[Federal Register Volume 59, Number 120 (Thursday, June 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15231]
[[Page Unknown]]
[Federal Register: June 23, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34229; File No. SR-NASD-94-35]
Self-Regulatory Organizations; Proposed Rule Change by the
National Association of Securities Dealers, Inc. Relating to Electronic
Reporting of Transactions Executed Outside Normal Market Hours
June 16, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 2,
1994, the National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the NASD. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) of the Act, the NASD
is hereby filing a proposed rule change to strengthen and improve
various trade reporting requirements applicable to trades executed by
the NASD member firms outside normal business hours. The proposed rule
change would establish specific procedures for the electronic entry of
trade data with an eye toward eventually eliminating manually prepared
paper forms as a means of trade reporting.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NASD has prepared summaries, set forth in Sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The instant rule change proposes a series of modifications to the
NASD rules governing transaction reporting in Nasdaq National Market
securities, Nasdaq SmallCap securities, Nasdaq convertible debt
securities (``Nasdaq convertibles''), Over-The-Counter Equity
securities (``OTC Equities''), and exchange-listed securities eligible
for inclusion in the Consolidated Quotation Service (``CQS issues'').
Overall, this rule change is intended to replace a manually-prepared
paper form, Form T, with an efficient means of automated data entry for
members to report transactions executed outside normal business hours
(9:30 a.m. to 4:00 p.m. E.T.) and outside the hours of the Automated
Confirmation Transaction Service (``ACT'') (currently, 9:00 a.m. to
5:15 p.m. E.T.).\1\ In lieu of Form T, the proposal would require
electronic submission of the covered transactions through ACT either on
trade date or the next business day (T+1). Member firms will use a
Nasdaq Workstation unit or a computer-to-computer interface to input
the trade reports. The proposal also includes some technical changes to
make the language in the various trade reporting rules consistent.
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\1\In addition to reporting trades effected outside normal
business hours and ACT hours, Form T is used to report transactions
that were executed during normal business hours, but not reported
into ACT through inadvertence or otherwise.
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The rule proposal would substantially reduce the need for reporting
via Form T as a result of the following changes:
(a) The morning ``.T'' window for reporting contemporaneous trades
in Nasdaq National Market issues, Nasdaq SmallCap issues, Nasdaq
convertibles, and domestic OTC Equities (including Canadian issues and
American Depositary Receipts (``ADRs'') will be expanded by 1 hour to
run from 8:00 a.m. to 9:30 a.m. E.T. Trades executed during this
interval shall be reported into ACT within 90 seconds of execution and
be designated .T to denote execution outside normal market hours.
(b) Trades executed between midnight and 8:00 a.m. E.T. in Nasdaq
National Market issues, Nasdaq SmallCap issues, Nasdaq convertibles,
and domestic OTC Equities (including Canadian issues and ADRs) shall be
reported into ACT on trade date during the expanded .T period (8:00
a.m. to 9:30 a.m. E.T.); these trades must be designated .T trades to
denote execution outside normal hours and be accompanied by time of
execution since they are not being reported in realtime.
(c) Trades executed in Nasdaq National Market issues, Nasdaq
SmallCap issues, Nasdaq convertibles, and domestic OTC Equities
(including Canadian issues and ADRs) between 5:15 p.m. and midnight
E.T. shall be reported into ACT on the next business day (T+1) between
8:00 a.m. and 1:30 p.m. E.T.; these entries shall be designated ``as/
of'' trades to denote execution on a prior day and be accompanied by a
time of execution.
(d) Trades executed in foreign OTC Equities (excluding Canadian
issues and ADRs) shall be reported into ACT on T+1 between 8:00 a.m.
and 1:30 p.m. E.T. regardless of the time the trade was actually
executed; a time of execution must also accompany such trade
reports.\2\
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\2\In approving the NASD's trade reporting rules for OTC
Equities, the Commission sanctioned the capture of the trade-by-
trade data on foreign issues (including Canadian issues) and ADRs
for regulatory purposes, but without real-time dissemination. (See
Release No. 34-32647, July 16, 1993; 58 FR 39262, July 22, 1993).
This would not change under the proposed revisions to Section
2(a)(3) of Part XII of Schedule D to the NASD By-Laws. Under the
proposal, member firms would have an expanded period in which to
report transactions in foreign issues (excluding ADRs and Canadian
issues) on T+1, regardless of whether the subject trades were
executed during or outside of normal market hours on trade data.
