Daily Rules, Proposed Rules, and Notices of the Federal Government
Nasdaq proposes to enhance the flexibility of Nasdaq's INET Facility ("INET") order routing process for reactive only DOT orders ("Reacting Only Dot Orders") that currently are ultimately directed to the New York Stock Exchange ("NYSE") or the American Stock Exchange, as appropriate.
The text of the proposed rule change is available at the Commission's Public Reference Room, at NASD, and at
In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
Nasdaq proposes to increase the flexibility of the INET order routing process for orders that currently are ultimately directed to other market centers. Currently, parties entering a marketable INET Reactive Only Dot Order are first directed to have those orders processed in the INET System and, after exhausting available liquidity in the INET System, thereafter automatically routed to other market centers. If the INET Reactive Only Dot Order is not marketable, it is added to the INET book. Nasdaq is proposing to modify the behavior of the INET order routing process for Reactive Only DOT Orders so that orders or residual orders can be sent to other market centers for potential execution whereby unexecuted shares will be returned to the INET System rather than the current practice of the unfilled orders remaining on the books of the other market centers until executed or cancelled.
Nasdaq believes that the proposed rule change will enhance the ability of market participants to take advantage of beneficial liquidity residing across all market centers as other market centers become more automated. Customers use the "Reactive Only DOT" order type when they want their order to be posted on the INET book for potential execution, but do not want to miss potential executions at other market centers, including the NYSE. Before the introduction of the NYSE Hybrid system, there was no way to receive an automatic execution in response to an Immediate or Cancel ("IOC") order sent to the NYSE. As such, the order type as it works today will post the order on INET and "react" to quotes at other market centers. The system will send an IOC order to electronic market centers if they have a locking (marketable) quote. If the locking quote is at the NYSE, today Nasdaq will send the order to the NYSE and it will reside there until executed or cancelled.
With the introduction of the NYSE Hybrid system comes a new feature that Nasdaq would like to utilize using this order type. The new feature is the ability to receive immediate automatic executions in response to IOC orders. Nasdaq would like to be able to use this routing strategy to better respond to the requests of customers (
Nasdaq believes that the proposed rule change is consistent with the provisions of Section 15A of the Act,
Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
Nasdaq has asked the Commission to waive the 30-day operative delay. The Commission believes waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Such waiver will allow the intended benefits of the proposed modification to be made available as soon as practicable. For these reasons, the Commission designates the proposal to be effective and operative upon filing with the Commission.
At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule
* Use the Commission's Internet comment form (
* Send an e-mail to
* Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASD-2006-119. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (
All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASD-2006-119 and should be submitted on or before November 21, 2006.