roteáveis. As encomendas não marcadas como roláveis ​​serão exibidas e cruzadas usando o algoritmo de correspondência Preço / Hora. As ordens roteáveis ​​podem ser uma ordem direcionada onde um local é selecionado ou uma ordem não dirigida, onde o sistema encaminhará para o local com o melhor preço disponível no momento.
O ATS oferece roteadores anônimos de corretores e corretores, serviços de execução com proteção de preços e a oportunidade de receber um desconto.
Broker-dealers pode enviar ordens no DBOT ATS como não atribuíveis (anônimos).

Regra final:
Adoção de alterações ao Plano do Sistema de Negociação Intermarket para Expandir o Sistema de Execução Assistida por ITS / Computer a todos os Títulos Listados.
COMISSÃO DE SEGURANÇA E CÂMBIO.
[Release No. 34-42212; Arquivo nº 4-208]
Adoção de emendas ao Plano do Sistema de Negociação Intermarket para Expandir o Sistema de Execução Assistida ITS / Computer Linkage para todos os Títulos Listados.
Agência: Securities and Exchange Commission.
Ação: Adoção de emendas ao plano do sistema de mercado nacional.
Resumo: A Comissão de Valores Mobiliários ("Comissão") está adotando alterações ao plano que regula a operação do Sistema de Negociação Intermarket ("Plano ITS" ou "Plano"). As emendas expandem a conexão ITS / Computer Assisted Execution System (& quot; CAES & quot;) para todos os títulos listados, incluindo títulos não-Rule 19c-3.
Data de vigência: 14 de fevereiro de 2000.
Para mais informações Contato: Katherine A. England, Diretora assistente, no (202) 942-0154; ou Christine Richardson, advogada, em (202) 942-0748, Escritório de Supervisão de Mercado, Divisão de Regulação de Mercado, Comissão de Valores Mobiliários, 450 Fifth Street, N. W., Washington, D. C. 20549-1001.
Informação suplementar.
I. Antecedentes e Descrição.
A Comissão está adotando alterações ao Plano ITS para expandir a ligação ITS / CAES da Associação Nacional de Valores Mobiliários, Inc. ("NASD") a todos os títulos listados. A Comissão considera que essas alterações, adotadas pela Comissão por sua própria iniciativa nos termos da Regra 11AA3-2, nos termos do Securities Exchange Act de 1934 ("Exchange Act" ou "Act"), são necessárias para incentivar os objetivos legais de execução eficiente de transações de títulos e oportunidades para a melhor execução de pedidos de clientes. A Comissão está adotando essas alterações somente depois que os Participantes 2 da ITS não puderam chegar a acordo.
A. História dos STI.
A Seção 11A (a) (2) da Exchange Act 3 direciona a Comissão, tendo em conta o interesse público, a proteção dos investidores e a manutenção de mercados justos e ordenados, use sua autoridade nos termos da Lei para facilitar o estabelecimento de um Sistema de Mercado Nacional ("NMS") para valores mobiliários de acordo com os resultados e objetivos do Congresso estabelecidos na Seção 11A (a) (1) da Lei. Entre esses achados e objetivos, está a "ligação de todos os mercados de títulos qualificados através de instalações de comunicação e processamento de dados". 4.
Em 26 de janeiro de 1978, a Comissão emitiu uma declaração sobre o sistema de mercado nacional que pedia, entre outras coisas, o rápido desenvolvimento de sistemas abrangentes de roteamento de pedidos e de rotas para permitir a transmissão eficiente de pedidos entre os vários mercados de títulos qualificados em uma troca ou over-the-counter. 5 Em particular, a Comissão declarou que um sistema de roteamento de pedidos de intermediário era necessário para "permitir ordens de compra e venda de títulos de capital multiplicado a serem enviados diretamente de qualquer mercado qualificado para outro desse mercado de forma rápida e eficiente". 6 A Comissão afirmou ainda que "[t] ele precisa desenvolver e implementar um novo sistema de roteamento de pedidos de mercado para vincular todos os mercados qualificados poderia ser evitado se a participação na ligação do mercado ITS atualmente em desenvolvimento fosse disponibilizada em uma base razoável para todos mercados qualificados e se todos os mercados qualificados aderiram a essa ligação. & quot; 7.
Conforme solicitado pela Comissão, em março de 1978, várias trocas 8 apresentaram em conjunto com a Comissão um "Plano para a Propósito da Criação e Operação de uma Ligação de Comunicação Intercomunicação". agora conhecido como o Plano ITS. Em 14 de abril de 1978, a Comissão, observando que a ITS poderia constituir a base para uma facilidade apropriada de ligação ao mercado, emitiu uma ordem provisória, nos termos da Seção 11A (a) (3) (B) da Lei 9, autorizando as trocas de depósito (e qualquer outra organização de auto-regulação ("SRO") que concordou em se tornar um participante no Plano ITS) atuar conjuntamente no planejamento, desenvolvimento, operação e regulamentação do STI de acordo com os termos do Plano ITS por um período de 120 dias. 10.
Posteriormente, durante as audiências da Comissão em relação à proposta de Regra 19c-3 ao abrigo da Lei 11, a NASD anunciou planos para aprimorar seu Sistema Nasdaq para incluir, entre outras coisas, um sistema de execução assistido por computador que permita às empresas participantes rotear seus pedidos de títulos cotados através do sistema para obter execuções automáticas contra cotações de terceiros fabricantes de mercado. 12 Este sistema passou a ser conhecido como CAES. O NASD também contemplou uma interface automatizada entre o ITS e o CAES ("ITS / CAES") para permitir a execução automatizada de compromissos enviados das trocas participantes e para permitir que os fabricantes de mercado que participam do Nasdaq aprimorado encaminhem compromissos com eficiência para trocar mercados pela execução. 13.
A Comissão expôs mais tarde a sua autorização para a operação conjunta da ITS 14, mas indicou várias preocupações em relação aos STI que exigiriam a atenção dos Participantes do ITS durante o período de prorrogação. Em particular, a Comissão indicou que, para que os STI atuassem como meio de proteção de preços no mercado, os Participantes da ITS deveriam implementar uma "ligação entre o ITS e os fabricantes de mercado de balcão regulados pela NASD . . . . & quot; 15 A Comissão indicou ainda a expectativa de que o NASD se tornaria um participante do ITS antes de outubro de 1980 e declarou que, se a interface ITS / CAES prevista não fosse implementada prontamente, a Comissão foi preparada para tomar as medidas adequadas para exigir a inclusão de terceiros fabricantes de mercado em ESTÁ. 16.
Em 11 de junho de 1980, a Comissão adotou a Regra 19c-3 ao abrigo da Lei, que eliminou as restrições de negociação fora de bordo com relação à maioria dos títulos recém-cotados, permitindo que as empresas membros da NYSE e Amex façam mercados de balcão no que era então um pequeno número de títulos da NYSE e da Amex. 17 A Comissão afirmou que a presença de fabricantes de mercado adicionais poderia (1) exercer pressão competitiva sobre os especialistas do mercado primário, potencialmente reduzindo os spreads nos valores mobiliários da Regra 19c-3; e (2) criar incentivos para que os mercados divulguem cotações de maior tamanho, aumentando a profundidade, liquidez e continuidade dos mercados para esses títulos. 18.
A Comissão também indicou que a obtenção de ligações eficientes entre os andares comerciais tradicionais e os mercados de balcão era essencial para obter a máxima interação entre os vários tipos de mercados. Por conseguinte, a Comissão afirmou que esperava que a NASD e os Participantes da ITS estabelecessem uma ligação automatizada entre os STI e o sistema Nasdaq e que forneçam à Comissão relatórios de estado formais sobre a ligação ITS-Nasdaq. 19.
Um ano depois, depois de os Participantes da ITS não chegarem a um acordo, a Comissão publicou uma versão que propôs emitir um pedido que exigisse uma interface automatizada entre o ITS e o sistema Nasdaq aprimorado. 20 Ao propor a ordem, a Comissão determinou que a ITS, devido à sua capacidade de permitir que os participantes do mercado enviassem ordens de um mercado para outro, fosse consistente com os objetivos do sistema de mercado nacional e, se eficientemente vinculado a todos os mercados, pudesse se tornar uma característica permanente de um sistema de mercado nacional. 21 A Comissão reiterou a sua convicção de que a ausência de qualquer ligação estabelecida entre as bolsas e os fabricantes de mercado de OTC preservou um ambiente em que havia oportunidades reduzidas para melhorar a fragmentação do mercado, 22 para eliminar as ineficiências de preços, obter a melhor execução e promover o tipo de estrutura de mercado competitiva que um sistema de mercado nacional foi projetado para alcançar. 23.
Finalmente, em 28 de abril de 1981, a Comissão emitiu um pedido 24 que exigia que os Participantes da ITS implementassem uma interface automatizada entre CAES e ITS até 1º de março de 1982, limitados aos valores mobiliários da Regra 19c-3 e apresentem alterações propostas ao Plano ITS refletindo a inclusão do NASD como participante do ITS. 25 Quando os Participantes da ITS não apresentaram uma emenda, a Comissão adotou as suas próprias alterações ao Plano ITS em 12 de maio de 1982. 26 As alterações da Comissão aplicavam-se inicialmente aos valores mobiliários da Regra 19c-3 porque a Comissão considerava que a adoção da Regra 19c - 3 provavelmente resultaria em um aumento no volume desses títulos, aumentando assim a necessidade de uma ligação eficiente entre as bolsas e o mercado OTC. 27 A Comissão pretendia que a ligação ITS / CAES fosse expandida para todos os títulos listados. 28 Como a Comissão afirmou, "a fim de alcançar plenamente o objetivo do Congresso de que todos os mercados de títulos qualificados sejam vinculados. . . Será necessário no futuro que a interface ITS / CAES seja expandida para incluir todos os estoques negociados no terceiro mercado. & quot; 29.
