Daily Rules, Proposed Rules, and Notices of the Federal Government
Nasdaq proposes to fully integrate its Brut and INET execution systems. Nasdaq states that this would result in the termination of operations of the Brut system and the elimination of applicable system rules from NASD's rule manual. Nasdaq has designated this proposal as non-controversial and has requested that the Commission waive the 30-day operative delay period contained in Rule 19b-4(f)(6)(iii) under the Act.
In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change, as amended, and discussed any comments it received on the proposed rule change, as amended. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
On January 13, 2006, the Commission issued an order conditionally approving Nasdaq's registration as a national securities exchange.
Nasdaq proposes to fully integrate its Brut and INET execution systems resulting in the termination of operations of the Brut system and the elimination of applicable system rules from NASD's rule manual.
The Commission has already approved the integration of Nasdaq LLC's three execution systems--the Nasdaq Market Center, the Brut ECN, and the INET ECN--into a single execution system commonly known as the Nasdaq Single Book.
The Commission approval of Nasdaq LLC's systems integration applies equally to the trading of NYSE- and Amex-listed stocks, but Nasdaq LLC has not begun to implement the Single Book with respect to those stocks. Nasdaq LLC has experienced an unanticipated delay in its implementation of Single Book for NYSE/Amex trading. This delay provides Nasdaq with an opportunity to add an additional step in the orderly implementation process, namely to merge the Brut and INET systems together in advance of the Single Book launch.
Integrating Brut and INET would benefit Nasdaq participants by simplifying Nasdaq's market structure and operations, while imposing no technical or financial impact on participating firms. Nasdaq is proposing a "virtual" integration of Brut and INET. Specifically, current Brut users would continue to use the same front-end technology they use today, but all orders would be re-directed to the INET processors. As firms have the ability to enter orders into INET via various connectivity options today, existing Brut connectivity, via the FIX protocol, would become yet another connectivity option to the INET processors where such orders would be posted, executed or routed, per the entry firm's instructions.
More specifically, the three basic Brut orders--To Brut, Cross, and Thru Brut--and their sub-types would be "mapped" to a currently approved and operational order type, as set forth below:
The migration of Brut order flow would be seamless to Brut users. First, the Commission's approval of Nasdaq LLC's system integration included the elimination of the Brut operating system; integrating Brut operations into INET is no different than integrating Brut into Single Book. Second, the integration Nasdaq proposes is virtual and, as described above, would not affect how Brut subscribers participate in the Nasdaq market. Third, in addition to the absence of system impact, the vast majority of Brut subscribers are also INET subscribers that are already familiar with the INET system. Nasdaq would work with the remaining Brut subscribers to address any questions or concerns they have regarding the proposed integration.
With respect to the applicable rules, in the order approving Single Book the Commission approved the removal of the Brut rules from Nasdaq LLC's exchange rule manual, which currently applies to the trading of Nasdaq stocks. Nasdaq now proposes to remove the Brut rules from the NASD manual, which currently governs the NASD/Nasdaq trading of NYSE/Amex stocks and would continue to govern that trading until Nasdaq LLC operates as an exchange for these stocks. Nasdaq expects that it would begin operating as an exchange with respect to NYSE/Amex stocks on the day (1) Nasdaq LLC launches Single Book and (2) the NASD launches its new quotation system for NYSE/Amex stocks.
Nasdaq believes that the proposed rule change, as amended, is consistent with the provisions of section 15A of the Act,
Nasdaq does not believe that the proposed rule change, as amended, will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
Written comments were neither solicited nor received.
The foregoing proposed rule change, as amended, is subject to section 19(b)(3)(A)(iii) of the Act
Nasdaq has fulfilled the five-day pre-filing requirement. Nasdaq has requested that the Commission waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because such waiver would immediately allow Nasdaq to integrate its Brut and INET execution systems. For these reasons, the Commission designates the proposed rule change, as amended, to be effective and operative upon filing with the Commission.
At any time within 60 days of the filing of such 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 change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods:
* 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.