NASD Proposes Rule Change Amending Order Display Proposal

Washington, DC, August 17, 2000 - The Securities and Exchange Commission has published for comment a proposed rule change filed by the NASD amending certain aspects of its prior proposal to establish the Nasdaq Order Display Facility (SuperMontage) and to modify the Nasdaq trading platform. In particular, Nasdaq has filed Amendments Nos. 5, 6, and 7 in response to comments submitted to the SEC on the original proposal. Comments on the proposed rule change are due to the SEC no later than September 14, 2000.

ECN Access Fees
Nasdaq stated that it is amending the proposal so that ECNs that charge a separate access fee will have the ability to indicate on an order-by-order basis whether the price improvement offered by the order exceeds the access fee charged. If the price improvement exceeds the access fee, Nasdaq will rank that order for execution purposes with same-priced orders of other market participants.

The Release also states that Nasdaq understands that when decimal pricing is implemented in the Nasdaq market, ECNs may wish to reflect orders in Nasdaq that are at an increment finer than one penny. This could occur, for example, if an ECN charges a separate access fee that is less than one penny and that separate access fee is included in the quoted price. Nasdaq stated that in the event that priced quotations shrink to this level, it is committed to re-examining the order execution algorithm to determine whether it is prudent and feasible to rank orders based on quotation increments of less than one penny.

UTP Exchange Participation
Nasdaq has amended the proposed rules so that, if an Order-Delivery UTP Exchange is next in line to receive a non-directed liability order, Nasdaq will deliver the order to the UTP Exchange up to the size of the UTP Exchange’s quote. The system then will decrement the Order-Delivery UTP Exchange’s quote by an amount equal to the size of the delivered order.

The Release states that Nasdaq intends to implement the SuperMontage system as soon as practicable after decimal pricing is fully implemented in the Nasdaq market. Nasdaq also committed to providing sufficient lead time for all market participants to have the opportunity to adequately prepare and test their internal systems for the SuperMontage functionality before implementing the new system.

Other Significant Amendments
The amendments address several other concerns and suggestions raised by commenters on the original proposal. The amendments reiterate that participation in the SuperMontage is voluntary, that the system will be rolled out in phases similar to the manner in which Nasdaq implemented the Order Handling Rules where a limited number of stocks which represent a cross section of Nasdaq stocks are phased in, and clarify how the sweep order and request to cancel function in the SuperMontage will work for market makers and ECNs that accept automatic executions.

The amendments also respond to suggestions from commenters that Nasdaq develop a hybrid order routing and execution assignment system, instead of the automatic execution system contemplated by the SuperMontage, and provide assurances that the construction of the SuperMontage does not divert resources from the efforts to implement decimalization in the Nasdaq market.

The Institute filed an April comment letter on the original order display facility and trading platform proposals.