A Comissão aprovou permanentemente o Plano ITS em 27 de janeiro de 1983. 30 O Plano contém uma série de provisões de integridade do mercado para assegurar a continuidade dos preços das transações entre os vários centros de mercado, incluindo uma regra de comércio. 31 Também contém uma política comercial de bloco que oferece direitos especiais a qualquer mercado que exiba a melhor oferta ou oferta nacional quando as transações de tamanho de bloco estão ocorrendo em outro mercado. 32.
B. Desenvolvimentos recentes.
Em 12 de novembro de 1991, o NASD apresentou um pedido à Comissão, de acordo com a Regra 11Aa3-2 (e), para revisar a falta de aprovação do COI do ITS ("ITSOC") em duas recomendações da NASD que alterariam o Plano ITS para expandir a ligação ITS / CAES para incluir valores mobiliários não-Rule 19c-3. 33 Na sequência dessa apresentação, a Divisão de Regulação do Mercado ("Divisão") emitiu o Market 2000 Study 34, que incluiu as conclusões da Divisão de que era necessário expandir a ligação ITS / CAES 35 e identificou várias questões regulatórias que a Comissão acreditava O NASD precisava abordar antes de qualquer expansão. 36.
Além disso, em 1995, na versão proposta para as Regras de Tratamento de Pedidos, a Comissão solicitou comentários sobre se a ligação ITS / CAES deveria ser expandida para cobrir os valores mobiliários não-Rule 19c-3. 37 Na adoção da liberação para essas regras, a Comissão adiou a ação sobre a expansão da ligação ITS / CAES e, em vez disso, encorajou os participantes da ITS a trabalharem em conjunto para expandir a ligação. 38.
Posteriormente, em 27 de maio de 1997, a Comissão enviou uma carta aos Participantes do ITS, descrevendo quatro aspectos do Plano ITS que considerava anticoncorrencial e solicitando que eles desenvolvessem recomendações razoáveis ​​à Comissão sob a forma de emendas propostas do Plano ITS e propostas A regra da SRO muda. 39 As respostas que a Comissão recebeu indicaram que nem todos os Participantes concordariam em expandir a ligação ITS / CAES. 40 Como o Plano ITS atualmente exige uma votação unânime sobre as emendas propostas, essas mudanças não podem ser aprovadas pelos Participantes. Por conseguinte, em Julho de 1998, a Comissão propôs, por sua própria iniciativa, expandir a ligação ITS / CAES. 41 A Comissão recebeu numerosas cartas de comentários em resposta à sua proposta. Após uma análise cuidadosa desses comentários, a Comissão está agora alterando o Plano ITS para expandir a ligação ITS / CAES a todos os títulos listados.
II. Resumo dos comentários.
A Comissão recebeu 15 cartas de comentários relativas à expansão da ligação ITS / CAES a todos os títulos listados. 42 Todos os 15 comentadores geralmente suportam a expansão, tanto com e sem certas condições. Em geral, a maioria dos comentadores afirma que expandir a ligação beneficiará muito o mercado e os investidores públicos. 43 Especificamente, os comentaristas acreditam que expandir o vínculo: aumentará a eficiência e a transparência do mercado, reduzirá os trade throughs e nivelará as condições de jogo entre as empresas do terceiro mercado e os intercâmbios; 44 diminuir a fragmentação do mercado e produzir benefícios a longo prazo para o NMS; 45 aumentar a liquidez e a competitividade dos mercados de valores mobiliários; 46 e aumentar a oportunidade para os investidores obterem o melhor preço disponível em todos os mercados para pedidos em valores mobiliários cotados em bolsa. 47 Um comentarista afirma que não há mais nenhuma razão econômica boa para negociar os valores mobiliários da Regra 19c-3 de forma diferente dos valores mobiliários não-Rule 19c-3, enquanto outro afirma que, do ponto de vista do mercado e econômico, a distinção não tem sentido. 49 A NYSE, por outro lado, acredita que é mais apropriado que os próprios Participantes dos STI elaborem as alterações do Plano necessárias, em vez de que a Comissão adote as alterações. 50.
A. Expansão condicional.
A Comissão solicitou especificamente comentários sobre quais, se houver, medidas regulamentares necessárias antes da expansão da ligação ITS / CAES. Alguns comentaristas apoiam a expansão, 51, enquanto vários comentaristas apoiam o vínculo se a Comissão remover algumas disparidades regulatórias entre o terceiro mercado e a comunidade de intercâmbio. 52 Por exemplo, o NASD afirma que a expansão da ligação está totalmente garantida neste momento, dado que houve mudanças significativas no terceiro mercado, uma vez que o link foi originalmente estabelecido em 1982. 53 Por outro lado, a NYSE acredita que três As questões precisam ser resolvidas antes de qualquer expansão da ligação: (1) supervisão NASD aumentada do terceiro mercado; (2) a adoção de padrões fixos para filas e execução de pedidos de clientes; e (3) a aplicação do comércio ITS através da regra e política de bloqueio para cobrir os membros da NASD que não estão registrados no NASD como "ITS / CAES Market Makers & quot; em uma segurança. 54.
1. Comércio através da regra.
A Comissão solicitou especificamente comentários sobre os quais, se houver, os participantes do terceiro mercado deveriam estar sujeitos a uma regra de comércio e qual seria o conteúdo dessa regra. Em resposta, a NYSE afirmou que a regra de comércio por via deve aplicar-se a todas as "terceiras negociações de mercado", & quot; em oposição a "terceiros fabricantes de mercado". & quot; A NYSE observa que a atual regra da NASD através de uma regra já se aplica a todos os fabricantes de terceiro mercado em títulos elegíveis para ITS / CAES e continuaria a fazê-lo, mesmo que a ligação fosse expandida. A NYSE acredita que a regra do comércio deve se aplicar não apenas aos negócios reportados pelos fabricantes de mercado da ITS / CAES, mas também a todas as operações relatadas pelos membros da NASD que negociam valores mobiliários cotados na bolsa. 55 Da mesma forma, a Associação de Especialistas, CSE, Amex e CHX acreditam que uma regra de comércio deve se aplicar a todas as empresas membros que efetuam operações em títulos elegíveis de ITS / CAES, mesmo aqueles que não estão registrados como fabricantes de mercado de STI / CAES nesses títulos , incluindo empresas de posicionamento de blocos e empresas de entrada de pedidos. 56.
A CHX afirma que os fabricantes de terceiro mercado que se enquadram no limite de 1% 57 devem estar vinculados pelo comércio através de regras, assim como bloquear posicionadores e sistemas de negociação automatizados ("ATSs"). 58 Especificamente, a CHX acredita que os posicionadores de blocos que não estão citando mercados contínuos de dois lados devem ter acesso limitado a ITS / CAES com o objetivo de enviar compromissos quando eles de outra forma negociariam por meio de um mercado, enquanto que terceiros fabricantes de mercado se manifestariam como dispostos para comprar e vender de forma contínua deve ter acesso ITS completo. A CHX também acredita que os ATSs que optaram por estarem sujeitos à alternativa de exibição deveriam ter uma forma passiva de acesso aos ITS (e devem estar sujeitos à regra de comércio através de regras), mas que os ATS não exibidos não devem ter acesso a ITS ( mas ainda deve estar sujeito à regra de comércio através de regras). 59.
Finalmente, o ICI apoia a adoção de uma regra de comércio por terceiros, mas acredita que o alcance da proteção deve ser limitado a pedidos exibidos e não "reservados". ou outro "escondido" ordens. 60 Schwab sugere que o NASD afixa um modificador do relatório de comércio identificando impressões por membros da NASD que não são fabricantes de mercado da ITS / CAES. 61.
O NASD observa que todos os fabricantes voluntários de mercado CQS 62 e qualquer outro fabricante de mercado de OTC que representem mais de 1% do volume consolidado de um título já estão sujeitos à regra do comércio da NASD através da regra 5262 e que expandindo o universo de ITS / CAES títulos elegíveis irá estender automaticamente a regra de comércio existente para esses participantes em relação aos novos valores mobiliários. Em resposta a muitas das preocupações discutidas acima, o NASD declarou inicialmente que estava disposto a considerar uma regra de comércio aplicável a todos os membros que de outra forma não estariam sujeitos à regra (seja porque representam menos de 1% do volume e optar por não se tornar fabricantes de mercado da CQS ou porque se enquadram na exceção do posicionador do bloco na Regra de 1% da Comissão). 63 Mais recentemente, no entanto, o NASD afirmou que não acredita que a aplicação de uma regra de comércio a fabricantes que não sejam do mercado seria justa porque os fabricantes que não fazem parte do mercado não têm acesso aos ITS. 64 O NASD ainda acredita que pode aliviar as preocupações sobre o comércio através da questão ao supervisionar os fabricantes de mercado de ITS / CAES pelo cumprimento das regras ITS / CAES, incluindo a regra de comércio. O NASD também observa que a Nasdaq, através do seu ITS Desk no seu Departamento de Operações de Mercado, é capaz de determinar, em tempo real, a identidade de cada membro da NASD que relata um comércio, e se outro centro de mercado questionar sobre um comércio percebido por meio de seu mercado por um membro da NASD, o ITS Desk pode informar imediatamente o centro de mercado inquiridor se a impressão foi relatada por um fabricante de mercado sujeito à regra ou um membro da NASD não sujeito à regra. Finalmente, o NASD indicou seu compromisso de, em algum momento após o ano 2000, desenvolver um modificador de relatório de comércio especial que o NASD ou o membro do fabricante de mercado não-CAES que relatem um comércio poderia anexar a cada relatório comercial para distinguir esse relatório comercial desses dos fabricantes de mercado da CAES. 66.
