|Thursday, March 25, 1999
NASD Board Approves Proposed Pilot of Locked and Crossed Market Rule
Washington, D.C.—The National Association of Securities Dealers, Inc. (NASD®), today announced that its Board has approved a proposed rule relating to markets on The Nasdaq Stock Market® that are locked or crossed before the open. The rapid growth of orders entered over the Internet and the increased convenience of direct investor participation in the market has led to an increase in market activity, particularly orders entered overnight for execution at the market’s opening. Nasdaq® has observed a number of locked/crossed markets due to member firms entering quotes prior to the open that effectively lock and cross the market.
Nasdaq’s recent amendments to the locked/crossed market rule have alleviated some, but not all, of the occurrences. The current rule provides that if a market participant enters a quote at or after 9:20 a.m. that would lock or cross the market on the open, the locking/crossing market participant must take action to unlock or uncross the market when the market opens, by no later than 9:30 a.m. This may be done by sending a SelectNetSM message to the market participant(s) it is locking.
The new rule, as follows, is proposed as a one-year pilot program: If a market participant locks or crosses the market between 9:20 a.m. and 9:30 a.m. ("actively locking market participant"), the actively locking market participant would be required to send a SelectNet message for an aggregate size of up to 5,000 shares to the party(ies) being locked or crossed ("passively locked market participant"). The passively locked market participant(s) would then be required to trade in full with the SelectNet message or move out of the way within 30 seconds after receiving the SelectNet message. If the passively locked market participant trades in full with the SelectNet message, it could choose not to move (i.e., remain locked or crossed) if it wishes to trade more shares. Thereafter, any party to the lock/cross (i.e., the actively locking market participant or the passively locking market participant that traded in full, but chose not to move) would have the right, but not the obligation, to send a SelectNet message ("trade-or-move message") to any party to the lock/cross, and any party to the lock or cross that received a trade-or-move message would have the obligation to trade or move within 30 seconds.
For locks and crosses that occur prior to 9:20 a.m., any party to the lock or cross would have the right, but not the obligation, beginning at 9:20 a.m., to send a trade-or-move message of any size to any party to the lock or cross, and any party to the lock or cross that received a trade-or-move message would have the obligation to trade or move within 30 seconds.
"We believe that this proposal will go a long way in further reducing the amount of locked and crossed markets during the opening and will encourage and foster additional price discovery during this important pre-opening period," said Alfred R. Berkeley, III, President of The Nasdaq Stock Market, Inc.
The NASD is the largest securities-industry, self-regulatory organization in the United States and parent organization of NASD Regulation, Inc., and The Nasdaq-Amex Market Group, Inc. Through its regulatory subsidiary, the NASD develops rules and regulations, provides a dispute resolution forum, and conducts regulatory reviews of member activities for the protection and benefit of investors. Through The Nasdaq-Amex Market GroupSM, the NASD operates The Nasdaq Stock Market and the American Stock Exchange (Amex®). The NASD oversees the nation’s 5,600 brokerage firms and more than half a million registered brokers. Consumers can contact the NASD to obtain the disciplinary and work histories, as well as other selected background information, of member firms and individual brokers or to get information on how to lodge a complaint.
For more information about the NASD and its subsidiaries, please visit the following Web sites: www.nasd.com; www.nasdaq-amex.com; www.nasdaqtrader.com; or the Nasdaq-Amex NewsroomSM at www.nasdaq-amexnews.com.