[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20234]


[[Page Unknown]]

[Federal Register: August 18, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34527; File No. SR-NASD-94-35]

 

Self Regulatory Organizations; Order Approving Proposed Rule 
Change by National Association of Securities Dealers, Inc., Relating To 
Reporting of Transactions Executed Outside Normal Market Hours

August 11, 1994.
    On June 2, 1994, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') pursuant to section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ a 
proposed rule change (SR-NASD-94-35) consisting of amendments to Parts 
X, XI, XII, and XIII of Schedule D and Section 2 of Schedule G to the 
NASD By-Laws.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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    The Commission published the proposed rule change in the Federal 
Register on June 23, 1994.\2\ No comments were received. For the 
reasons discussed below, the Commission is approving the proposed rule 
change.
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    \2\Securities Exchange Act Release No. 34229, 59 FR 32474 (June 
23, 1994).
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I. Description

    The proposed rule change amends the NASD By-Laws by establishing 
procedures for members to report electronically trade data for 
transactions executed outside normal business hours (9:30 a.m. to 4:00 
p.m. E.T.),\3\ and outside the hours of the Automated Confirmation 
Transaction Service (``ACT'') (9:00 a.m. to 5:15 p.m.).\4\ Members 
currently use a manually-prepared paper form, Form T, to report these 
transactions.\5\ Instead of Form T, members will use a NASDAQ 
workstation unit or computer-to-computer interface to input reports for 
transactions executed outside normal hours 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'').
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    \3\Unless designated otherwise, all times referred to herein are 
Eastern Time.
    \4\ACT is the NASD's post-trade comparison system that, among 
other things, accommodates reporting and dissemination of last sale 
reports in NASDAQ/National Market, NASDAQ SmallCap, and exchange 
listed securities.
    \5\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 proposed rule change expands electronic reporting of 
transactions executed in NASDAQ National Market issues, NASDAQ SmallCap 
issues, NASDAQ Convertibles, and domestic OTC equities (including 
Canadian issues and American Depository Receipts (``ADR's'')).\6\ The 
rule change requires members to report trades executed between 8:00 
a.m. and 9:30 a.m. to ACT on a real time basis and to designate such 
trades as T to denote execution outside normal market hours.
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    \6\Currently, NASD members are required to report trades 
executed between 9:00 a.m. and 9:30 a.m. to ACT within 90 seconds of 
execution (``real time'').
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    For trades in the above-mentioned securities executed between 
midnight and 8:00 a.m., the proposal requires members to report the 
trades to ACT on the date of the trade during the expanded .T time 
period (8:00 a.m. to 9:30 a.m. e.t.). These trades shall be designated 
.T trades to denote execution outside normal hours and be accompanied 
by time of execution since they are not being reported in real time.
    For trades in these securities executed between 5:15 p.m. and 
midnight, the proposal requires members to report transactions to ACT 
on the next business day (``T+1'') between 8:00 a.m. and 1:30 p.m. 
These entries shall be designated ``as/of'' trades to denote execution 
on a prior day and be accompanied by a time of execution.
    The proposed rule change also expands the time period for member 
firms to electronically report trades executed in foreign OTC equity 
securities (excluding Canadian issues and ADR's). The proposal requires 
members to report these transactions to ACT on T+1 between 8:00 a.m. 
and 1:30 p.m. regardless of the time the trade was actually executed 
and to supply the time of execution with such trade reports.\7\ Member 
firms currently report such trades between 9:00 a.m. and 9:30 a.m.
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    \7\Member firms that have the operational capability to report 
transactions in foreign securities (excluding ADR's and Canadian 
issues) within 90 seconds, between the hours of 8:00 a.m. and 5:15 
p.m. Eastern Time, may do so at their option and will not be 
required to report the same transaction on T+1.
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    Finally, the proposal requires member firms to report trades 
executed in CQS issues outside the hours of 9:30 a.m. and 5:15 p.m. to 
ACT on T+1 between 8:00 a.m. and 1:30 p.m. The proposal requires member 
firms to designate such trades ``as of'' trades and to supply a time of 
execution.
    Because the NASD's related systems work is ongoing and will not be 
completed until early October, the NASD plans to implement these 
reporting requirements during the fourth quarter of 1994. Thereafter, 
the NASD will provide written notice to member firms and vendors prior 
to implementation.

II. Discussion

    The Commission believes that the proposed rule change is consistent 
with the requirements of the Act, and in particular, with Sections 
15A(b)(2), 15A(b)(6) and 11A(a)(1)(C) of the Act. 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. Section 15A(b)(6) requires 
that the rules of a national securities association be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. Section 11A(a)(1)(C) sets 
forth the objective of ensuring the availability to brokers, dealers, 
and investors of information with respect to quotations for and 
transactions in securities.
    Substituting electronic reporting of trades for manual reporting 
via Form T will result in greater and more timely dissemination of 
reliable information respecting transactions in securities executed 
outside normal market hours. For example, electronic reporting will 
enable the NASD to compile and publish comprehensive volume data for 
individual securities including block size and smaller round lot trades 
executed by NASD members. This will provide broker-dealers and 
investors information necessary to make informed judgments about the 
securities offered for purchase or sale.
    The proposed rule change will also result in increased real-time 
trade reporting as members executing trades in NASDAQ National Market, 
NASDAQ SmallCap, NASDAQ convertibles, and domestic OTC Equities 
(including Canadian issues and ADR's) between 8:00 a.m. and 9:30 p.m. 
will be required to report these trades into ACT within 90 seconds. 
This will enable the NASD to disseminate trade reports for this 
category of trades (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. Currently, there is no mechanism available 
to systematically disseminate transaction data received via Form T.
    Finally, the proposal will assist the NASD in performing its duty 
to oversee trading activity of broker-dealers. The proposal will enable 
the NASD to incorporate all of the reported data into its audit trail 
for market surveillance purposes, thereby improving the NASD's capacity 
to enforce member firms' compliance with the Act.

III. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to the NASD and, in particular, Sections 
15A(b)(2), 15A(b)(6) and 11A(a)(1)(C) of the Act.
    It is therefore ordered, pursuant to Section 19(b)(1) of the ACT, 
that the proposed rule change (SR-NASD-94-35) be, and hereby is 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. 17 CFR 200.30-3(a)(12) (1992).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20234 Filed 8-17-94; 8:45 am]
BILLING CODE 8010-01-M