2. Regra de Relatório de Comércio.
Dois comentaristas acreditam que, antes de expandir a ligação, o NASD deve alterar suas regras de relatório comercial para valores mobiliários listados para alinhá-los com as regras de relatórios cambiais. 67 Em resposta, a NASD propôs alterar a sua regra de relatório comercial para valores mobiliários listados. 68 Especificamente, o NASD propôs eliminar uma provisão de suas regras aplicáveis ​​à denúncia de transações em títulos cotados em bolsa, o que exige que os membros relatem transações de maneira razoavelmente relacionada ao mercado prevalecente levando em consideração todas as circunstâncias relevantes. & Quot ; Durante anos, os Participantes da ITS afirmaram que esta linguagem oferece flexibilidade inadequada na maneira como os membros da NASD podem reportar transações do terceiro mercado. A NYSE afirma que a proposta da NASD aborda suas preocupações com a questão dos relatórios comerciais. 69 A CHX, no entanto, não acredita que a proposta da NASD resolva o problema percebido com a regra de relatórios comerciais da NASD, porque não eliminaria o critério que a regra de relatório comercial atribui a terceiros fabricantes de mercado para determinar o preço para denunciar um comércio. A CHX afirma que a proposta simplesmente eliminaria o padrão de articulação de como calcular o markup ou markdown na venda. 70 A CHX argumenta ainda que a mudança de regras aumenta a probabilidade de um terceiro fabricante de mercado poder evitar uma violação da regra de comércio por meio de uma regra. 71 O NASD responde a esta crítica ao notar que as preocupações com a regra do relatório comercial serão efetivamente tratadas através da vigilância e execução das obrigações de melhor execução e requisitos de divulgação de confirmação. 72.
3. Vigilância do Terceiro Mercado.
No que diz respeito às preocupações de vigilância, a CHX acredita que o NASD deve implementar um programa mais completo para a vigilância do terceiro mercado para que o NASD possa garantir que as empresas terceirizadoras que fornecem serviços automatizados de roteamento e execução estejam operando dentro dos parâmetros de execução estabelecidos. 73 A NYSE afirma que pressupõe que a Comissão não se propõe a expandir a ligação, a menos que esteja convencido de que a NASD tenha instalado um programa de exame de supervisão adequado para o terceiro mercado. 74.
4. Outras condições.
Na visão do CSE, o ITS só deve ser aberto a todos os títulos cotados, ao mesmo tempo em que os valores mobiliários de empresas grandes e bem capitalizadas que negociam no mercado OTC estão incluídos nos ITS. 75 O CSE também acredita que a Comissão deve abordar a proibição de mercados regionais de negociar valores mobiliários de oferta pública inicial durante o primeiro dia de negociação, porque o terceiro mercado não está sujeito a tal restrição. 76 A CHX afirma que os regulamentos de tipo ATS devem ser aplicados a terceiros fabricantes de mercado que fornecem facilidades de roteamento e execução automáticas para outros corretores de forma diretamente em concorrência com as trocas. A CBOE argumenta que os fabricantes de mercado da Nasdaq deveriam ser obrigados a refletir as ordens limitadas dos fabricantes de mercado de opções ou outros corretores em suas cotações apresentadas e fornecer proteção de preço a tais ordens limitadas. 77.
B. Participação ECN.
A Comissão também solicitou comentários sobre se as redes de comunicações electrónicas ("ECNs", também conhecidas como ATS) 78 devem ser autorizadas a participar nos ITS. 79 A maioria dos comentaristas que discutem o problema apoiam a participação da ECN de alguma forma. O ICI acredita que um mercado verdadeiramente nacional exige uma ligação entre trocas, criadores de mercado e ECNs e, portanto, apoia a inclusão de ECNs em ITS. 80 Bloomberg concorda que os ECNs devem ser autorizados a participar da ligação ITS / CAES. O NASD acredita que a Comissão deve permitir o acesso bilateral entre ECNs e ITS Participants, sem restrições quanto a qualquer parâmetro de propagação para uma cotação de dois lados pelas ECNs. O NASD também acredita que seria apropriado implementar uma fórmula para se proteger contra a ligação sendo usada como uma facilidade de roteamento de pedidos para obter acesso aos Participantes do ITS. 81 A Schwab encoraja a Comissão a trabalhar com o NASD e os outros Participantes da ITS para eliminar os impedimentos regulatórios e estruturais para a participação da ECN nos ITS e na ligação ITS / CAES. 82.
A NYSE declara que permanece flexível ao considerar as modificações do Plano para acomodar as ECNs e ressalta que a NASD levantou para consideração uma série de formas potenciais pelas quais as ECNs poderiam acessar a ITS através da ligação. 83 A CHX acredita que os ATS que optaram por estarem sujeitos à alternativa de exibição devem ter uma forma passiva de acesso aos ITS, mas que os ATS não exibidos não devem ter acesso a ITS. 84.
C. Diversos.
Vários comentaristas levantam questões adicionais em relação à expansão da ligação. Na versão proposta, a Comissão observou que a política de autoquote da NASD entraria em conflito com o Plano ITS, que limita as cotações geradas por computador a 100 partes, se a ligação ITS / CAES fosse expandida. A Comissão solicitou comentários sobre a questão da autoteste. A NASD responde que pretende discutir o problema com o ITSOC, com vista a implementar uma política de cotação gerada por computador que possa ser aplicada a todos os títulos elegíveis de ITS / CAES.
A Comissão também solicitou ao NASD que considerasse o desenvolvimento de padrões para filas e execução de pedidos de clientes. O NASD não acredita que haja problemas significativos nessa área. Ele afirma que acredita que qualquer problema potencial pode se manifestar como uma falha em exibir prontamente as ordens dos clientes na abertura ou como falha em fornecer a melhor execução, mantendo vários pedidos, para os quais os padrões regulatórios aprimorados foram implementados. O NASD observa que não tem conhecimento de nenhum problema ou reclamação de clientes em qualquer contexto. Ele também observa que os fabricantes de mercado da NASD geralmente garantem os pedidos dos clientes o preço de abertura do mercado primário, eliminando o potencial de filas no horário aberto. 85.
A OptiMark acredita que os Participantes devem ser obrigados a melhorar substancialmente o desempenho e a capacidade do sistema de STI, observando que a tecnologia em uso é uma combinação ineficiente de sub-sistemas manuais e automatizados dentro dos STI. A OptiMark está preocupada com o facto de isso criar limitações de capacidade que levem a execuções pobres ou intempestivas dos compromissos de STI e aos atrasos na obtenção de acesso aos STI. 86 O CSE exorta a Comissão a corrigir as ineficiências que existem dentro dos STI e outros sistemas de mercado nacionais, incluindo o CTA e o CQS, para permitir relatórios de negociação mais rápidos e atualização de citações. 87.
A CHX acredita que existem problemas em relação ao vencimento dos compromissos da ITS que não são executados pelo mercado receptor. Geralmente, a CHX considera a expiração dos compromissos de ITS como uma violação da regra de cotação firme e acredita que os Participantes da ITS devem ter responsabilidade no âmbito do Plano STI quando um mercado não atuar com um compromisso de STI antes de expirar. 88.
D. Substituindo ou Reescrevendo o Plano ITS.
A Comissão especificamente solicitou comentários sobre se a própria instalação ITS deveria ser substituída ou o Plano ITS reescrito. A CHX não vê nenhum motivo para tomar essas medidas neste momento, acreditando que a ITS, embora com vinte anos de idade, tenha servido bem o setor e evoluiu ao longo do tempo para atender às mudanças nas condições do mercado. A CBOE também afirma que o Plano atendeu o NMS nas últimas duas décadas, e acredita que, com o aumento da automação e outras melhorias, continuará servindo a indústria no próximo século.
Em contrapartida, a NYSE e a Amex afirmam que são receptivas a discutir alternativas a ITS. 89 A ICI acredita que podem ser necessários novos aprimoramentos para realizar os objetivos de um verdadeiro NMS onde uma ordem de cliente inserida em qualquer lugar pode interagir com o melhor preço disponível. 90 Schwab acredita que a Comissão deveria "remover" SEU, e que o acesso aos preços em outros mercados poderia ser alcançado de forma mais eficiente e competitiva, exigindo que cada SRO conceda acesso ao seu sistema automatizado de roteamento de pedidos - seja por meio de fornecedores privados ou através do acesso patrocinado por membros desse SRO. 91.
A NYSE está aberta para discutir a possível substituição do sistema de computador ITS atual com sistemas de roteamento de pedidos existentes ou um sistema de terceiros, mas sugere que a Comissão considere se qualquer ligação é necessária. 92 A NYSE também tem preocupações sobre a estrutura legal que governaria qualquer novo sistema. Além disso, a NYSE acredita que qualquer nova ligação deve fornecer aos não membros acesso apenas a cotações de preço superior. 93 Finalmente, a NYSE acredita que, se a Comissão alterasse o Plano, precisaria manter as descrições das interfaces ITS contidas no Plano atual e adotar uma linguagem que esclareça que essas descrições são o único meio pelo qual os Participantes podem acessar a ITS .
III. Discussão e Base para Adopção.
A. Expansion of Linkage Generally.
As it originally stated in its permanent approval order for ITS, the Commission continues to believe that it is necessary to expand the ITS/CAES linkage to all listed securities in order to fully implement the 1975 Congressional mandate to create a national market system linking the exchanges and the OTC market. 94 When the Commission approved the limited linkage for Rule 19c-3 securities in May 1982, 95 it intended it to be the first step toward a more expansive linkage. 96 The Commission's amendments applied to Rule 19c-3 securities initially because the Commission believed that the adoption of Rule 19c-3 would likely result in an increase in volume for these securities, thereby heightening the need for an efficient linkage between the exchanges and the OTC market. 97 Since that time, there has been a marked increase in the level of trading in the third market. In 1987, third market trading of NYSE listed stocks accounted for 1.9% of the volume and 2.05% of the trades reported to the consolidated tape. By 1997, third market trading of NYSE listed stocks accounted for 7.7% of the volume and 10.49% of the trades reported to the consolidated tape. 98.
