Self-regulatory organizations; proposed rule changes: NQLX LLC,

[Federal Register: January 23, 2004 (Volume 69, Number 15)]

[Notices]

[Page 3421-3422]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr23ja04-111]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49090; File No. SR-NQLX-2004-01]

Self-Regulatory Organization; Notice of Filing and Immediate Effectiveness of Proposed Rule Changes by NQLX LLC Relating to Time- Stamping Orders for Block Trades and Exchange for Physical Trades

January 16, 2004.

Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given that on January 6, 2004, NQLX LLC (``NQLX'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule changes described in Items I, II, and III below, which Items have been prepared by NQLX. The Commission is publishing this notice to solicit comments on the proposed rule changes from interested persons. On January 5, 2004, NQLX filed the proposed rule changes with the Commodity Futures Trading Commission (``CFTC''), together with a written certification under section 5c(c) of the Commodity Exchange Act \3\ (``CEA'') in which NQLX indicated that the effective date of the proposed rule change would be January 6, 2004.

\1\ 15 U.S.C. 78s(b)(7).

\2\ 17 CFR 240.19b-7.

\3\ 7 U.S.C. 7a-2(c).

1. Self-Regulatory Organization's Description of the Proposed Rule Change

   NQLX proposes to amend NQLX Rules 419 and 420 to explicitly require its members to time-stamp orders when negotiations end (rather than begin) for block trades and exchange for physical trades. Because NQLX's rules already require members to time-stamp orders immediately upon receipt, execution, and any modification or cancellation of the order, NQLX believes that these changes will enhance its ability to monitor its members for timely submission to NQLX for acceptance of proposed block and exchange for physical trades as required by its Rules 419 and 420.

   The text of the proposed rule change appears below. New text is in italics. Deleted text is in [brackets]. * * * * *

   Rule 419 Block Trades

   (a)-(f) No changes.

   (g) Information Recording, Submission, and Dissemination.

   (1) For a Block Trade in addition to the requirements of Rules 408(b) and 408(c), a Member or Person Associated with a Member must record on an Order Ticket the identity of the individual arranging the Block Trade and time stamp the Order when negotiation [begins] ends.

   (2)-(7) No changes.

   Rule 420 Exchange for Physical Trades

   (a) No changes

   (b) Information Recording, Submission, and Dissemination.

   (1) For an Exchange for Physical Trade in addition to the requirements of Rules 408(b) and 408(c), a Member or Person Associated with a Member must record on an Order Ticket the identity of the individual arranging the Exchange for Physical Trade and time stamp the Order when negotiation [begins] ends.

   (2)-(7) No changes. * * * * *

2. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Changes

   NQLX has prepared statements concerning the purpose of, and statutory basis for, the proposed rule changes,

   [[Page 3422]]

   burdens on competition, and comments received from members, participants, and others. The text of these statements may be examined at the places specified in Item IV below. These statements are set forth in Sections A, B, and C below.

   1. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Changes

      1. Purpose

         NQLX proposes revising both its rule regarding block trades (NQLX Rule 419(g)(1)) and its rule regarding exchange for physical trades (NQLX Rule 420(b)(1)) to require its members to time-stamp orders when negotiations end (rather than begin) for proposed block trades and exchange for physical trades. Requiring time-stamping when negotiations end for block trades and exchange for physical trades is in addition to the time-stamping of orders required immediately upon receipt, execution, and any modification or cancellation of the order, which is already required of all orders submitted to NQLX for execution.\4\ NQLX believes that these proposed rule changes will enhance the exchange's ability to monitor its members for timely submission of proposed block trades and exchange for physical trades to NQLX for acceptance as required by NQLX's Rules 419 and 420, respectively.

         \4\ See NQLX Rules 408(b), 419(g)(1), and 420(b)(1).

         NQLX also believes that the proposed rule changes are consistent with the requirements, where applicable, under section 6(h)(3)(J) of the Act \5\ and the criteria, where applicable, under section 2(a)(1)(D)(i)(IX) of the CEA,\6\ as modified by joint orders of the Commission and the CFTC.\7\

         \5\ 15 U.S.C. 78f(h)(3)(J).

         \6\ 7 U.S.C. 2(a)(1)(D)(i)(IX).

         \7\ See Joint Order Granting the Modification of Listing Standards Requirements (Exchange-Traded Funds, Trust-Issued Receipts and Shares of Closed-End Funds), Securities Exchange Act Release No. 46090 (June 19, 2002), 67 FR 42760 (June 25, 2002) and Joint Order Granting the Modification of Listing Standards Requirements (American Depository Receipts), Securities Exchange Act Release No. 44725 (August 20, 2001), 67 FR 42760 (June 25, 2002).

      2. Statutory Basis

         NQLX files these proposed rule changes pursuant to section 19(b)(7) of the Act.\8\ NQLX believes that these proposed rule changes are consistent with the requirements of the Commodity Futures Modernization Act of 2000,\9\ including the requirement that NQLX have audit trails necessary and appropriate to facilitate coordinated surveillance to detect, among other things, manipulation.\10\ NQLX further believes that its proposed rule changes comply with the requirements under section 6(h)(3) of the Act \11\ and the criteria under section 2(a)(1)(D)(i) of the CEA,\12\ as modified by joint orders of the Commission and the CFTC. In addition, NQLX believes that its proposed rule changes are consistent with the provisions of section 6 of the Act,\13\ in general, and section 6(b)(5) of the Act,\14\ in particular, in that they will prevent fraudulent and manipulative acts and practices, will foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities and will protect investors and the public interest.

         \8\ 15 U.S.C. 78s(b)(7).

         \9\ Pub. L. 106-554, 114 Stat. 2763 (2000).

         \10\ 15 U.S.C. 78f(h)(3)(J).

         \11\ 15 U.S.C. 78f(h)(3).

         \12\ 7 U.S.C. 2(a)(1)(D)(i).

         \13\ 15 U.S.C. 78f.

         \14\ 15 U.S.C. 78f(b)(5).

   2. Self-Regulatory Organization's Statement on Burden on Competition

      NQLX does not believe that the proposed rule changes will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

   3. Self-Regulatory Organization's Statement on Comments on Proposed Rule Changes Received From Members, Participants, or Others

      NQLX neither solicited nor received written comment on the proposed rule changes.

3. Date of Effectiveness of the Proposed Rule Changes and Timing for Commission Action

   The proposed rule changes became effective on January 6, 2004. Within 60 days of the date of effectiveness of the proposed rule changes, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule changes and require that the proposed rule changes be refiled in accordance with the provisions of section 19(b)(1) of the Act.\15\

   \15\ 15 U.S.C. 78s(b)(1).

4. Solicitation of Comments

   Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule changes conflict with the Act. Persons making written submissions should file nine copies of the submission with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-NQLX-2004-01. 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, comments should be sent in hardcopy or by e-mail but not by both methods. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule changes that are filed with the Commission, and all written communications relating to the proposed rule changes between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of these filings will also be available for inspection and copying at the principal office of NQLX. All submissions should refer to File No. SR-NQLX-2004-01 and should be submitted by February 13, 2004.

   For the Commission by the Division of Market Regulation, pursuant to delegated authority.\16\

   \16\ 17 CFR 200.30-3(a)(75).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 04-1459 Filed 1-22-04; 8:45 am]

   BILLING CODE 8010-01-P