[Federal Register Volume 63, Number 168 (Monday, August 31, 1998)]
[Notices]
[Pages 46267-46269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23318]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40360; File No. SR-NASD-98-61]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Reporting Transactions in Exchange-Listed Securities

August 25, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ notice is hereby given that on August 
12, 1998, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its wholly-owned subsidiary, 
Nasdaq Stock Market, Inc. (``Nasdaq''), filed with the Securities and 
Exchange Commission (``SEC'') or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is proposing to amend a rule of the NASD, to eliminate an 
unnecessary provision relating to the reporting of transactions in 
exchange-listed securities traded in the third market. Below is the 
text of the proposed rule change. Proposed deletions are in [brackets].
* * * * *

6420. Transaction Reporting

    (a) through (c) No Change
    (d) Procedures for Reporting Price and Volume
    Members which are required to report pursuant to paragraph (b) 
above shall transmit last sale reports for all

[[Page 46268]]

purchases and sales in eligible securities in the following manner:
    (1) through (2) No Change
    (3)(A) For principal transactions, except as provided below, report 
each purchase and sale transaction separately and report the number of 
shares and the price. For principal transactions which are executed at 
a price which includes a mark-up, mark-down or service charge, the 
prices reported shall exclude the mark-up, mark-down or service charge. 
[Such reported price shall be reasonably related to the prevailing 
market, taking into consideration all relevant circumstances including, 
but not limited to, market conditions with respect to the security, the 
number of shares involved in the transaction, the published bids and 
offers with size at the time of the execution (including the reporting 
firm's own quotation), accessibility to market centers publishing bids 
and offers with size, the cost of execution and the expenses involved 
in clearing the transaction.]
* * * * *

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 self-regulatory organization 
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 self-regulatory organization 
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

1. Purpose
    The NASD is proposing to eliminate an unnecessary provision of the 
rules applicable to the reporting of transactions in exchange-listed 
securities. Specifically, NASD Rule 6420(d)(3)(A), which is the general 
rule requiring NASD members to report all principal transactions in 
exchange-listed securities in the third market, contains language 
requiring members to report transactions in a manner ``reasonably 
related to the prevailing market taking into consideration all relevant 
circumstances. * * *'' While this provision accompanied a change to the 
trade reporting rules approved in 1980 (which was intended to make 
comparable the reporting of third market trades with exchange 
transactions by requiring third market trades to be reported on a 
``gross'' basis, exclusive of any mark-up or mark-down charged to the 
customer),\2\ Nasdaq believes that this particular language is 
superfluous in the context of exchange-listed securities and does not 
serve any meaningful purpose with respect to the trade reporting for 
these securities.
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    \2\ See Exchange Act Release No. 16960 (July 7, 1980), 45 FR 
47291 (July 14, 1980) (approving SR-NASD-80-03).
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    Indeed, Nasdaq believes that the language has served only to 
promote the misperception that the rule provides flexibility in the 
manner in which NASD members may report third market transactions. It 
is argued that this has led to inaccurate trade reporting, and has been 
used as a basis for not extending the NASD's ITS/CAES link to all 
exchange-listed securities. As recognized by the Commission in its 
recent proposal to expand ITS/CAES to all listed securities, however, 
the Commission believes that any issues concerning timely and accurate 
trade reporting have already been addressed for the most part.\3\ In 
particular, while the Commission appears to concur that the rules could 
be clarified in this fashion, the rules are nonetheless the same for 
the reporting of both 19c-3 securities, and non-19c-3 securities, and 
thus Nasdaq agrees that there is no basis for not extending the ITS/
CAES linkage to all exchange-listed securities. Nasdaq believes that 
other NASD rules and procedures, along with a member's best execution 
obligations, provide the necessary protections to ensure accurate and 
appropriate trade reporting in exchange-listed securities. As the 
Commission has indicated on several occasions, an effective 
surveillance program, along with the requirements of Exchange Act Rule 
10b-10 (the confirmation rule), ensure compliance with trade reporting 
obligations and the proper disclosure of any mark-up or mark-down.\4\ 
Accordingly, Nasdaq believes that the best practice would be to remove 
the less-than-clear language from the rule.
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    \3\ See Exchange Act Release No. 40260 (July 24, 1998), 63 FR 
40748 (July 30, 1998), n.67 and accompanying text (proposed 
amendments to National Market System plan).
    \4\ See e.g., id, at nn. 63, 67; Exchange Act Release No. 18713 
(May 6, 1982), 47 FR 20413 (May 12, 1982), n.13 (adoption of final 
amendments to National Market System plan).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \5\ in that the proposed 
rule change facilitates the accurate reporting of transactions in the 
third market. Section 15A(b)(6) requires that the rules of a registered 
national securities association are 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, and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \5\ 15 U.S.C. 78o-3
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Association does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the 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 the proposal 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, including whether the proposed rule 
change is consistent with the Act. 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

[[Page 46269]]

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 at the Commission's Public Reference Room, located at the above 
address. Copies of such filing will also be available for inspection 
and copying at the principal office of the NASD. All submissions should 
refer to File No. SR-NASD-98-61 and should be submitted by September 
21, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23318 Filed 8-25-98; 8:45 am]
BILLING CODE 8010-01-M