There have been other significant improvements in the third market. Specifically, any NASD member that acts in the capacity of an OTC market maker must provide continuous two-sided quotations for any exchange-listed security in which that member, during the most recent calendar quarter, comprised more than 1% of the aggregate trading volume for the security as reported in the consolidated system ("1% Rule"). 99 The NASD also now requires all third market makers registered as CQS market makers in ITS-eligible securities to register and participate in ITS/CAES. 100 In addition, the NASD prohibits third market makers from trading ahead of their own customer limit orders. 101 Finally, the Limit Order Display Rule requires third market makers to display customer limit orders in their quote if those orders improve the quote. 102 The Commission's adoption of the Limit Order Display Rule eliminates the need for the NASD to implement a rule to require the display of customer limit orders that improve the existing ITS/BBO, as recommended in the Market 2000 Study. 103 The Limit Order Display Rule also provides an enhanced opportunity for public orders to interact with other public orders without the intermediation of a specialist or market maker by requiring certain customer limit orders to be displayed in the quote.
In light of these changes, as discussed below, the Commission believes that there is no longer any need for the historical distinction between Rule 19c-3 and non-Rule 19c-3 securities in the ITS/CAES linkage. The Commission believes that expansion will increase a broker-dealer's ability to obtain the best price available for the customer, promote competition in listed securities, help ensure more equivalent access to the markets, and provide for additional liquidity and more efficient executions.
Failure to achieve a linkage between exchange and OTC markets in all listed securities inhibits a broker's ability to ensure best execution of customer orders because orders in non-Rule 19c-3 securities routed to exchange floors cannot be easily redirected to the OTC market when more favorable prices are offered by OTC market makers. Conversely, OTC market makers are precluded from using an efficient means to deliver their orders to exchange floors when the exchange has a more favorable price in non-Rule 19c-3 securities. 104 The Commission believes that expanding the ITS/CAES linkage to non-Rule 19c-3 securities will enable the OTC market maker and the exchange specialist to access more directly those superior priced quotes through ITS, rather than potentially executing an order at an inferior price.
The Commission also believes that the failure to expand the ITS/CAES linkage would impede competition among brokers and dealers and between exchange markets and other markets, and that competitive OTC markets cannot develop fully in the absence of a linkage for all listed securities. 105 Without an expanded ITS/CAES linkage, OTC market makers in non-Rule 19c-3 securities have little ability to interact with the vast majority of retail orders, which presently are routed to the primary exchange markets, or to attract additional order flow through their displayed quotations. The expansion of the ITS/CAES linkage should promote increased competition in non-Rule 19c-3 securities. The Commission also believes the expansion should help equalize access to all the markets because OTC market makers and exchange specialists will have more direct access to each other's markets for non-Rule 19c-3 securities. Finally, the Commission believes that expanding the ITS/CAES linkage will reduce the occurrence of trade throughs because the NASD's trade through rule will apply to all listed securities traded in the third market, not just Rule 19c-3 securities. 106.
B. Conditional Expansion.
As mentioned above, several of the commenters asserted their belief that certain regulatory steps were necessary prior to expanding the ITS/CAES linkage. Many commenters argued that the NASD should expand its trade through rule to apply to all NASD members. The Commission believes that the NASD should continue to consider modifying its existing trade through rule, but that it is not an essential precondition to approval of an expanded linkage. Currently, all third market makers registered as CQS market makers who trade ITS/CAES eligible securities must register as ITS/CAES market makers, which subjects them to the trade through rule. If the linkage is expanded, non-Rule 19c-3 securities will become ITS/CAES eligible securities. Therefore, any CQS market makers in those securities will be required to register as ITS/CAES market makers and will become subject to the NASD's trade through rule.
Several commenters argued that the NASD's trade through rule should apply not only to ITS/CAES market makers, but to all third market participants. The Commission, however, recognizes the NASD's concern that it is not fair to apply the trade through rule to other third market participants that trade in listed securities, such as block positioners that fit within the block positioner exception to the Commission's 1% Rule, and market makers that account for less than one percent of trading volume in a security and choose not to register as CQS market makers because they do not have access to ITS/CAES. The Commission notes that the NASD has indicated its commitment to modifying the trade reporting process so that exchange Participants can distinguish a trade originating from an ITS/CAES market maker from one originating from another third market participant. 107 This result should permit exchange participants to recognize when an NASD member subject to the trade through rule has executed a trade through. Until such time as the NASD makes the requisite systems changes to attach trade modifiers to trade reports, the Commission believes that the NASD can adequately surveil for compliance with the trade through rule.
Commenters also expressed concerns regarding the NASD's trade reporting rule. The Commission believes that the issue of timely and accurate trade reporting of listed securities by the third market has already been adequately addressed. In July 1999, the Commission approved an NASD proposed rule change to amend NASD Rule 6420(d)(3)(A), the trade reporting rule for principal transactions in listed securities. 108 Prior to the rule change, the NASD's rule required members to report transactions in a manner "reasonably related to the prevailing market taking into consideration all relevant circumstances." Commenters asserted that that this language provided too much flexibility in the manner in which NASD members may report third market transactions. The NASD rule change eliminated the "reasonably related to the prevailing market" língua. The Commission recognizes that there are differences in the trade reporting rules of the third market and the exchange markets, but believes that the rule change adequately addresses some of the ambiguity in the rule for the purpose of expanding the ITS/CAES linkage. 109 The Commission also notes that third market transactions during regular market hours must be reported to the consolidated tape within 90 seconds of execution; this is the same as the reporting of transactions on all the exchanges. Moreover, the Commission's confirmation rule requires participants in the third market to report transactions to the consolidated tape at the same price as they report the transactions to the customer. 110 The Commission notes that the NASD must continue to ensure that it is actively and adequately surveilling trade reporting in the third market. 111.
C. ECN/ATS Participation.
In the proposing release, the Commission requested comment on whether ECNs (or ATSs) should be required or allowed to participate in ITS, and if so, what form that participation should take. Most of the commenters who discuss the issue supported ECN and ATS access to ITS in some form. For example, CHX believes that ECNs that have elected to be subject to the display alternative should have a passive form of access to ITS but that non-display alternative ATSs should not have any access to ITS. 112 The Commission believes that, in order to further the goals of the national market system, ECNs trading in listed securities should be linked to ITS. ITS should not prevent efficient electronic routing between markets. The Commission notes that the Participants have begun a dialogue about the parameters of ECN access to ITS. The Commission strongly urges the Participants to continue to discuss the issue and reach a resolution.
D. NASD Autoquote Policy.
The Commission recognizes that the NASD's current autoquote policy may conflict with the ITS Plan if the linkage is expanded to cover all listed securities. 113 However, the Commission notes that the Participants have been discussing this issue, and expects the Participants to continue to discuss how to amend the Plan to permit computer-generated quotations. 114.
IV. Costs and Benefits of the Proposed Amendment.
To assist the Commission in its evaluation of the costs and benefits that may result from the ITS amendments, commenters were requested to provide analysis and data, if possible, relating to costs and benefits associated with the proposal. No comments were received regarding this request.
The Commission believes that any possible increase in costs to market participants are justified by the overall benefits of the proposed amendment. The proposed amendments will further the goals of a national market system under Section 11A by increasing a broker-dealer's ability to achieve best execution of customer orders, promoting competition in listed securities, equalizing access to markets, and providing for additional liquidity and more efficient executions. Specifically, the Commission believes that expanding the ITS/CAES linkage to non-Rule 19c-3 securities will enable an OTC market maker and an exchange specialist to directly access superior priced quotes in each others' markets through ITS, rather than potentially executing an order at an inferior price. In addition, the expansion of the ITS/CAES linkage should promote competition in non-Rule 19c-3 securities by encouraging market makers or specialists to improve their quotes to match or better the bid or offer in another ITS market in order to attract order flow from those other markets. Finally, the Commission believes that the proposed amendment should provide additional liquidity to the market in non-Rule 19c-3 securities because direct access ( i. e. , the increased ability to access a better price in a security) and increased competition should enable investors to execute transactions more efficiently.
Any monetary costs to the Participants, including implementation costs and costs of expanding the linkage to include all non-Rule 19c-3 securities, would most likely be minimal, if they exist at all, compared to the overall costs of ITS. The Commission consulted with the Securities Industry Automation Corporation ("SIAC") as to any possible costs of implementing the expanded linkage. 115 SIAC informed the Commission that there would not be any systems costs from expanding the linkage, although there may be internal administrative costs for the NASD. 116 The Commission notes that the NASD fully supports the adoption of the Commission's amendment to expand the ITS/CAES linkage. The Commission also notes that most commenters supported the expanded linkage. The Commission further notes that the proposal may affect ITS order flow between the Participants, by increasing it for some Participants, decreasing it for others, or increasing it for all Participants. The Commission believes that any costs to Participants in the form of possible reduced order flow or decreased tape fees (from decreased executions) are justified by the benefits of the proposal, including increased liquidity, increased competition, and a better chance for best execution of customer orders.
V. Effects on Competition, Efficiency and Capital Formation.
Section 3(f) of the Exchange Act requires the Commission, when engaging in rulemaking that requires it to consider or determine whether an action is necessary or appropriate in the public interest, to consider whether such action will promote efficiency, competition, and capital formation. 117 In the Proposing Release, the Commission solicited comment on the effect on competition, efficiency, and capital formation. Many commenters believe that the expanded linkage will ultimately increase market efficiency, competition and transparency. 118.
In the Commission's view, the amendment to the ITS Plan is not likely to impose any significant burden on competition, efficiency or capital formation not necessary or appropriate in furtherance of the Act. Indeed, the Commission believes that expansion of the ITS/CAES linkage to all listed securities should promote competition among market centers and improve efficiency in the execution of customer orders.
