[Federal Register Volume 63, Number 172 (Friday, September 4, 1998)]
[Notices]
[Pages 47336-47337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23850]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40380; File No. SR-NASD-98-53]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. To 
Include Closed-End Funds in Nasdaq's Mutual Fund Quotation System

August 27, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 24, 1998,\3\ the National Association of Securities 
Dealers, Inc. (``NASD'') through its wholly-owned subsidiary, The 
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 Nasdaq. 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).
    \2\ 17 CFR 240.19b-4.
    \3\ Nasdaq filed an amendment to the proposed rule change on 
August 27, 1998, the substance of which is incorporated into this 
notice. See Letter from Robert E. Aber, Senior Vice President and 
General Counsel, Office of the General Counsel, Nasdaq, to Katherine 
England, Assistant Director, Division of Market Regulation, 
Commission, dated August 26, 1998 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD and Nasdaq are proposing to amend NASD Rule 6800 to 
include closed-end funds in Nasdaq's Mutual Fund Quotation Service 
(``MFQS'' or ``Service''). Below is the text of the propose rule 
change. Proposed new language is italicized; proposed deletions are in 
brackets.

Rule 6800. Mutual Fund Quotation Service

(a) No change

(b) Eligibility Requirements

    To be eligible for participation in the Mutual Fund Quotation 
Service, a fund shall:
    (1) be registered with the Commission as an open-end (``open-end 
fund'') or a closed-end (``closed-end fund'') [management] investment 
company pursuant to the Investment Company Act of 1940.
    (2)-(4) No change.

(c) News Media List[s]

    (1) (A) An eligible open-end fund shall be authorized for inclusion 
in the News Media List[s] released by the Association if it has at 
least 1,000 shareholders or $25 million in net assets.
    (B) An eligible closed-end fund shall be authorized for inclusion 
in the News Media List released by the Association if it has at least 
$100 million in net assets.
    [B](C) Compliance with subparagraphs (1)(A) and (B) shall be 
certified by the fund to the Association at the time of initial 
application for inclusion in the List[s].
    (2) (A) An authorized open-end fund shall remain included in the 
News Media List[s] if it has either 750 shareholders or $15 million in 
net assets.
    (B) An authorized closed-end fund shall remain included in the News 
Media List if it has $60 million in net assets.
    [B](C) Compliance with subparagraphs (2)(A) and (B) shall be 
certified to the Association upon written request by the Association.

(d) Supplement List

    An eligible open-end or closed-end fund shall be authorized for 
inclusion in the Supplement List released to vendors of Nasdaq Level 1 
Service if:
    (1) The fund has net assets of $10 million or more; or
    (2) Has had two full years of operation.

(e) No change

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. Nasdaq 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 and Nasdaq are proposing to amend NASD Rule 6800 to 
establish minimum requirements for the inclusion of closed-end funds in 
Nasdaq's MFQS.
    Currently, MFQS collects daily price and related data for open-end 
funds and money market funds, and publicly disseminates the information 
to the news media and market data vendors. To assist the news media and 
market data vendors in determining which funds have the broadest appeal 
to the investing public, Nasdaq divides the participating funds into 
two separate lists: the ``News Media List'' and the ``Supplemental 
List.'' Open-end funds on the News Media List are eligible for 
inclusion in the fund tables of newspapers nationwide, as well as for 
dissemination over Nasdaq's Level 1 data feed service distributed by 
market data vendors. Open-end funds on the Supplemental List are 
disseminated over Nasdaq's Level 1 date feet service, thus providing 
significant visibility for funds that do not qualify for the News Media 
List. NASD Rule 6800 contains initial inclusion (minimum eligibility) 
requirements for both the News Media List and the Supplement List, and 
contains maintenance (continued inclusion) requirements for the News 
Media List. Closed-end funds, however, are not currently eligible for 
inclusion in the MFQS under NASD Rule 6800.
    In the past, closed-end funds have expressed an interest in being 
able to enter their daily prices into the Service for dissemination to 
the newspapers, market data vendors, and news wires. Previously, the 
MFQS application did not support closed-end funds because it did not 
accommodate some of the data attributes needed for closed-end funds. 
Nasdaq, however, has recently re-designed and upgraded the MFQS. The 
improved Service, which should be implemented in the third quarter of 
1998, will include the data attributes necessary to support closed-end 
funds. Accordingly, Nasda is proposing to add to Rule 6800 new 
standards for the inclusion of closed-end funds in the MFQS.\4\
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    \4\ Under the improved MFQS, Nasdaq plans to disseminate on a 
daily basis a closed-end fund's net asset value and closing share 
price (as applicable). Additionally, Nasdaq will disseminate 
information relating to a fund's unallocated distributions. Each 
fund will provide the aforementioned information to Nasdaq on a 
daily basis through an interface of the MFQS. See Amendment No. 1, 
supra note 3.

