1 See Memorandum to Equity Markets Advisory Committee No. 38-99, dated December 10, 1999.
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December 21, 1999
TO: EQUITY MARKETS ADVISORY COMMITTEE No. 40-99
RE: DRAFT INSTITUTE COMMENT LETTER ON NASDAQ ORDER DISPLAY
FACILITY
______________________________________________________________________________
As we previously informed you,1 the Securities and Exchange Commission (“SEC”) has
published for comment a proposed rule change filed by the NASD to enhance the Nasdaq quotation
montage by creating a new facility for the display of trading interest (the “Nasdaq Order Display
Facility”) and to substantially modify the proposed Nasdaq National Market System (“NNMS”). The
Institute has prepared a draft comment letter on the proposal.
Under the proposal, Nasdaq market makers and ECNs would be able to display to the
marketplace multiple agency and principal quotes/orders at single, as well as multiple, price levels that
would be electronically accessible if and when the trading interest falls within the best three prices on
either side of the market. The draft letter states that the proposed rule change thus would represent an
important step in increasing transparency, increasing liquidity, and facilitating best execution in securities
traded on the Nasdaq market and would increase access to the full depth of a security's trading interest
by all market participants.
In addition, the draft letter states that the Institute agrees with Nasdaq that the reserve size
feature of the proposed system should benefit the market by allowing Nasdaq Quoting Market
Participants to show the Nasdaq system, but not the market in general, additional trading interest. The
reserve size feature therefore should increase liquidity in the Nasdaq market since reserve size will be
electronically accessible to market participants while at the same time minimizing the potential market
impact of displaying very large size.
The proposing release also notes that with the implementation of the Order Collector Facility,
locked and crossed markets should be virtually eliminated. The draft letter states that locked and
crossed markets are a serious impediment to the efficient operation of the Nasdaq market as they
interfere with the best execution of trades by market participants, especially in a fast moving, volatile
market. The Institute therefore supports industry efforts to eliminate locked and crossed markets and
we support this portion of the proposed rule change.
Finally, the draft letter states that given the extremely short comment period (21 days from
publication in the Federal Register) for the proposal, the comments contained in the letter are only
2preliminary comments and that the Institute will continue to examine the proposal and will submit
additional comments if necessary.
Comments on this proposal are due to the SEC no later than December 27, 1999. If you have
any comments on the draft Institute letter, please provide them to the undersigned by phone at
(202) 371-5408, by fax at (202) 326-5841, or by e-mail at aburstein@ici.org no later than December 22.
Ari Burstein
Assistant Counsel
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