Section 23(a)(2) of the Exchange Act requires the Commission, when promulgating rules under the Exchange Act, to consider the competitive effects of such rules and to not adopt any rule that would impose a burden on competition that is not necessary or appropriate in furtherance of the Act. 119 The Commission has considered the proposed amendment to the ITS Plan to expand the ITS/CAES linkage in light of the standards cited in Section 23(a)(2) of the Act and believes that it would not likely impose any significant burden on competition not necessary or appropriate in furtherance of the Exchange Act. Indeed, the Commission believes that the proposed amendment to expand the ITS/CAES linkage should promote competition in non-Rule 19c-3 securities because OTC market makers should now be able to attract orders typically routed to exchange specialists by disseminating a superior quote in all listed securities, not just Rule 19c-3 securities. In addition, the expansion of the ITS/CAES linkage should allow exchange specialists to attract orders held by OTC market makers in non-Rule 19c-3 securities. The Commission believes that the proposed amendment should help to increase efficiency and improve execution quality because investors will be able to access directly the exchange and OTC markets for all listed stocks.
VI. Final Regulatory Flexibility Analysis.
A Final Regulatory Flexibility Analysis ("FRFA") has been prepared in accordance with the provisions of the Regulatory Flexibility Act ("Reg. Flex. Act"), to provide a description and estimate of the number of small entities that would be affected by the ITS Plan amendment to expand the ITS/CAES linkage to all listed securities. 120.
Paragraph (c)(1) of Rule 0-10 121 states that the term "small business" or "small organization," when referring to a broker-dealer, means a broker or dealer that: (1) had total capital (net worth plus subordinated liabilities) of less than $500,000 in its prior fiscal year's audited financial statements or, if not required to file such statements, on the last business day of the preceding fiscal year; and (2) is not affiliated with any person (other than a natural person) that is not a small business or small organization. None of the exchanges are included within the definition of "small entity." The Commission estimates that there are 8,300 registered broker-dealers, including approximately 5,000 "small entities." The Commission requested comment on the number of small entities that could be affected by the proposed amendment, but did not receive any comment on the subject.
As discussed more fully in the FRFA, the proposal would directly affect the nine ITS Participants, none of which is a small entity as defined by paragraph (c)(1) of Exchange Act Rule 0-10. 122 However, specialists on the exchange floors who trade ITS-eligible securities, broker-dealers that have access to ITS through terminals located on exchange floors, and registered ITS/CAES market makers who trade in ITS-eligible securities in the third market could be indirectly affected.
To the extent that a specialist or market maker does fall under the definition of "small entity," the Commission believes that the effect is likely to be indirect and positive. Under the current system, an OTC market maker may be trading a security at a better price than an exchange specialist (or vice versa) and the exchange specialist (or OTC market maker) is not able to access directly the better quote for non-Rule 19c-3 securities. Expanding the ITS/CAES linkage to non-Rule 19c-3 securities should enable the OTC market maker and the exchange specialist to access directly those superior priced quotes through ITS, rather than potentially executing an order at an inferior price. Furthermore, the expansion of the ITS/CAES linkage to non-Rule 19c-3 securities also would have an indirect, beneficial effect upon the ability of a broker with ITS access on an exchange floor to achieve best execution of customer orders. Finally, the ITS Plan amendment does not establish any new reporting, recordkeeping or compliance requirements for small entities.
The Commission received no comments on the Initial Regulatory Flexibility Analysis prepared in connection with the Proposing Release. A copy of the FRFA may be obtained by contacting Christine Richardson, Attorney, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, N. W., Washington, D. C. 20549-1001.
VII. Commission Authority.
The Commission is adopting changes to the ITS Plan as set forth below under Section 11A(a)(3)(B) of the Exchange Act, which authorizes the Commission to authorize or require SROs to act jointly with respect to matters as to which they share authority under the Exchange Act in planning, developing, operating, or regulating a national market system. 123.
VIII. Conclusão.
The Commission continues to believe that it is desirable for the industry to take the lead in the development, implementation, and enhancement of national market system facilities and in the formulation of solutions to national market system issues. Affected industry participants should have every reasonable opportunity to advance national market system goals without direct Commission intervention. In this instance, however, the Commission believes that change will not occur without Commission intervention. Therefore, the Commission has determined to adopt final amendments to the ITS Plan to provide for the expansion of the ITS/CAES linkage to all listed securities. The Commission finds that the final amendments are consistent with the Act, particularly Section 11A of the Act.
IX. Text of Amendments to the ITS Plan.
The Commission hereby adopts amendments to the ITS Plan to provide for the expansion of the ITS/CAES interface to non-Rule 19c-3 securities, pursuant to Rule 11Aa3-2(b)(2) and (c)(1) and the Commission's authority under Sections 2, 3, 6, 11, 11A(a)(3)(B), 15A, 17 and 23 124.
of the Act. Below is the text of the amended ITS Plan. 125 Deleted text is [ bracketed ] and new language is italicized.
Section 1. Definitions.
(1) - (16) No Change.
(17) "ITS/CAES Security (stock)" means a security (stock) (a) that is a System security [ , (b) that is a 19c-3 security and (c) ] and (b) as to which one or more ITS/CAES Market Makers are registered as such with the NASD for the purposes of Applications. When used with reference to a particular ITS/CAES Market Maker, "ITS/CAES security" means any such security (stock) as to which the particular ITS/CAES Market Maker is so registered.
(18) - (25) No Change.
[ (26) "19c-3" security" means an Eligible Security that is not a "covered security" as that term is defined in SEC Rule 19c-3 as in effect on May 1, 1982. ]
Section 2. No Change.
Section 3. No Change.
Section 4. No Change.
Section 5. The System.
(b) General Operation. (i) No Change.
(ii) Selection of System Securities. The System is designed to accommodate trading in any Eligible Security in the case of any ITS/CAES Market Maker, trading in one or more ITS/CAES securities in which he is registered as such with the NASD for the purposes of the Applications. The particular securities that may be traded through the System at any time ("System securities") shall be selected by the Operating Committee. The Operating Committee may add or delete System securities as it deems appropriate and may delay the commencement of trading in any Eligible Security if capacity or other operational considerations shall require such delay. [ ITS/CAES securities may be traded by Exchange Participants and ITS/CAES Market Makers as provided in the ITS Plan and other System securities may be traded by Exchange Participants as provided in the ITS Plan. ]
Section 6. No Change.
Section 7. No Change.
Section 8. No Change.
Section 9. No Change.
Section 10. No Change.
Section 11. No Change.
Pela Comissão.
Jonathan G. Katz.
Date: December 9, 1999.
1 Rule 11Aa3-2 (17 CFR 240.11Aa3-2) establishes procedures for initiating or approving amendments to national market system plans such as the ITS Plan. Paragraph (b)(2) of Rule 11Aa3-2 states that the Commission may propose amendments to an effective national market system plan by publishing the text thereof together with a statement of purpose of the amendments. Paragraph (c)(1) requires the Commission to publish notice of any amendments initiated by the Commission and provide interested parties an opportunity to submit written comments. Paragraph (c)(2) of Rule 11Aa3-2 requires that promulgation of an amendment to an effective national market system plan initiated by the Commission be by rule.
2 Current signatories to the ITS Plan include the American Stock Exchange LLC ("Amex"), Boston Stock Exchange, Inc. ("BSE"), Chicago Board Options Exchange, Inc. ("CBOE"), Chicago Stock Exchange, ("CHX"), Cincinnati Stock Exchange ("CSE"), NASD, New York Stock Exchange, Inc. ("NYSE"), Pacific Exchange, Inc. ("PCX"), and Philadelphia Stock Exchange, Inc. ("Phlx"), collectively, the "Participants."
3 Section 11A(a)(2) was adopted by the Securities Acts Amendments of 1975 ("1975 Amendments"). Bar. L. No. 94-29 (June 4, 1975).
4 Section 11A(a)(1)(D) of the Act, 15 U. S.C. 78k-1(a)(1)(D).
5 Exchange Act Release No. 14416 (January 26, 1978) ("1978 Statement"), at 26, 43 FR 4354, 4358. Previously, on June 23, 1977, the Commission had indicated that a national market system would include those "regulatory and technological steps [necessary] to achieve a nationwide interactive market system." See Exchange Act Release No. 13662 (June 23, 1977), at 20, 42 FR 33510, 33512.
6 1978 Statement, supra note 5, at 4358.
7 In this connection, the Commission specifically indicated that "qualified markets" would include not only exchanges but OTC market makers as well. Identidade.
8 The exchanges involved were the Amex, BSE, NYSE, PCX (then called the "PSE"), and Phlx.
10 See Exchange Act Release No. 14661 (April 14, 1978), 43 FR 17419. In authorizing the implementation of ITS, the Commission urged those SROs not yet ITS participants to participate in ITS. Identidade. at 7 n.15, 43 FR 17421. On August 11, 1978, the Commission extended ITS authority for an additional period of one year. See Exchange Act Release No. 15058 (August 11, 1978), 43 FR 36732. In the interim the ITS Plan had been amended to include the Midwest Stock Exchange ("MSE") as a participant. The MSE is now the CHX.
11 Exchange Act Release No. 15769 (April 26, 1979), 44 FR 26688. Rule 19c-3 precludes exchange off-board trading restrictions from applying to securities listed after April 26, 1979.
12 The term third market makers refers to OTC market makers in listed securities.
13 In its discussions with the ITS Participants, the NASD indicated that the enhanced Nasdaq would encompass trading of listed securities and that it intended to pursue an automated interface. See In re Off-Board Trading Restrictions, File No. 4-220, at 9-10, 23-34.
14 The authorization for the joint operation was extended until January 31, 1983. See Exchange Act Release No. 16214 (September 21, 1979), 44 FR 56069.
15 Id. at 12, 44 FR 56072. The Commission also called for a linkage between the ITS and the CSE's National Securities Trading System ("NSTS").
16 Id. at 14-15, 44 FR 56072. The Commission substantially reiterated these views in a letter to Congress shortly thereafter. See letter from Harold M. Williams, Chairman, SEC, to the Honorable Bob Eckhardt, Chairman, Subcommittee on Oversight and Investigations and the Honorable James Scheuer, Chairman, Subcommittee on Oversight and Investigations and the Subcommittee on Consumer Protection and Finance, House Committee on Interstate and Foreign Commerce, dated November 9, 1979, included in Progress Toward the Development of a National Market System, Joint Hearings before the Subcommittee on Consumer Protection and Finance of the Committee on Interstate and Foreign Commerce, House of Representatives, 90th Cong., 1st Sess., Serial 96-89.
