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84-46 SEC Approval of Revised Rules for Bunching of NASDAQ/NMS Trades

TO: All NASD Members and Level 2 and Level 3 Subscribers

The Securities and Exchange Commission has approved amendments to Schedule D of the Association's By-Laws with respect to the rules which permit the aggregation or "bunching" of orders in NASDAQ National Market System securities into a single transaction report.

Under the amendments, which are effective immediately, orders of less than 10,000 shares which are either received or initiated by the trading departments of member firms and executed at the same price may be bunched into a single transaction report. The amendments therefore extend bunching to principal trades by members and increase the size of individual orders which may be bunched in a single transaction report from 5,000 to less than 10,000 shares.

All other aspects of the bunching rule contained in Section 2(f), Part XIV of Schedule D are unchanged. As a reminder to members in this regard the rule still states that:

  • It is not permissible for a member to withhold reporting a trade in anticipation of bunching the transaction with other transactions;
  • Bunching can only occur if all bunched transactions are executed within 60 seconds of the first trade bunched;
  • Each bunched trade report must be made within 90 seconds of the first trade executed;
  • The reporting member must identify each bunched trade report by appending a ".B" to the trade report; and,
  • All order tickets of bunched trades must be identifiable by the member.

The new bunching amendments were first proposed by the NASD's Trading Committee and were adopted earlier this year by the Association's Board of Governors. The rule change received considerable support from the National Security Traders Association (NSTA) both before and during the period of formal consideration by the SEC. The NASD and NSTA believe substantial benefits to members and investors will result from the amended bunching rule. These include an increase in the accuracy and promptness of trade reports; a reduction of late transaction reports; and, a lessening of the administrative burdens on member firms since less equipment and personnel will be required by members to fulfill their transaction reporting responsibilities.

In order to assist members' understanding of the amendments, the text of the rule change together with examples of how the new bunching rules will operate are attached to this Notice.

Questions regarding the new rule and this Notice should be directed to the undersigned at (202) 728-8050.

Sincerely,

S. William Broka
Vice President
NASDAQ Operations

Attachment

NASD BY-LAWS SCHEDULE D, PART XIV, SECTION 2(f)

(f) Aggregation of Transaction Reports

(1) Under the following conditions, individual executions of orders in a security at the same price may be aggregated, for transaction reporting purposes, into a single transaction report.

(A) Orders received prior to the opening of the reporting member's market in the security and simultaneously executed at the opening. Also, orders received during a trading or quotation halt in the security and executed simultaneously when trading or quotations resume. In no event shall a member delay its opening or resumption of quotations for the purpose of aggregating transactions.

Example:

A firm receives, prior to its market opening, several market orders to sell which total 10,000 shares. All such orders are simultaneously executed at the opening at a reported price of 40. REPORT 10,000 shares at 40.

(B) Simultaneous executions by the member of customer transactions at the same price, e.g., a number of limit orders being executed at the same time when a limit price has been reached.

Example:

A firm has several customer limit orders to sell which total 10,000 shares at a limit price of 40. That price is reached and all such orders are executed simultaneously. REPORT 10,000 shares at 40.

(C) Orders relayed to the trading department of the reporting member for simultaneous execution at the same price.

Example:

A firm purchases a block of 50,000 shares from an institution at a reported price of 40. REPORT 50,000 at 40.
Subsequently, one of the firm's branch offices transmits to the firm's trading department for execution customer buy orders in the security totalling 12,500 shares at a reported price of 40. REPORT 12,500 at 40.
Subsequently, another branch office transmits to the firm's trading department for execution customer buy orders totalling 15,000 shares in the security at a reported price of 40. REPORT 15,000 at 40.

Example:

Due to a major change in market conditions, a firm's trading department receives from a branch office for execution customer market orders to sell totalling 10,000 shares. All are executed at a reported price of 40. REPORT 10,000 at 40.

(D) Orders received or initiated by the reporting member which are impractical to report individually and are executed at the same price within 60 seconds of execution of the initial transaction; provided however, that no individual order of 10,000 shares or more may be aggregated in a transaction report and that the aggregated transaction report shall be made within 90 seconds of the initial execution reported therein. Furthermore, it is not permissible for a member to withhold reporting a trade in anticipation of aggregating the transaction with other transactions.

Examples:

A reporting member receives and executes the following orders at the following times and desires to aggregate reports to the maximum extent permitted under this rule.

First Example

 

11:01:00

500 shares at 40

11:01:05

500 shares at 40

11:01:10

9,000 shares at 40

11:01:15

500 shares at 40

REPORT:

10,500 shares at 40 within ninety seconds of 11:01.

Second Example

 

11:01:00

100 shares at 40

11:01:10

11,000 shares at 40

11:01:30

300 shares at 40

REPORT:

400 shares within ninety seconds of 11:01 and 11,000 shares within ninety seconds of 11:01:10 (individual transactions of 10,000 shares or more must be reported separately).

Third Example

 

11:01:00

100 shares at 40

11:01:15

500 shares at 40

11:01:30

200 shares at 40

11:02:30

400 shares at 40

REPORT:

800 shares at 40 within ninety seconds of 11:01 and 400 shares at 40 within ninety seconds of 11:02:30 (the last trade is not within sixty seconds of the first and must, therefore, be reported separately).

(2) The reporting member shall identify aggregated transaction reports and order tickets of aggregated trades in a manner directed by the Corporation.


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