Notice to Members 02-71

NASDAQ Provides Guidance on Recent Amendments to "Trade-or-Move" Rule and SuperMontage Opening Process

On May 28, 2002, the Securities and Exchange Commission (SEC) approved amendments made by The Nasdaq Stock Market, Inc. (NASDAQ®) to NASD Rule 4613(e), the Trade-or-Move Rule. The amendments change three aspects of the Trade-or-Move Rule as it operates today between 9:20 and 9:29:59 a.m., Eastern Time (ET).

(1) Sequence of messaging: Electronic communications networks (ECNs) will now be required to send Trade-or-Move Directed Orders prior to entering locking/crossing quotes, and market makers will continue to be required to send Trade-or-Move Directed Orders after entering locking/crossing quotes;


(2) Response Time: The time to respond to a Trade-or-Move Directed Order will be reduced from 30 seconds to 10 seconds; and


(3) Minimum Share Requirement: The amendment creates a 10,000-share minimum requirement for Trade-or-Move Directed Orders for NASDAQ-100 Index® (NASDAQ-100) and S&P MidCap 400 Index (S&P-400) issues, while preserving the 5,000-share requirement for all other securities. The rule filing also preserves the existing exception for agency orders.

As a result of these changes, ECNs will be required to send a Trade-or-Move Directed Order and then wait 10 seconds before entering a locking/crossing quotation. If the ECN receives no response, it may then cancel the Trade-or-Move Directed Order and enter a locking/crossing quote. If the recipient trades in full, the ECN will be required to send another Trade-or-Move Directed Order prior to entering a lock/cross.

Market makers will adhere to the Rule as they do today, taking into account the modified minimum share and response time requirements. The Trade-or-Move requirements apply only to the markets that participate in NASDAQ market systems. Currently, those markets are NASDAQ and the Chicago Stock Exchange, Inc.

Legal questions regarding this Notice may be directed to Jeffrey Davis, Associate General Counsel, or Thomas Moran, Associate Vice President, Office of General Counsel, NASDAQ, at (202) 728-8088. General trading questions may be directed to John Malitzis, Vice President; Karen Peterson, Associate Vice President; or Mary Revell, Associate Vice President; NASDAQ Transaction Services, at (212) 858-4322. Questions about market operations or the Clearly Erroneous Trade Rule may be directed to Dan Franks, Senior Vice President, NASDAQ Market Operations, NASDAQ, at (800) 219-4861.