17 See Exchange Act Release No. 16888 (June 11, 1980), 45 FR 41125 ("Rule 19c-3 Adopting Release"). The rule, as adopted, essentially precludes exchange off-board trading restrictions from applying to securities listed after April 26, 1979 ("Rule 19c-3 securities"). Although the Commission recognized many potential concerns regarding the rule, such as internalization, the Commission determined that they were outweighed by the benefits of the rule, including an opportunity for competition between the OTC and exchange markets, with concomitant benefits to investors. Internalization refers to "the withholding of retail orders from other market centers for the purpose of executing them `in-house,' as principal, without exposing those orders to buying and selling interest in those other market centers." Identidade. at 18, n.31, 45 FR 41128, n.31.
18 The Commission believed that off-board trading restrictions had anti-competitive effects because they effectively confined trading in listed securities to exchange markets by precluding exchange members from trading as principal in the OTC market. Adopting Rule 19c-3 limited the expansion of the anti-competitive effects. The Commission also announced the development of a monitoring program to study the issues raised by commentators and determined to publish monitoring reports on a periodic basis. In connection with the adoption of Rule 19c-3, the Commission noted the importance of the NASD's completion of the Nasdaq enhancements in order to provide "a more efficient mechanism for over-the-counter market making in listed securities." Identidade. at 14-15, 45 FR 41127. See Rule 19c-3 Adopting Release, supra note 17, at 49-53, 45 FR 41134.
19 Id. at 15-16, 45 FR 41127. In September 1980, several Participants (the Amex, BSE, NYSE, Phlx, and PCX) submitted identical letters that indicated that they were not at that time willing to commit to the development of an automated interface. The NASD responded by reaffirming its commitment to the automated interface and providing the Commission and the ITS Participants with a functional description of the automated interface. See Description of NASD Market Services, Inc., Computer Assisted Execution System, contained in File 4-208. In its functional description, the NASD also committed to developing a capability to provide the ITS Participants with the best bid and offer among all market makers participating in the enhanced Nasdaq. On January 7, 1981, the NYSE Board of Directors approved participation in a two-step "test" linkage between ITS and the enhanced Nasdaq system.
With respect to the actual operation of the automated interface, the NYSE plan contemplated an initial pilot phase in which trading through the automated interface would be limited to the 30 most active Rule 19c-3 securities. The other ITS Participants were in general agreement with the NYSE's position with respect to the automated interface. During the pilot phase, the NYSE anticipated that the ITS Participants and the Commission would evaluate trading under the preliminary rule and other policy concerns which may have been raised by trading Rule 19c-3 securities through the automated interface. The NYSE plan further anticipated that in the subsequent phase the automated interface would be expanded to include the trading of all Rule 19c-3 securities, but only after the completion of the pilot phase evaluation and agreement among the ITS Participants and the NASD on any additional measures to address policy concerns identified by that evaluation.
20 See Exchange Act Release No. 17516 (February 5, 1981), 46 FR 12379 (February 13, 1981).
21 Indeed, in mandating that the Commission facilitate the establishment of a national market system, Congress found that the linking of all markets for qualified securities through communication and data processing facilities would foster efficiency, enhance competition, increase the information available to brokers, dealers, and investors, facilitate the offsetting of investors' orders and contribute to best execution of such orders. Section 11A(a)(1)(D) of the Act, 15 U. S.C. 78k-1(a)(1)(D).
22 Fragmentation occurs when investor order flow is directed to several markets that are not connected. Among other things, fragmentation reduces the probability of matching customer buy and sell orders because of the smaller number of orders in each market.
23 See Exchange Act Release No. 17516 (February 5, 1981), 46 FR 12379 (February 13, 1981).
24 See Exchange Act Release No. 17744 (April 21, 1981), 46 FR 23856 (April 28, 1981).
25 On March 11, 1982, the Commission delayed the implementation date of the interface until May 1, 1982, and published its own proposed amendments to the ITS Plan. See Exchange Act Release No. 18536 (March 11, 1982), 47 FR 10658.
26 A majority of the amendments were non-controversial and had been agreed upon by the parties or reflected the parties' decision to defer resolution of certain issues until after a pilot phase of the interface. The areas where the parties could not reach agreement were resolved by the Commission. See Exchange Act Release No. 18713 (May 12, 1982), 47 FR 20413. The amendments included language requiring the NASD to apply trade through safeguards to provide for a sufficient assurance of consistency with the exchanges' trade through rules. A "trade through" occurs when a transaction is effected at a price below the best bid, or above the best prevailing offer. The NASD submitted a proposed trade through rule on May 4, 1982, which the Commission approved on an accelerated basis for six months. The Commission believed that the NASD rule was adequate even though it was not identical to the exchanges' trade through rules. See Exchange Act Release No. 18714 (May 6, 1982), 47 FR 20429 (May 12, 1982). The Commission had approved the exchanges' trade through rules on April 9, 1981. See Exchange Act Release No. 17704 (April 9, 1981), 46 FR 22520.
On September 15, 1983, the pilot phase ended and all Rule 19c-3 securities became eligible for trading through the ITS/CAES interface. See Exchange Act Release Nos. 19825 (May 31, 1983), 48 FR 25043 (June 3, 1983); and 19970 (July 20, 1983), 48 FR 33103.
27 See Division of Market Regulation, Market 2000: An Examination of Current Equity Market Developments (January 1994) ("Market 2000 Study"), at A. II.12.
28 See Exchange Act Release No. 19456 (January 27, 1983), 48 FR 4938 (February 3, 1983) ("Final Approval Order").
31 The ITS Plan promotes price continuity among the various markets by ensuring that all markets have the opportunity to interact with the best national bids and offers.
32 See ITS Plan, Section 8(d)(iii).
33 The NASD has since withdrawn its application. See letter from Robert E. Aber, Senior Vice President and General Counsel, Nasdaq, to Jonathan G. Katz, Secretary, Commission, dated July 23, 1998.
34 See Market 2000 Study, supra note 27.
35 Specifically, the Market 2000 Study noted that the possibility of execution in the OTC market of a significant percentage of the total volume in multiply traded securities increased the need to enhance interaction of orders in all market centers to eliminate trade throughs and to provide market makers in those securities the ability to compete for order flow through their displayed quotations. Market 2000 Study, supra note 27.
36 The Division, in its Market 2000 Study, identified several areas where the NASD should amend its rules prior to an expansion of the ITS/CAES linkage. Specifically, the Division recommended that the NASD amend its rules to provide for: the display of customer limit orders that improve the existing ITS best bid or offer ("BBO"); customer limit order protection; fixed standards for queuing and executing customer orders; crossing of customers' orders, if possible, without dealer intervention; and compliance with ITS trade through and block trade policies. The Division also stated that the NASD should develop a program specifically designed to enhance oversight examination of the third market. Identidade.
In February 1995, the NASD submitted a rule filing addressing those recommendations but subsequently withdrew that filing in light of the Commission's publication of its Order Handling Rules (Exchange Act Release No. 37619A (September 6, 1996), 61 FR 48290 (September 12, 1996)), which addressed many of the topics covered by the NASD's proposed rules. On June 22, 1998, the NASD submitted a Petition for Rulemaking ("NASD Petition") to adopt rules necessary to remove the limitation on access to ITS with respect to non-Rule 19c-3 securities.
37 See Exchange Act Release No. 36310 (September 29, 1995), 60 FR 52792 (October 10, 1995).
38 See Order Handling Rules, supra note 36.
39 Preliminarily, the Commission found four elements of the current operation of ITS and the ITS Plan to be an unreasonable impediment to competition among the various markets: (1) minimum increments for ITS commitments; (2) the lack of access to ITS for OTC market makers; (3) the unanimous vote requirement for ITS Plan amendments; and (4) the ITS Participants' special right of review of CSE proposed rule changes. See letter from Jonathan G. Katz, Secretary, Commission, to ITS Participants, dated May 27, 1997 ("May 27 Letter"). The Participants have voted to eliminate the limitation on access to increments through ITS, and the review of CSE rule changes. The Commission recently approved amendments to the ITS Plan to eliminate the special right of review of CSE rule changes. See Exchange Act Release No. 40553 (October 14, 1998), 63 FR 56278 (October 21, 1998).
40 Eight of the nine Participants supported eliminating the ITS/CAES linkage restriction as long as certain significant changes are made to the NASD's rules prior to the expansion. See letter from Thomas F. Ryan, Jr., President and Chief Operative Officer, Amex, to Jonathan G. Katz, Secretary, Commission, dated June 26, 1997 ("Amex Letter"); letter from Charles J. Henry, President and Chief Operating Officer, CBOE, to Jonathan G. Katz, Secretary, Commission, dated June 26, 1997 ("CBOE Letter"); letter from Robert H. Forney, President and Chief Executive Officer, CHX, to Jonathan G. Katz, Secretary, Commission, dated November 3, 1997 ("CHX Letter"); letter from David Colker, Executive Vice President and Chief Operating Officer, CSE, to Jonathan G. Katz, Secretary, Commission, dated July 3, 1997 ("CSE Letter"); letter from Robert E. Aber, Vice President and General Counsel, Nasdaq, to Jonathan G. Katz, Secretary, Commission ("NASD 1997 Letter"); letter from James E. Buck, Senior Vice President and Secretary, NYSE, to Jonathan G. Katz, Secretary, Commission, dated June 25, 1997 ("NYSE Letter"); and letter from William G. Morton, BSE, Robert H. Forney, CHX, Robert M. Greber, PCX, and Nicholas Giordano, Phlx, to Jonathan G. Katz, Secretary, Commission, dated June 23, 1997 ("Joint Letter").
