NASDAQ^® plans to begin calculating the NASDAQ Official Closing Price (NOCP) for all NASDAQ National Market^® and SmallCap securities on March 24, 2003, pending approval by the Securities and Exchange Commission (SEC). The NOCP calculation will enhance the process for identifying the NASDAQ-specific closing price for NASDAQ-listed issues by eliminating several problems associated with the current closing price process. The NOCP will also create a more representative and transparent market close value than is available today.

Background

Currently, NASDAQ does not designate an “official” NASDAQ closing price. Instead, the last NASDAQ trade report (identified by the “Q” market center identifier on the UTP Trade Data Feed^SM [UTDF^SM]) entered at or before 4:01:30 p.m. Eastern Time (ET) with a last sale eligible trade condition has been the de-facto closing price for NASDAQ securities.

The proposed NASDAQ Official Closing Price calculation

As proposed to the SEC, the NOCP will equal the normalized price of the last trade reported to NASDAQ’s Automated Confirmation Transaction System^SM (ACT^SM) with a last sale eligible sale condition as of 4:00:02 p.m. Trade normalization will take place based on the prevailing NASDAQ Inside^SM quote at the time of the trade report according to the following guidelines:

1. For trade reports submitted between 4:00:00 and 4:00:02 p.m., the NASDAQ Inside at market close will be used to compare the trade. All other trade reports will be compared to the prevailing NASDAQ Inside at the time of the trade report.
2. For trade reports occurring within the prevailing Inside spread, the NOCP value will simply be the price of that trade.
3. If the reported trade price is outside the NASDAQ Inside, the NOCP will be normalized to the nearer of the NASDAQ Inside bid or ask price.

Please see the presentation below for further information on the NOCP calculation, including:

• How often and by how much will the closing price be normalized?
• How often and by how much will the NOCP differ from the final NASDAQ trade report?
• How often will the NOCP differ from the consolidated last sale?
• How often will the NOCP differ when a NASDAQ trade sets the consolidated last sale?

Please note that the NASDAQ closing last sale price is not to be confused with the consolidated last sale price. The consolidated last sale price is comprised of the final last sale eligible trade report submitted to the Securities Information Processor (SIP) that occurred during the regular trading session by any market center, including NASDAQ. The NOCP calculation does not affect the consolidated last sale price or its calculation in any way.

The NOCP value will be disseminated at 4:01:30 p.m. ET. The NOCP will be recalculated and re-disseminated if the trade underlying the NOCP is cancelled or corrected at any time prior to 5:15 p.m. ET, at which time recalculations of the NOCP will end.

Advantages of the NOCP

The NOCP has been designed to provide market participants, distributors, and investors with a robust, transparent primary market close that is validated and subject to NASDAQ MarketWatch and NASD surveillance. The NOCP will more fairly and accurately represent market activity at market close by integrating both trade and quote data. The inclusion of SuperMontage^SM quotes in the normalization process will prevent trading interest away from the market from setting an unrepresentative closing price. Since quotes on SuperMontage are widely disseminated, firm, immediately accessible, and managed by NASDAQ, the transparency and reliability of the closing process will increase. This closing process will thus produce a tradable closing price that represents either the price of the last reported trade or the best available price at the time of the transaction (the NASDAQ Inside). This proposal also eliminates problems associated with slowly reported trades by only including trade reports that are submitted within two seconds of market close. Lastly, the NOCP process can apply seamlessly to all NASDAQ stocks, regardless of their level of trading activity.

Implementation Plans

In November 2002, NASDAQ submitted a proposal to the SEC related to this NOCP calculation and dissemination. The proposal was published in the Federal Register on December 26, 2002. Pending regulatory approval, beginning on March 24, 2003, the SIP will disseminate the NOCP via the UTDF using the new sale condition modifier value of “M,” denoting the official market center closing price transaction. Please note that other exchanges that trade NASDAQ stocks also will have the choice to use the “M” trade modifier on their own market-center specific trade information to identify and disseminate their own market-center specific closing price. For each market that chooses to use the “M” trade modifier, trade messages with the “M" sale condition will update the market center’s high, low, and last sale prices, but will not impact the current consolidated trade processing rules or the individual market center close of any participant that chooses not to use the .M modifier. UTDF subscribers will need to revise their data processing code to accept and process the new “M" code accordingly.

For further information on the .M sale condition modifier, see Vendor Alert #2002-188.

Thank you for your attention to this matter. Questions about the NOCP or UTDF should be directed to NASDAQ Market Data Distribution at (301) 978-5307 or MKTDATASVC@nasdaq.com.