[Federal Register Volume 63, Number 182 (Monday, September 21, 1998)]
[Notices]
[Pages 50272-50273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25134]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40437; File No. SR-NASD-98-60]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Relating to Nasdaq's Automated 
Confirmation Transaction Service

September 14, 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 August 12, 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 and II below, which Items have been 
prepared by Nasdaq. The Commission is publishing this notice and order 
to solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval to the proposed rule change.
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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

    The proposed rule change is designed to integrate Nasdaq's 
Automated Confirmation Transaction Service (``ACT'') trade reporting 
system with the recently approved Order Audit Trail System (``OATS''). 
The text of the proposed rule change is available at the Office of the 
Secretary, Nasdaq, and at the Commission.

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 III 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
    Nasdaq is proposing to amend its ACT trade-reporting rules to 
integrate them with the OATS rules, which were recently approved by the 
Commission.\3\ OATS is designed to provide the NASD's regulatory 
subsidiary, NASD Regulation, Inc. (``NASDR''), with the ability to 
reconstruct markets promptly, conduct efficient surveillance, and 
enforce NASD and SEC rules. The Commission has directed that OATS must 
provide an accurate, time-sequenced record of orders and transactions 
from the receipt of an order through its execution.\4\ To accomplish 
this goal, NASDR will combine information submitted to OATS with 
transaction data reported by members through ACT, as well as quotation 
information disseminated by Nasdaq. These proposed rules provide for 
the submission of data to ACT sufficient to allow for effective 
analysis and comparison of trading activity.
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    \3\ See Securities Exchange Act Release No. 39729 (March 6, 
1998) 63 FR 12559 (March 13, 1998) (order approving OATS rules); 
NASD Notice to Members 98-33 (March 1998).
    \4\ See In the Matter of National Association of Securities 
Dealers, Inc., Securities Exchange Act Release No. 37538, August 8, 
1996; Administrative Proceeding File No. 3-905, at 7-8.
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    Under the proposal, all trade reports for OATS-eligible securities 
entered into Nasdaq's ACT system will be required to have a time of 
execution expressed in hours, minutes, and seconds. Such trade reports 
also will be required to have an order identifier, to be prescribed by 
the Association, sufficient to allow a comparison of the information 
contained in the trade report with data submitted to NASDR via OATS. In 
addition, Nasdaq is proposing to codify the requirement that all ACT 
participants, including those who have trade report information 
submitted to

[[Page 50273]]

Nasdaq through third parties, obtain and use a unique Market 
Participant Symbol (``MPID'') or ``MMID'') for trade reporting and 
audit trail purposes.
    Nasdaq proposes that the rule changes requested here be implemented 
in tandem with the OATS testing and effectiveness dates, already 
approved by the Commission.\5\ NASD Rule 6957 establishes the following 
schedule for implementation of OATS reporting requirements: (1) March 
1, 1999--electronic orders received by market makers or ECNs; (2) 
August 1, 1999--all electronic orders; (3) July 31, 2000--all non-
electronic (manual) orders. Nasdaq believes that coordinating effective 
dates with the OATS schedule will help ensure that any new member 
obligations under the rule changes proposed here will not take effect 
materially in advance of the corresponding OATS mandates. Such 
coordination also will assist in a smooth migration of systems in 
conformity with OATS timetables. In addition, these limited changes to 
ACT's trade-reporting rules will allow Nasdaq to meet its OATS 
obligations to provide audit trail information to NASDR while 
protecting the current functionality and capacity of the ACT system.
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    \5\ See Release No. 39729, supra note 3.
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2. Statutory Basis
    Based on the foregoing, Nasdaq believes the proposed rule change is 
consistent with Section 15A(b)(6) of the Act \6\ in that the proposal 
is designed to prevent fraudulent and manipulative acts and practices 
and to promote just and equitable principles of trade.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will impose a 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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. 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, 450 Fifth Street, N.W., Washington 
D.C. Copies of such filing also will be available for inspection and 
copying at the NASD. All submissions should refer to File No. SR-NASD-
98-60 and should be submitted by October 13, 1998.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    Nasdaq has requested that the Commission approve the proposal prior 
to the thirtieth day after publication in the Federal Register. The 
Commission finds the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities association.\7\ Specifically, the 
Commission believes the proposal is consistent with the requirements of 
Section 15A(b)(6) of the Act \8\ in that it is designed to prevent 
fraudulent and manipulative acts and practices and to protect investors 
and the public interest. The Commission believes that the proposal, 
which integrates ACT with OATS, is designed to prevent fraudulent and 
manipulative acts and practices by providing the Association with 
sufficient information to effectively surveil transactions in Nasdaq 
securities.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o-3(b)(6).
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    Nasdaq's proposal requires all trade reports for OATS-eligible 
securities, as defined by NASD Rule 6952(c), to identify the time of 
execution in hours, minutes, and seconds. The Commission believes that 
this requirement is reasonable, given that the NASD's OATS rules 
require that level of specificity for all ``reportable events.'' \9\ 
Similarly, Nasdaq proposes to require a unique order identifier that 
satisfies such parameters as established by the Association, as 
required by the OATS rules. In addition, Nasdaq proposes to codify the 
requirement that all ACT participants obtain and use a unique Market 
Participant Symbol, regardless of whether third parties transmit trade 
report information on their behalf. The Commission believes that 
Nasdaq's proposal, with respect the specificity of time of execution, 
the unique order identifier, and the unique Market Participant Symbol, 
is designed to achieve uniformity between the NASD's rules governing 
OATS and ACT. The proposed uniformity between the NASD's rules 
governing ACT and OATS should assist the Association's efforts to more 
easily scrutinize transactions in Nasdaq securities. As a result, the 
Commission believes that the proposal is consistent with the Act.
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    \9\ Such ``reportable events'' include the origination, receipt, 
transmission, modification, cancellation, or execution of orders by 
NASD members relating to equity securities traded on Nasdaq. See 
Release No. 39729, supra note 3.
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    Nasdaq also proposes to establish an implementation schedule for 
the proposed changes to the ACT rules that mirrors the schedule 
previously approved by the Commission for the OATS rules. The 
Commission believes that establishing a single implementation schedule 
may ease the compliance burdens on both member firms and Nasdaq.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after publication of the proposed 
rule change in the Federal Register. The Commission notes that the 
proposed rule change merely incorporates the changes to ACT 
necessitated by the Commission's approval of the OATS rules, for which 
the Commission has previously solicited comments. As a result, the 
Commission believes that the proposal raises no new issues of 
regulatory concern. For the foregoing reasons, the Commission believes 
that good cause exists, pursuant to Section 19(b)(2) of the Act,\10\ to 
approve the proposed rule change on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).
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    It is Therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NASD-98-60) is hereby 
approved on an accelerated basis.

    \11\ 15 U.S.C. 78s(b)(2).
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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. 98-25134 Filed 9-18-98; 8:45 am]
BILLING CODE 8010-01-M