[Federal Register Volume 63, Number 179 (Wednesday, September 16, 1998)]
[Notices]
[Pages 49623-49624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24816]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40424; File No. SR-NASD-98-68]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to the Submission of Trade Reports in 
PORTAL-Designated Securities to the Automated Confirmation and 
Transaction Service

    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 September 8, 1998, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association'') 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to interpret the definition of ``ACT Eligible 
Security'' in Rule 6110(a) of the rules of the NASD for the Automated 
Confirmation Transaction Service (``ACT'') to include all securities 
designated as PORTAL securities pursuant to the Rule 5320 Series of the 
PORTAL Market Rules to the extent transactions in such PORTAL-
designated securities are voluntarily submitted to ACT solely for 
reconciliation, comparison, and/or clearance and settlement.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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

1. Purpose
    Since 1983, NASD Rule 11180 has required each member that is a 
participant in a registered clearing agency to subscribe to and 
reconcile all eligible transactions through the Trade Acceptance and 
Reconciliation Service (``TARS''), a system operated by Nasdaq. TARS is 
an on-line reconciliation facility that allows both parties to a trade, 
through the Nasdaq Workstation, to reconcile breaks on contract sheets 
from their clearing corporation with respect to over-the-counter 
(``OTC'') and exchange-listed stocks. None of the trade information 
submitted to TARS is disseminated to the public in any manner. TARS has 
been offered as an independent service, distinct from ACT. ACT is the 
Nasdaq-operated system used by members to compare trades and to submit 
trades to clearance and settlement at The Depository Trust Company 
(``DTC''). Pursuant to the rules for Reporting Transactions in Over-
the-Counter Equity Securities in the Rule 6600 Series, members are 
obligated to transmit through ACT last sale reports of transactions in 
OTC equity securities for which real-time trade reporting is not 
otherwise required, which results in public dissemination of last sale 
reports for these transactions. Thus, unlike TARS, ACT includes a 
function for the public dissemination of last sale reports.
    Because of low reconciliation activity in TARS, Nasdaq determined 
to integrate TARS functionality into ACT and eliminate the TARS 
service. Pursuant to proposed rule change SR-NASD-98-47, Nasdaq 
eliminated TARS by deleting NASD Rule 11180 and amended ACT rules to 
integrate the TARS functionality into ACT. This proposed rule change 
was effective upon filing on July 9, 1998, in accordance with Section 
19(b)(3)(A) of the Act.\3\ Pursuant to proposed rule change SR-NASD-98-
47, Nasdaq proposes to implement the elimination of TARS as of 
September 8, 1998. Thereafter, transactions in OTC equity securities, 
that are not otherwise required to be submitted to ACT under the Rule 
6600 Series, may voluntarily be submitted to ACT solely for the purpose 
of taking advantage of the reconciliation, comparison and/or clearing 
functions in ACT.
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    \3\15 U.S.C. 78s(b)(3)(A).
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    Nasdaq has been advised by a number of members that they have been 
using the TARS service for reconciliation of transactions in equity 
securities designated as PORTAL securities under the Rule 5320 Series 
of the PORTAL Market Rules. The PORTAL Market is a system operated by 
Nasdaq for securities sold in a private placement by an issuer under 
the exemption from registration provided by Section 4(2) of the 
Securities Act of 1933 (``1993 Act''), \4\ that qualify for resale by 
investors under Rule 144A under the 1993 Act.\5\ Designation of a 
security issue as a PORTAL security qualifies the issue for book-entry 
clearance and settlement at DTC. Thus, all PORTAL securities are 
depository eligible. Recently, members have requested advice as to 
whether they can continue to voluntarily submit trade details with 
respect to transactions in equity PORTAL-eligible securities, 
previously submitted through TARS, into ACT for purposes of 
reconciliation, comparison, and/or clearance only.
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    \4\15 U.S.C. 77(d)(2).
    \5\17 CFR 230.144A.
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    Currently, the definition of ``ACT Eligible Security'' in Rule 
6110(a) of the ACT Rules does not directly reference PORTAL, privately 
placed, or restricted securities. Thus, PORTAL-designated securities 
are not specifically excluded by this definition from treatment as an 
ACT eligible security.\6\ Nasdaq is proposing to temporarily interpret 
the definition of ``ACT Eligible Security'' to include all PORTAL-
designated securities to the extent those securities are voluntarily 
submitted to ACT solely for reconciliation, comparison, and/or 
clearance and settlement. Nasdaq has initiated modifications and 
procedures related to ACT that will inhibit the ability of any person 
entering a transaction in a security with a CUSIP number for a PORTAL 
security from designating the transaction as a ``reportable trade,'' 
thereby preventing last sale reports for PORTAL-designated securities 
from being publicly disseminated. ACT will treat any entry involving a 
PORTAL-designated security as one submitted solely for reconciliation, 
comparison, and/or clearance and settlement purposes.
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    \6\ The definition of ``ACT Eligible Security'' does include, 
among other securities, all OTC Equity Securities as defined in Rule 
6600. The definition of ``OTC Equity Security'' in Rule 6610(d) does 
specifically exclude all restricted securities, as defined in Rule 
144(a)(3) under the 1993 Act, and PORTAL-designated securities. 
Nasdaq is not proposing to amend or interpret this latter definition 
as such an amendment would subject all PORTAL-designated securities 
to the mandatory 90 second ``reporting'' requirements of the Rule 
6600 Series, and would result in the public dissemination of last 
sale information for such transactions.
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    Finally, in light of the limited use of ACT for PORTAL-designated 
securities,

[[Page 49624]]

it is Nasdaq's position that the submission of trade details in PORTAL-
designated securities to ACT will not subject these transactions to SEC 
fees pursuant to Section 31 of the Act,\7\ as PORTAL-designated 
securities are not subject to ``prompt last sale trade reporting'' as 
that term is used for the purposes of Section 31 fee assessment.
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    \7\ 15 U.S.C. 78ee.
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2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\8\ which requires, 
among other things, that the Association's rules must 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. The NASD believes that the 
proposed rule change is wholly consistent with the purposes of the Act 
in that it will encourage members to submit trade details of 
transactions in PORTAL-designated securities to the Association through 
ACT for reconciliation, comparison, and clearance and settlement 
purposes and will, thereby, provide the Association with trade details 
regarding such transactions and facilitate clearance and settlement in 
such securities.
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    \8\ 15 U.S.C. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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

    Nasdq has neither solicited nor received comments on the proposed 
rule change.

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

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the NASD and, therefore, has become 
effective pursuant to Section 19(b)(3)(A)(i) of the Act \9\ and 
subparagraph (e)(1) of Rule 19b-4 thereunder.\10\ At any time within 60 
days of the filing of such proposed rule change, the Commission may 
summarily abrogate such rule change if it appears that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(i).
    \10\ 17 CFR 240.19b-4(e)(1).
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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.\11\ 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 No. SR-
NASD-98-68 and should be submitted by October 7, 1998.

    \11\ In reviewing this proposed rule change, the Commission has 
considered its impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-24816 Filed 9-15-98; 8:45 am]
BILLING CODE 8010-01-M