[Federal Register Volume 61, Number 220 (Wednesday, November 13, 1996)]
[Notices]
[Pages 58271-58272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29038]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37922; File No. SR-NASD-96-40]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Amending 
the Inclusion Criteria for the Supplemental List of the Mutual Fund 
Quotation Service

November 5, 1996.
    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 October 
18, 1996, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') 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

    The NASD is submitting this rule filing to amend the minimum 
requirements for inclusion in the Mutual Fund Quotation Service 
(``Service''). Specifically, the NASD proposes to amend NASD Rule 6800 
to provide new criteria to permit smaller mutual funds to disseminate 
their prices via the Service. The specific criteria are set forth 
below. (Additions are italicized; material to be deleted is bracketed).

NASD Rule 6800. MUTUAL FUND QUOTATION SERVICE

* * * * *
(d) Supplemental List
    An eligible fund shall be authorized for inclusion in the 
Supplemental List released to vendors of Nasdaq Level 1 Service if the 
fund: (1) has net assets of $10 million or more; or (2) has had two 
full years of operation. [the fund has at least 300 shareholders at the 
time of initial application for inclusion in the Supplemental List.]
* * * * *

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 NASD has determined to amend the criteria for inclusion of 
mutual funds and money market funds in its Service facility. The 
Service provides for the collection and dissemination of prices for 
both mutual funds and money market funds. The Service consists of two 
lists: the News Media List and the Supplemental List. The News Media 
List,\1\ which is not being amended by this rule filing, consists of 
data on more

[[Page 58272]]

than 6,000 funds which Nasdaq distributes daily to newspapers and to 
vendors through its Level 1 Service.
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    \1\ The criteria for inclusion in the News Media List are: (1) 
for initial inclusion--least 1,000 shareholders or $25 million in 
net assets; (2) for continued inclusion--at least 750 shareholders 
or $15 million in net assets.
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    Eligible funds that do not qualify for the News Medial List have 
been eligible for price dissemination solely through the Level 1 
Service. The criteria for inclusion in this list of smaller funds has 
been a size test based on the number of fund shareholders at the time 
of initial application for inclusion in the Supplemental List. 
According to the Investment Company Institute (``ICI''), approximately 
2,100 funds do not qualify for either the News Media or Supplemental 
Lists.
    Because these funds do not qualify for the Nasdaq Stock Market, 
Inc. (``Nasdaq'') Service, these smaller funds do not have a 
centralized means of disseminating their prices to broker-dealers, 
rating services and individual investors. Instead, these funds 
distribute their prices to various entities by fax or telephone.
    Because of the inefficiencies, costs and lack of transparency 
associated with the fax or telephone means of communication, the Nasdaq 
examined whether the Supplemental List criteria for its Service could 
be refined to permit more funds to provide Nasdaq with price 
information through its Level 1 Service which is distributed over more 
than 280,000 terminals. In the course of discussions with ICI, it 
became apparent that while many smaller funds may have smaller numbers 
of beneficial owners that keep such funds from meeting the 300 
shareholder test, the same funds often have substantial net assets. 
Accordingly, Nasdaq determined to revise the Supplemental List criteria 
to delete the shareholder requirement and replace it with two, 
alternative standards. First, a mutual fund may meet the Supplemental 
List inclusion standard if the fund has net assets at the time of 
application of $10 million or more. In the alternative, a fund would 
qualify regardless of net assets or shareholder members if it has 
operated for two full years. Under this new criteria, Nasdaq believes 
that approximately 1,400 additional funds would qualify for the 
Supplemental List.
    The NASD believes that distribution of Net Asset Value information 
for smaller funds significantly aids investors in such funds. The 
Service promotes efficient dissemination of critical information to a 
wide audience and thereby promotes the transparency of smaller fund 
prices. By providing a more efficient means of communicating this 
information, the service may help the affected funds in containing the 
costs associated with distributing this information by less efficient 
means. Accordingly, the NASD believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) in that it promotes 
better processing of pricing information in securities, protects 
investors and the public interest, and is designed to produce fair and 
informative prices for smaller mutual funds.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written 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 self-regulatory organization 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, N.W., Washington, D.C. 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 December 4, 1996.

    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. 96-29038 Filed 11-12-96; 8:45 am]
BILLING CODE 8010-01-M