NASD Proposes New Amendment to Order Display Proposal

Washington, DC, November 14, 2000 - The Securities and Exchange Commission (SEC) recently published for comment a new proposed rule change filed by the NASD amending the proposed Nasdaq Order Display Facility (SuperMontage). This summer, the SEC published previous amendments filed by the NASD. Comments on the latest proposed rule change are due to the SEC no later than 21 days from the date of publication of the proposed rule change in the Federal Register, which is expected the week of November 13.

Non-Directed Order Processing
In response to concerns expressed by commenters regarding ECN quote access fees and to address comments that factors other than cost may be important to a market participant in making investment decisions, the NASD proposes to amend the Order Execution Algorithm for non-directed orders. Under the amended algorithm, the NASD proposes to give SuperMontage participants that enter non-directed orders three options on how their orders would interact with the quotes/orders in Nasdaq.

The internalization feature of SuperMontage will be preserved in all three of the proposed algorithms. In particular, SuperMontage will internalize non-directed orders entered by a market maker or an ECN when they are also at the inside market by matching the non-directed order with the inside quote/order instead of sending it to the participant next in the queue.

Preferenced Orders
The amended proposal would create a new class of orders called "preferenced orders." Preferenced orders would be processed in the same queue as non-directed orders and would be considered liability orders. When a preferenced order is next to be executed within the non-directed order queue, SuperMontage would execute against both the displayed quote/order and the reserve size of the preferenced quoting market participant. Any unexecuted portion would be returned to the entering market participant.

Two possible approaches to preferenced orders are proposed: Alternative A, which would provide for preferenced orders with no price restrictions and Alternative B, which would provide for preferenced orders with price restrictions. Comments are specifically requested on whether Alternative A or Alternative B is the proper approach for preferenced orders.

Preservation of Time Priority for Size Increases to Quotes/Orders
In response to concerns expressed by commenters, the NASD proposes to modify SuperMontage to protect the time priority of a market participant that changes its displayed trading interest by increasing its displayed size. Specifically, under the proposal, quote entries would receive a time stamp which would be used in determining their ranking in the execution algorithm relative to other quotes/orders at that price level. If a market participant increases its displayed size, the system will maintain the original time stamp for the original quantity, protecting its time priority, and assign a separate timestamp for the increased portion. Decreases in size will be deducted from individually stamped entries in reverse time priority.

Increased Dissemination of Quotation Information
The NASD is proposing to create a new vendor data feed, "NQDS Prime," that would provide, on a real-time basis, all individual attributable quote/order information at the three best price levels displayed in the SuperMontage. The proposal states that NQDS Prime is intended to eliminate any purported informational advantage accruing to the SuperMontage system from the retention of this information.