41 See Exchange Act Release No. 40260 (July 21, 1998), 63 FR 40748 (July 30, 1998) ("Proposing Release"). In the Proposing Release, the Commission also proposed to eliminate the requirement that amendments to the ITS Plan be approved unanimously. The Commission is deferring consideration of that proposal at this time. The Commission plans to deal with several larger issues relating to market structure in an upcoming concept release.
42 See letters from James Angel, Associate Professor of Finance, Georgetown University School of Business, to Jonathan G. Katz, Secretary, Commission, dated August 3, 1998 ("Angel ITS/CAES Letter"); Adam W. Gurwitz, CSE, to Jonathan G. Katz, Secretary, Commission, dated August 27, 1998 ("CSE ITS/CAES Letter"); James E. Buck, Senior Vice President and Secretary, NYSE, to Jonathan G. Katz, Secretary, Commission, dated August 31, 1998 ("NYSE ITS/CAES Letter"); Robert H. Forney, President and Chief Executive Officer, CHX, to Jonathan G. Katz, Secretary, Commission, dated August 28, 1998 ("CHX ITS/CAES Letter"); Robert Lazarowitz, Chief Operating Officer, Trimark Securities, to Jonathan G. Katz, dated August 28, 1998 ("Trimark Letter"); Joanne Moffic-Silver, General Counsel and Corporate Secretary, CBOE, to Jonathan G. Katz, Secretary, Commission, dated September 1, 1998 ("CBOE ITS/CAES Letter"); Craig S. Tyle, General Counsel, Investment Company Institute, to Jonathan G. Katz, Secretary, Commission, dated September 2, 1998 ("ICI Letter"); Kevin M. Foley, Bloomberg, to Jonathan G. Katz, Secretary, Commission, dated September 4, 1998 ("Bloomberg Letter"); Richard Ketchum, President and Chief Operating Officer, NASD, to Jonathan G. Katz, Secretary, Commission, dated September 8, 1998 ("NASD ITS/CAES Letter I"); Robert W. Seijas, Co-President, and Joel M. Surnamer, Co-President, The Specialist Association, to Jonathan G. Katz, Secretary, Commission, dated September 1, 1998 ("SA Letter"); Lon Gorman, President, Schwab Capital Markets and Trading Group, Charles Schwab & Co., to Jonathan G. Katz, Secretary, Commission, dated September 14, 1998 ("Schwab Letter"); John C. Katovich, Senior Vice President and General Counsel, OptiMark Technologies, Inc., to Jonathan G. Katz, Secretary, Commission, dated September 22, 1998 ("OptiMark ITS/CAES Letter"); Andrew M. Brooks, Vice President and Head of Equity Trading, T. Rowe Price Associates, Inc., to Jonathan G. Katz, Secretary, Commission, dated September 29, 1998 ("T. Rowe Letter"); James F. Duffy, Executive Vice President and General Counsel, Amex, to Jonathan G. Katz, Secretary, Commission, dated October 17, 1998 ("Amex ITS/CAES Letter"); Richard Ketchum, President and Chief Operating Officer, NASD, to Jonathan G. Katz, Secretary, Commission, dated December 17, 1998 ("NASD ITS/CAES Letter II"); and Richard Ketchum, President and Chief Operating Officer, NASD, to Jonathan G. Katz, Secretary, Commission, dated June 3, 1999 ("NASD ITS/CAES Letter III").
43 See CSE ITS/CAES Letter; Trimark Letter; CBOE ITS/CAES Letter; Bloomberg Letter; NASD ITS/CAES Letter I; and OptiMark ITS/CAES Letter.
44 See Trimark Letter.
45 See CBOE ITS/CAES Letter; T. Rowe Letter (reduce market fragmentation).
46 See Bloomberg Letter; OptiMark ITS/CAES Letter.
47 See NASD ITS/CAES Letter I; Schwab Letter.
48 See Angel ITS/CAES Letter.
49 See Trimark Letter. OptiMark states that there is no fundamental regulatory or functional basis for discriminating between Rule 19c-3 securities and non-Rule 19c-3 securities. See OptiMark ITS/CAES Letter.
50 See NYSE ITS/CAES Letter.
51 See Angel Letter; Trimark Letter; Bloomberg letter; NASD ITS/CAES Letter I.
52 See CSE ITS/CAES Letter; CHX ITS/CAES Letter; CBOE ITS/CAES Letter; Schwab Letter; SA Letter; NYSE ITS/CAES Letter; Amex ITS/CAES Letter.
53 These include the requirement that: OTC market makers provide continuous two-sided quotations for any listed security in which the firm is responsible for more than 1% of the consolidated trading volume; all third market makers register as CQS market makers and participate in ITS/CAES, thereby subjecting them to the obligations and protections afforded Participants in the ITS Plan; the price and size of customer limit orders that improve the public quote be displayed; members be prohibited from "trading ahead" of customer orders. See NASD ITS/CAES Letter I.
54 See NYSE ITS/CAES Letter. Similarly, the Specialist Association ("SA") believes that certain changes to the third market must be implemented and proven, not just adopted, before expansion of the linkage (such as rules establishing fixed standards for queuing and executing customer orders, and assuring that customers' orders will be crossed, if possible, without dealer intervention). The SA realizes that the Commission's Order Handling Rules, which require all specialists and market makers to display, directly or through ECNs, customer limit orders that improve such specialists' or market makers' quotations, mean that those orders are available to be crossed with customer market orders on the other side of the market. The SA also notes that NASD Rule 6440(f) precludes NASD members from effecting a transaction for their own account ahead of customers' market and limit orders. The SA, however, argues that the NASD still lacks a rule requiring NASD members to cross customer market orders against each other, rather than executing them as principal for the member's own account, whenever it is possible to do so. The SA also states that the NASD must expand the application of its trade through and block trade policy rules to cover all third market trading in ITS securities. See SA Letter.
55 See NYSE ITS/CAES Letter. The NYSE also believes that the approach taken by the NASD in a previous filing (SR-NASD-95-09), which was withdrawn, is an appropriate and acceptable means of addressing this issue. Identidade. See also NASD ITS/CAES Letter I.
56 See SA Letter; Amex ITS/CAES Letter; CSE ITS/CAES Letter; CHX ITS/CAES Letter. Amex notes that this is what the NASD originally proposed in SR-NASD-95-09, which was later withdrawn.
57 Under Exchange Act Rule 11Aac1-1, third market makers who account for less than 1% of trading volume in a security, block positioners who do not hold themselves out as being willing to buy and sell securities on a continuous basis, and ATSs that do not elect the display alternative do not have to display quotations ("1% Rule").
58 See CHX ITS/CAES Letter.
59 See CHX ITS/CAES Letter.
61 Schwab states that currently the NASD's trade through and block trade rules apply only to ITS/CAES market makers, which can put specialists in the position of having to provide price protection against prints from NASD members that are not registered CAES market makers, such as block positioners who do not post quotes and are inaccessible through ITS/CAES. Schwab believes this situation could be remedied if the NASD were to affix a trade report modifier identifying prints by NASD members that are not ITS/CAES market makers (and therefore not subject to the trade through rule). See Schwab Letter.
62 All third market makers registered as CQS market makers in securities eligible for inclusion in the ITS/CAES linkage are required to register as ITS/CAES market makers. See NASD Rule 5210(e).
63 See NASD ITS/CAES Letter I. The NASD initially stated it would consider a trade through rule like the one it filed with the Commission in 1995, consideration of which was deferred pending the Order Handling Rules. See NASD-95-09.
64 See NASD ITS/CAES Letter III.
65 See NASD ITS/CAES Letter III. The NASD further notes that today, if another market center sees a print from the OTC market in a Rule 19c-3 security, the same procedure described above is conducted.
66 The NASD does not believe that a system change is possible at this time given the resources being expended on Y2K preparation by the NASD, SIAC and the other exchanges.
67 See CHX ITS/CAES Letter; NYSE ITS/CAES Letter.
68 See Exchange Act Release No. 40360 (August 25, 1998), 63 FR 46267 (August 31, 1998) (SR-NASD-98-61). The Commission notes that this proposal was approved in July 1999. See Exchange Act Release No. 41647 (July 23, 1999), 64 FR 41478 (July 30, 1999).
69 See NYSE ITS/CAES Letter.
70 See CHX ITS/CAES Letter.
71 See CHX ITS/CAES Letter.
72 See NASD ITS/CAES Letter II.
73 See CHX ITS/CAES Letter.
74 See NYSE ITS/CAES Letter. See also Amex ITS/CAES Letter.
75 See CSE ITS/CAES Letter. CHX also believes that Nasdaq stocks should be eligible for ITS. See CHX ITS/CAES Letter.
76 See also CHX ITS/CAES Letter.
77 See CBOE ITS/CAES Letter. CBOE sees this as injurious to the options market and investors in that market and believes it prevents investors in Nasdaq stocks from achieving best execution because they cannot see or trade with a significant source of orders in those stocks.
78 The term ECN is defined, with certain exceptions, as any electronic system that widely disseminates to third parties orders entered into the ECN by an exchange market maker or OTC market maker, and permits such orders to be executed against in whole or in part. See Exchange Act Rule 11Ac1-1(a)(8). The term ATS is defined more broadly as any organization, association, person, group of persons, or system: (1) that constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of Exchange Act Rule 3b-16; and (2) that does not: (i) set rules governing the conduct of subscribers other than the conduct of such subscribers' trading on such organization, association, person, group of persons, or system; or (ii) discipline subscribers other than by exclusion from trading. See Regulation ATS, Sec. 242.300(a). Essentially, an ECN is a type of ATS.