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[[Page 47337]]

    The proposed standards contain initial inclusion requirements for 
the News Media List and the Supplemental List, and also contain 
maintenance requirements for the News Media List. Specifically, the 
criteria for the News Media List will be $100 million in assets for 
initial inclusion and $60 million in assets for maintenance. The 
criteria for initial inclusion in the Supplemental List will be $10 
million or two full years of operation; there will be no maintenance 
requirement for the Supplemental List.\5\
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    \5\ This is consistent with the current standards for the 
Supplemental List for open-end funds. See generally NASD Rule 6800.
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    The NASD and Nasdaq note that the proposed initial inclusion and 
maintenance requirements for the News Media List for closed-end funds 
are higher than the current requirements for open-end funds.\6\ The 
NASD and Nasdaq believe that this differential is warranted because the 
nature of closed-end funds differs from open-end funds.\7\ This is, the 
asset base of a closed-end fund is fixed upon initiation whereas open-
end funds' asset base often starts small and grows over time; thus, 
closed-end tend to have higher initial asset bases than open-end funds. 
Furthermore, the proposed requirements for the News Media List for 
closed-end funds take into consideration the reality of a growing 
shortage of newspaper print space. Specifically, over the past several 
years, the number of funds has grown significantly, causing a shortage 
of newspaper print space. Accordingly, there are times when a fund 
qualifies for the News Media List but the fund's net asset value and 
closing price are not printed in the newspaper due to a shortage of 
print space. Thus, by proposing meaningful standards for closed-end 
funds, the NASD and Nasdaq hope to provide a manageable and selective 
list of closed-end funds and to avoid having closed-end funds pay the 
higher annual fee for the News Media List (the fee for the Supplemental 
List is lower) \8\ when there is no guarantee that a qualifying fund 
will be printed by a newspaper at a given time.
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    \6\ Under the News Media List criteria for open-end funds, a 
fund must have $25 million in assets or 1,000 shareholders for 
initial inclusion, and $15 million or 750 shareholders for 
maintenance. See NASD Rule 6800(c)(1)(A) and (c)(2)(A).
    \7\ The NASD and Nasdaq note that by contract a closed-end fund 
that wishes to be included in the MFQS agrees to calculate and 
disseminate the fund's net asset value to Nasdaq on a daily basis. 
This information will be disseminated over the Nasdaq Level 1 data 
feed service on a daily basis. See Amendment No. 1, supra note 3.
    \8\ Funds in the MFQS are assessed an annual fee of $275 per 
fund authorized for the News Media List and $200 per fund authorized 
for the Supplemental List. See NASD Rule 7090.
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    The NASD and Nasdaq note that these requirements have received a 
positive response throughout the investment company community, and have 
also received support from the Investment Company Institute (``ICI''). 
The NASD and Nasdaq also note that the proposed standards would make 
approximately 75% of closed-end funds eligible to be printed in the 
newspaper.\9\ Finally, the NASD and Nasdaq are making a technical 
change to NASD Rule 6800 to clarify that there is a single News Media 
List, not multiple lists as the current rule language suggests.
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    \9\ According to the ICI, as of December 31, 1997, there were 
approximately 502 closed-end funds of record, of which 379 had at 
least $100 million in assets. Thus, under the proposed standards, 
379 funds would qualify for the News Media List and the remaining 
123 would qualify for the Supplemental List. (All closed-end funds 
tracked by the ICI have at least $10 million in assets.)
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    The NASD and Nasdaq believe that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act.\10\ Section 15A(b)(6) of 
the Act requires the rules of a national securities association to 
foster coordination with persons engaged in processing information with 
respect to securities, to remove impediments to and perfect the 
mechanism of a free and open market, and, in general, to protect 
investors and the public interest. The NASD and Nasdaq believe that the 
proposed rule change is consistent with the provisions of Section 
15A(b)(6) of the Act because it protects investors and the public 
interest by promoting better processing of price information in closed-
end funds.
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    \10\ U.S.C. 78o-3(b)(6).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD and Nasdaq do 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 Comment 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, 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 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 File No. SR-NASD-98-53 and should 
be submitted by September 25, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-23850 Filed 9-3-98; 8:45 am]
BILLING CODE 8010-01-M