(Today, members may voluntarily report such trades on a T+1 basis,
between 9:00 and 9:30 a.m. E.T.). This approach is designed to
accommodate the internal processing tasks of member firms, including
conversion of the transactions price to $U.S. before it can be
reported to the NASD. Real-time reporting of trades in foreign
issues (excluding Canadian and ADR issues) will be optional.
Individual transactions in Canadian and ADR issues will also be
collected for regulatory purposes without dissemination over the
Nasdaq or vendor networks. However, the procedures for reporting
trades in Canadian and ADR issues into ACT will continue to track
the procedures for domestic OTC Equities.
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(e) Trades executed in CQS issues outside the hours of 9:30 a.m.
and 5:15 p.m. E.T. shall be reported into Act on T+1 between 8:00 a.m.
and 1:30 p.m. E.T., be designated ``as/of'' trades, and be accompanied
by a time of execution.
The NASD plans to implement these reporting requirements during the
fourth quarter of 1994; the related systems work is ongoing and should
be completed by early October. Thereafter, written notice will be
provided to member firms and vendors prior to implementation in the
fourth quarter.
The foregoing constitutes the first phase of a three phase process
designed to achieve the electronic capture of virtually every round-lot
trade executed by NASD members in the covered securities, regardless of
the execution time. During this initial phase, all trades designated as
.T trades (excepting .T trades in the subset of OTC Equities comprised
of foreign issues, Canadian issues, and ADRs) will be promptly
disseminated to market data vendors and to subscribers of Level 2/3
Nasdaq Workstation service. Entries designated as ``As/of'' trades
under this proposal will be collected solely for audit trail and
regulatory purposes. This category of trade-by-trade information will
not be disseminated--either through vendors' networks or the Nasdaq
network--until the second phase of this project. The NASD staff will
evaluate member firms' overall compliance with the new requirements
during the first phase while examining various alternatives for
instituting dissemination of ``as/of'' trade data in the second phase.
The staff will also consider the feasibility of compressing the time
period for reporting ``as/of'' trades on T+1 to the 8:00 a.m.-9:30 a.m.
time period, thereby allowing more timely dissemination of trades
executed between 5:15 p.m. and midnight E.T. The third and final phase
will focus on the complete elimination of Form T as a trade reporting
vehicle. Form T will be maintained as a back-up mechanism for reporting
last sale information to the NASD for regulatory purposes.
The NASD believes that this proposed rule is consistent with
Sections 11A(a)(1)(C), 15A(b)(2), and 15(A)(b)(6) of the Act. Section
11A(a)(1)(C) states that the goals of investor protection and
maintenance of fair and orderly markets can be advanced through the
broad dissemination of reliable information respecting quotations for
and transactions in securities. Section 15A(b)(2) requires that a
national securities association be appropriately organized and have the
capacity to enforce member firms' compliance with all applicable
provisions of the Act, the rules adopted thereunder, and the
association's own rules. Finally, Section 15A(b)(6) requires that the
association's rules be designed to prevent fraudulent and manipulative
acts and practices, promote just and equitable principles of trade,
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to and
facilitating transactions in securities.
As noted above, this initiative is intended to substitute
electronic reporting of transactional data for manual reporting via
Form T. This proposal will enable the NASD to incorporate all of the
reported data into its audit trail file for market surveillance
purposes. It will also enable the NASD to compile and publish
comprehensive volume data for individual securities, including block
size and smaller round-lot trades reported electronically by NASD
members. Additionally, the NASD will disseminate the .T category of
trade reports (excluding trade reports in non-domestic OTC Equities)
over the Nasdaq and vendor networks beginning at 8:00 a.m. E.T. on each
business day. Today, there is no mechanism available to systematically
disseminate transaction data received via Form T. Accordingly, the NASD
reiterates its belief that this proposed rule is consistent with the
requirements of Sections 11A(a)(1)(C), 15A(b)(2), and 15A(b)(6) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD believes that the proposed rule change will not result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
For Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the NASD consents, the Commission will:
A. by order approve such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to the file number in the caption
above and should be submitted by July 14, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority. 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15231 Filed 6-22-94; 8:45 am]
BILLING CODE 8010-01-M