79 Under the ECN Display Alternative, an order entered by a market maker into an ECN that widely disseminates the order is deemed to be a bid or offer to be communicated to the market maker's association for at least the minimum quotation size required by the Association's rules if the priced order is for the account of the market maker, or the actual size of the order up to the minimum quotation size required if the priced order is for the account of a customer. The ECN Display Alternative deems the market maker to be in compliance with this requirement if the ECN displays the market maker's order in Nasdaq. If the only option is for ECNs to link to the NMS through the NASD, specialists and market makers would only have the ECN alternative for trading Rule 19c-3 securities through ITS. Specialists or market makers, therefore, could not use ECNs for non-Rule 19c-3 securities because their quotes would not be accessible to the other ITS Participants.
81 See NASD ITS/CAES Letter I. The NASD is also willing to proceed with a proposal to have ECN quotes be subject to trade through protection by exchange markets and accessible through the ITS/CAES linkage if the Commission is unwilling to support a formula.
83 See NYSE ITS/CAES Letter.
84 See CHX ITS/CAES Letter.
85 See NASD ITS/CAES Letter I. The NASD does not believe that the issue of queuing is directly relevant to the ITS/CAES expansion.
86 See OptiMark ITS/CAES Letter.
87 See CSE ITS/CAES Letter.
88 See CHX ITS/CAES Letter.
89 See NYSE ITS/CAES Letter; Amex ITS/CAES Letter.
90 ICI suggests allowing any vendor to establish an intermarket linkage system, or that all ITS Participants should be required to be open to such linkages, including linkages that provide for the automated routing of orders. See ICI Letter.
91 Schwab believes that ITS is an archaic system and than any number of private communications systems are faster, cheaper, more reliable, and more efficient. See Schwab Letter.
92 With respect to the operation of the current ITS, the NYSE does not believe that any amendments are necessary to the ITS Plan. See NYSE ITS/CAES Letter. Amex also believes that the existing order routing and execution systems of the exchanges and the NASD could be used in place of ITS, and would support any Commission action to assess whether ITS could be readily replaced by other available access mechanisms. Amex, however, does not believe amendments to the current ITS Plan are necessary or appropriate at this time.
93 The NYSE believes it would still be necessary to adopt special rules governing pre-opening procedures, trade throughs, block trades, and locked and crossed markets. In addition, the NYSE believes it would be necessary to specify that non-member trading interest are not "orders" that have the same standing in an exchange Participant's market as member orders. See NYSE ITS/CAES Letter.
94 See Final Approval Order, supra note 28. Specifically, the Commission noted that "in order to achieve fully the Congressional goal that all markets for qualified securities be linked (Section 11A(a)(1)(D) of the Act), it will be necessary in the future for the ITS/CAES interface to be expanded to include all stocks traded in the third market." Identidade. at 4940.
95 See Exchange Act Release No. 18713 (May 12, 1982), 47 FR 20413.
96 See also Market 2000 Study, supra note 27, at AII-12; and Order Handling Rules, supra note 36.
97 See Market 2000 Study, supra note 27, at A. II.12.
98 See NYSE 1997 Fact Book at 26-27.
99 The 1% Rule applied only to Rule 19c-3 securities prior to being expanded in the Order Execution Rules. See Exchange Act Release No. 39367 (November 26, 1997), 62 FR 64242 (December 4, 1997) ("Autoquote Order").
100 See Exchange Act Release No. 34280 (June 29, 1994), 59 FR 34880 (July 7, 1994).
101 NASD Rule 6440(f)(1)(2), which applies to listed securities, states that no member shall buy (or sell) (or initiate the purchase or sale of) any security at or above (or below) the price at which it personally holds or has knowledge that any person associated with it holds an unexecuted limited price order to buy (or sell) such security in the unit of trading for a customer.
102 See Order Handling Rules, supra note 36.
103 The Limit Order Display Rule requires all specialists and market makers to display customer limit orders that improve their quotes. See Order Handling Rules, supra note 36.
104 Non-exchange member OTC market makers presently are able to access exchange floors only through correspondent relationships with member firms.
105 The Commission indicated in the Rule 19c-3 Adopting Release that intermarket exposure of orders in a national market system should maximize competition between and among markets and market participants, and further the efficiency and fairness of the securities markets. See Rule 19c-3 Adopting Release, supra note 17, at 10, 45 FR at 41126.
106 Currently, third market makers may trade non-Rule 19c-3 listed securities without complying with the ITS trade through rule.
107 See NASD ITS/CAES Letter III. The NASD has stated that it will develop a special trade report modifier that an NASD or non-CAES market maker member reporting a trade may append to each trade report to distinguish such trade report from those of CAES market makers. The NASD, however, does not expect to accomplish this goal in the near future because of resources aimed at Y2K issues.
108 See Exchange Act Release No. 41647 (July 23, 1999), 64 FR 41478 (July 30, 1999).
109 The Commission notes that NASD Rule 6420(d)(3)(A) applies to all listed securities, including those that already are ITS/CAES eligible securities.
110 See Exchange Act Rule 10b-10, 17 CFR 240.10b-10. This rule requires that when a NASD member is acting as an agent for a customer, the member must confirm to the customer the gross trade price, which is the price that was reported to the Consolidated Tape, the commission equivalent, as well as the net price to the customer. When an NASD member is acting as principal for its own account, the member must include in the confirmation the price reported to the Consolidated Tape, the net price to the customer, and the difference, if any.
111 In its Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding the NASD and the Nasdaq Market, the Commission noted that the NASD failed to monitor and enforce rigorously trade reporting compliance by NASD members trading exchange-listed securities in the OTC market, and that there were many transactions that constituted trade throughs. See U. S. Securities and Exchange Commission, Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding the NASD and the Nasdaq Market (August 8, 1996) ("Section 21(a) Report") at A-44. Since that time, the NASD has taken various measures designed to comply with the undertakings contained in its settlement, one of which required the NASD to improve substantially the reliability of trade reporting through enhancement of surveillance, examination, and enforcement. See In the Matter of National Association of Securities Dealers, Inc., Exchange Act Release No. 37538 (August 8, 1996); Administrative Proceeding File No. 3-9056 ("SEC Order"), at 8 (Undertaking No. 9).
112 See CHX ITS/CAES Letter.
113 See Autoquote Order, supra note 97. Currently, NASD Rule 6330 permits computer-generated quotations in exchange-listed securities that generate proprietary quotes for 100 shares or more if such quote systems equal or improve either or both sides of the NBBO, add size to the NBBO, or are used to expose a customer's market or marketable limit order for price improvement opportunities. This rule applies only to non-Rule 19c-3 securities, because of the concern that it conflicts with the ITS Plan provision that currently restricts automated quotation tracking systems to 100 shares or less. See Section 8(d)(ii) of the Plan.
114 The Commission notes that on December 3, 1999, the NASD filed a petition for rulemaking to address this issue. The Commission is currently considering that petition.
On a miscellaneous issue, one commenter argued that the unlisted trading privilege rule for IPOs (Rule 12f-2(a) under the Exchange Act), which restricts regional exchanges from trading securities subject to an IPO for the first day, should be amended prior to expanding the ITS/CAES linkage. The Commission notes that it received a study on this issue and is publishing a proposing release addressing this issue. Although two commenters argue that Nasdaq stocks should trade over ITS, the Commission believes that this issue is separate from, and not relevant to, whether or not to expand the ITS/CAES linkage to all listed securities. The Commission notes that it recently approved the expansion of Nasdaq UTP-eligible securities from 500 to 1,000 securities. See Exchange Act Release No. 41392 (May 12, 1999), 64 FR 27839 (May 21, 1999). Finally, the Commission believes that the additional issues raised by the commenters are not directly relevant to the expansion of the ITS/CAES linkage.
115 SIAC serves as the facilities manager for ITS and is responsible for the operation and maintenance of ITS.
116 Phone conversation between Tom Demchak, SIAC, Katherine A. England, Assistant Director, Market Regulation, Commission, and Christine Richardson, Attorney, Commission, on November 23, 1998.
118 See , e. g. , NASD ITS/CAES Letter I; Trimark Letter; Bloomberg Letter; Schwab Letter; and ICI Letter.
121 This amendment was proposed under an older, more expansive definition of "small entity" and as such is being adopted under the older definition. The Commission, however, recently adopted a revised definition of "small entity." See Definitions of "Small Business" or "Small Organization" Under the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Exchange Act, and the Securities Act of 1933, Exchange Act Release No. 40122 (June 24, 1998), 63 FR 35508 (June 30, 1998). The revision, among other things, expanded the affiliation standard applicable to broker-dealers, to exclude from the definition of a small entity many introducing broker-dealers that clear customer transactions through large firms. See revised Rule 0-10(i). The Commission notes that, under the revised definition of "small entity," approximately 1,100 of all registered broker-dealers are characterized as "small."
123 15 U. S.C. 78k-1(a)(3)(B). This is in addition to the authority granted to the Commission under Section 11(A)(b)(3) to approve national market system facilities in response to an application by SROs. The possible need for Commission regulatory compulsion in connection with the development of a national market system where necessary to supplement competitive forces was specifically recognized by the Congress in enacting the 1975 Amendments. For example, the Committee of Conference of both Houses of Congress, in discussing the implementation of a national market system, stated:
It is the intent of the conferees that the national market system evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed. The conferees expect, however, in those situations where competition may not be sufficient, such as the creation of a composite quotation system or a consolidated transaction reporting system, the Commission will use the power granted to it in [the 1975 Amendments] to act promptly and efficiently to ensure that the essential mechanisms of an integrated secondary trading system are put into place as rapidly as possible.
Committee of Conference, Report To Accompany S. 249, H. R. Rep. No. 94-249, 94th Cong., 1st Sess., at 92, reprinted in [1975] U. S. Code Cong. & amp; Ad. News 321, 323. See also Exchange Act Release No. 16410 (December 7, 1979), at 13-14, 44 FR 72607, 72608-09.
124 15 U. S.C. 78b, 78c, 78f, 78k, 78k-1(a)(3)(B), 78o-1, 78q, and 78w(a).
125 The text reflects the latest unofficial compilation of the ITS Plan supplied by the ITSOC, including all previously incorporated amendments up to May 30, 1997.