News Release

NASD Board Approves Agency Quote Proposal and Interim Approach to SOES/SelectNet Integration

Washington, D.C.—The National Association of Securities Dealers, Inc. (NASD®), today announced that its Board has approved a proposal that will allow Market Makers, for the first time, to display publicly a second quotation separate from their proprietary quotation in The Nasdaq Stock Market®. The Board has also agreed to implement an interim approach to the integration of two automated trade execution systems: the Small Order Execution System (SOESSM) and SelectNetSM. These actions will enhance market transparency and create new incentives for Market Makers in the Nasdaq market.

Known as the "Agency Quote" proposal, the purpose of this proposal is to display customers’ interest by facilitating the display and execution of agency orders in the marketplace. It will accomplish the goal of displaying customer orders publicly, provide electronic access to these quotes, and maintains the ability of customers to choose which participants should handle their orders. The measure is now subject to approval by the SEC.

"We believe this proposal allows Market Makers to more effectively represent their customers’ orders directly in the Nasdaq quote montage," said Frank G. Zarb, Chairman and CEO of the NASD. "It will also provide a new choice to investors—including institutional investors—who would have the ability, through their broker/dealer, to access the marketplace directly. At the same time, firms will be allowed to control their proprietary quotes, while still complying fully with SEC limit order display requirements."

The particulars of how the Agency Quote concept would be implemented are as follows:

  • Entitlement: Market Makers would be permitted to establish a second Market Maker identifier (MMID) for agency quotes in stocks in which the firm makes a market. One-sided agency quotes would be permissible.
  • Permissible uses of an agency quote: Market Makers may choose to reflect any customer order in the agency quote including certain institutional-sized "working" orders.
  • Executions Against Agency Quote: Agency quotes will be available for automatic execution through the Nasdaq system. Agency quotes will not have Automatic Quote Refresh (AQR) capability, but will be able to use the supplemental exposure feature (i.e. "reserve size").
  • Trade Reporting: Any execution through the facilities of Nasdaq against the agency quote will be reported by Nasdaq.

SelectNet will be transformed into a non-liability system for purposes of order delivery and negotiation only. This will be accomplished by allowing orders to be transmitted through SelectNet only if they are at least one normal unit of trading (i.e., 100 shares) in excess of the displayed quote to which they are directed. As a result, such oversized orders would not be subject to Firm Quote Rule liability, although recipients may still execute against them if they choose, or initiate electronic negotiation.

The SOES system will become the new Nasdaq execution system and will be substantially enhanced as follows: First, the maximum order size that may be entered into the Nasdaq execution system will be increased to 9,900 shares, from the old tier size maximum of 1,000 shares. Second, Market Makers would no longer be prohibited from using the Nasdaq execution system on a proprietary basis. Third, the 17-second interval delay in SOES between executions against the same Market Maker will be significantly reduced. Fourth, Nasdaq will modify the Nasdaq execution system to permit interaction of orders against the existing "reserve size" functionality while yielding priority to displayed quotes at the same price, and Market Makers would be given the option of having their quotes refreshed from reserve size at a size of their choosing, instead of the old tier sizes.

The interim approach will accomplish much of the same goals of the original integration plan, while still maintaining SelectNet as a negotiation system. Most importantly, because the interim approach leverages the existing Nasdaq system, Nasdaq would not require as much programming as it would under the NODES proposal. This would allow us to provide, as quickly as possible, the capabilities of a single execution system available for everyone that avoids multiple executions from disparate systems.

The National Association of Securities Dealers, Inc. (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 GroupSM. 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 Group, the NASD operates The Nasdaq Stock Market® and the American Stock Exchange (Amex®) in a unique dual market structure that brings together the central auction specialist and multiple Market Maker systems. 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; www‌; www‌; or the Nasdaq-Amex NewsroomSM at www‌