[Federal Register Volume 63, Number 197 (Tuesday, October 13, 1998)]
[Notices]
[Pages 54740-54741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27306]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40519; File No. SR-NASD-98-53]


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

October 5, 1998.

I. Introduction

    On July 24, 1998, 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), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend NASD Rule 6800 to 
include closed-end funds on Nasdaq's Mutual Fund Quotation System 
(``MFQS'' or ``Service''). The proposed rule change and Amendment No. 1 
\3\ were published for comment in the Federal Register on September 4, 
1998.\4\ The Commission received one comment on the proposal. This 
order approves the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 U.S.C. 240.19b-4.
    \3\ 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 
(``Division''), Commission, dated August 26, 1998 (``Amendment No. 
1'').
    \4\ Securities Exchange Act Release No. 40380 (August 27, 1998), 
63 FR 47336.
---------------------------------------------------------------------------

II. Description of the Proposal

    The proposed rule change amends NASD Rule 6800 to establish minimum 
requirements for the inclusion of closed-end funds in Nasdaq's MFQS. 
Presently, the 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 data feed 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 Supplemental List, 
and contains maintenance (continued inclusion) requirements for the 
News Media List.
    In the past, closed-end funds 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. However, prior to the 
proposed rule change, closed-end funds were ineligible for inclusion in 
the MFQS under NASD Rule 6800 because the MFQS application did not 
accommodate some of the data attributes needed for closed-end funds. 
Recently, Nasdaq re-designed and upgraded the MFQS. The improved 
Service will be able to support the data attributes necessary to 
support closed-end funds and is expected to be implemented in the third 
quarter of 1998. Accordingly, Nasdaq proposes to add new standards for 
the inclusion of closed-end funds in the MFQS to Rule 6800.\5\
---------------------------------------------------------------------------

    \5\ 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.
---------------------------------------------------------------------------

    The proposed standards contain initial inclusion requirements for 
the News Media List and the Supplemental List, and 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.\6\ 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 because the 
asset base of a closed-end fund is fixed upon initiation whereas the 
asset base of an open-end fund often starts small and grows over time; 
thus, closed-end funds

[[Page 54741]]

tend to have higher initial asset bases than open-end funds.
---------------------------------------------------------------------------

    \6\ This is consistent with the current standards for the 
Supplemental List for open-end funds. See NASD Rule 6800.
---------------------------------------------------------------------------

    The proposed rule change also makes a technical amendment to NASD 
Rule 6800 clarifying that there is a single News Media List, not 
multiple lists, as the current rule language suggests.

III. Comments

    The Commission received a comment letter from the Investment 
Company Institute (``ICI'') strongly supporting the proposed rule 
change to include closed-end funds in Nasdaq's MFQS.\7\ The ICI agreed 
with the NASD that investor protection and the public interest would be 
served by disseminating closed-end fund pricing information on a daily 
basis and in a manner similar to open-end funds. The ICI believes that 
the inclusion of closed-end fund information in the MFQS will allow 
closed-end fund shareholders and investment professionals to track 
closed-end fund investments on a more timely basis. The ICI also stated 
that it may be appropriate for Nasdaq to consider lowering the initial 
inclusion and maintenance requirements for closed-end funds in the 
future if newspapers are willing to include additional closed-end fund 
information.
---------------------------------------------------------------------------

    \7\ See letter from Amy B.R. Lancellotta, Senior Counsel, 
Investment Company Institute to Jonathan G. Katz, Secretary, Office 
of the Secretary, Commission, dated September 24, 1998.
---------------------------------------------------------------------------

IV. Discussion

    Upon careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities association. 
The Commission believes that the proposed rule change is consistent 
with Section 15A(b)(6) of the Act,\8\ in that it is designed to promote 
just and equitable principles of trade, to prevent fraudulent and 
manipulative acts and practices, to foster cooperation and coordination 
with persons engaged in regulating 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.\9\ The Commission believes 
that the proposed rule change should increase the transparency of 
closed-end fund prices and increase investor confidence by making 
valuable pricing information more readily available to investors.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78o-3(b)(6).
    \9\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    Previously, the technological limitations of the MFQS prevented 
Nasdaq from disseminating the Net Asset Value for closed-end funds to 
newspapers and market vendors, thus the task of disseminating this 
information to various data vendors by telephone, telefacsimile, or 
electronic mail fell upon the individual closed-end funds.\10\ Now that 
the MFQS has been redesigned and upgraded, the Commission believes that 
investors and the closed-end funds will benefit from a centralized 
dissemination of the Net Asset Values and prices for closed-end funds. 
Through participation in the MFQS, the affected closed-end funds should 
be able to have this valuable information distributed to investors more 
easily and efficiently. As a result, the Commission believes that the 
proposal may increase the transparency of closed-end fund prices. 
Furthermore, the Commission believes the Service may help affected 
funds reduce the costs associated with distributing Net Asset Value 
information to various entities by telephone, telefacsimile, or 
electronic mail.
---------------------------------------------------------------------------

    \10\ Telephone conversation between John Malitzis, Senior 
Attorney, Office of the General Counsel, Nasdaq, and Marc McKayle, 
Attorney, Division, Commission (September 30, 1998).
---------------------------------------------------------------------------

    With respect to the proposed initial inclusion and maintenance 
requirements, the Commission believes that the NASD has provided 
appropriate initial inclusion requirements for both the News Media List 
and the Supplemental List, and maintenance requirements for the News 
Media List which should provide greater exposure for closed-end fund 
pricing information than was previously available.\11\ In addition, 
under the proposed standards, certain closed-end funds that may not 
have their value printed due to limited print space should be able to 
avoid the higher annual fee for the News Media List by being on the 
Supplemental List. Finally, the Commission believes that the technical 
amendment to NASD Rule 6800 clarifying that there is a single, and not 
multiple, News Media List is reasonable and consistent with the Act.
---------------------------------------------------------------------------

    \11\ Nasdaq has represented that under the proposed standards 
approximately 78% of the closed-end funds would be eligible for the 
News Media List which may be printed in the newspaper either in part 
or in its entirety. See Securities Exchange Act Release No. 40380 
(August 27, 1998), 63 FR 47336 (September 4, 1998).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change, as amended, (SR-NASD-98-53) is 
approved.

    \12\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27306 Filed 10-9-98; 8:45 am]
BILLING CODE 8010-01-M