[Federal Register Volume 64, Number 213 (Thursday, November 4, 1999)]
[Notices]
[Pages 60256-60259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28874]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42073; File No. SR-NASD-99-62]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 to the Proposed Rule Change by the National Association of Securities 
Dealers, Inc., Relating to Trade Reporting of Listed Securities

October 28, 1999.
    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 October 20, 1999, 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 and II below, which Items have been prepared by 
Nasdaq. On October 28, 1999, Nasdaq filed an amendment to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons, and to grant accelerated approval to the proposed rule change, 
as amended, on a pilot basis through March 1, 2000.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Thomas P. Moran, Assistant General Counsel, 
Nasdaq, to Belinda Blaine, Associate Director, Division of Market 
Regulation, SEC, dated October 28, 1999 (``Amendment No. 1''). In 
Amendment No. 1, Nasdaq changes the start date for mandatory 90-
second trade reporting for listed securities from October 25, 1999 
to November 15, 1999. Nasdaq also notes it will make available its 
ITS/CAES system until 6:30 pm. Eastern Time beginning on or about 
October 29, 1999. Finally, Nasdaq states it will coordinate with 
both the New York Stock Exchange (``NYSE'') and the American Stock 
Exchange (``AMEX'') regarding the dissemination of material news by 
those exchanges' listed companies during the 4:00 p.m. to 6:30 p.m. 
time period, and will, if appropriate, initiate trading and 
quotation halts in the Third Market in consultation with those 
markets.

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[[Page 60257]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
Nasdaq is filing a proposed rule change to mandate 90-second trade 
reporting for over-the-counter transactions in listed securities that 
take place between 4:00 p.m. and 6:30 p.m. Eastern Time. This rule 
change will conform the trade reporting obligations for transactions 
involving listed securities with those for Nasdaq National Market, 
SmallCap, Convertible Debt and over-the-counter equity issues that were 
amended as part of a separately proposed pilot program extending the 
availability of several Nasdaq services and facilities until 6:30 p.m. 
Eastern Time.\5\ Below is the text of the proposed rule change. 
Proposed new language is italicized; proposed deletions are in 
brackets.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ See Securities Exchange Act Release No. 42003 (October 13, 
1999) (SR-NASD-99-57). In SR-NASD-99-57, Nasdaq proposed, and the 
SEC approved, the following changes (in italics) to NASD Rule 4617:
    4617. Normal Business Hours
    A Nasdaq market maker shall be open for business as of 9:30 a.m. 
Eastern Time and shall close no earlier than 4:00 p.m. Eastern Time. 
Should a market maker wish to voluntarily remain open for business 
later than 4:00 p.m. Eastern Time, it shall so notify the Nasdaq 
Market Operations via a Nasdaq terminal and shall close only on the 
hour or the half hour, but no later than 6:30 p.m. Eastern Time. 
Nasdaq market makers whose quotes are open after 4:00 p.m. Eastern 
Time shall be obligated to comply, wihile their quotes are open, 
with all NASD Rules that are not by their express terms, or by an 
official interpretation of the Association, inapplicable to any part 
of the 4:00 p.m. to 6:30 p.m. Eastern Time period.
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* * * * *

6400. Reporting Transactions in Listed Securities

6420. Transaction Reporting

(a) When and How Transactions are Reported
    (1) Registered Reporting Members shall transmit through ACT, 
within 90 seconds after execution, last sale reports of transactions 
in eligible securities executed during the trading hours of the 
Consolidated Tape otherwise than on a national securities exchange. 
Registered Reporting Members shall also transmit through ACT, within 
90 seconds after execution, last sale reports of transactions in 
eligible securities executed in the United States otherwise than on 
a national securities exchange between 4:00 p.m. and [5:15] 6:30 
p.m. Eastern Time. Transactions not reported within 90 seconds after 
execution shall be designated as late and such trade reports must 
include the time of execution.
    (2) (A) No Change.
    (B) Non-registered Reporting Members shall, within 90 seconds 
after execution, transmit through ACT or the ACT Service Desk (if 
qualified pursuant to Rule 7010(i), or if ACT if unavailable due to 
system or transmission failure, by telephone to the Nasdaq Market 
Operations Department, last sale reports of transactions in eligible 
securities executed in the United States otherwise than on a 
national securities exchange between the hours of 4:00 p.m. and 
[5:15] 6:30 p.m. Eastern Time. Transactions not reported within 90 
seconds after execution shall be designated as late and such trade 
reports must include the time of execution.
    (3)(A) All members shall report transactions in eligible 
securities executed outside the hours of 9:30 a.m. and [5:15] 6:30 
p.m. Eastern Time as follows:
    (i) by transmitting the individual trade reports through ACT on 
the next business day (T+1) between 8:00 a.m. and [5:15] 6:30 p.m. 
Eastern Time;
    (ii) No Change; and
    (iii) 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, 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

    In Nasdaq's third market, NASD members trade stocks listed on the 
NYSE and AMEX using Nasdaq's quotation, communication and execution 
system. The NASD collects quotations from broker-dealers that trade 
these securities over-the-counter and provides such quotations to the 
Consolidated Quotation System (``CQS'') for dissemination. 
Additionally, the NASD collects trade reports to the Consolidated Tape 
Association (``CTA'') for inclusion in the Consolidated Tape. From 9:30 
a.m. to 4:00 p.m. Eastern Time, NASD members registered as CQS market 
makers use Nasdaq's Computer Assisted Execution System (``CAES'') to 
access the quotes of other CQS market makers and the Intermarket 
Trading System (``ITS'') to access the quotes of other U.S. exchanges. 
Trades executed through Nasdaq's ITS/CAES system are automatically 
forwarded to ACT for trade reporting purposes. Pursuant to NASD Rule 
6340, participation as a CQS market maker between 4:00 p.m. and 6:30 
p.m. Eastern Time is strictly voluntary.
    In response to requests from Nasdaq CQS market makers that wish to 
have the option of expanding their trading activity after 4:00 p.m. 
Eastern Time, Nasdaq has determined to expand, until 6:30 p.m. Eastern 
Time, the availability of ITS/CAES and ACT services for listed 
securities effective October 29, 1999. This expansion will be on a 
pilot basis beginning October 29, 1999 and terminating on March 1, 
2000. Participation in the Third Market after 4:00 p.m. Eastern Time 
will continue to be voluntary.
    Currently, NASD rules mandate submission of trade reports in listed 
securities within 90 seconds after execution only until 5:15 p.m. 
Eastern Time. In order to conform listed trade reporting obligations 
with those for Nasdaq National Market, SmallCap, Convertible Debt and 
over-the-counter equity securities, Nasdaq is proposing to modify its 
ACT trade reporting rules to require 90-second trade reporting of 
listed securities until 6:30 p.m. Eastern Time. By extending 90-second 
listed trade reporting to 6:30 p.m. Eastern Time, the rule will be 
consistent with the Normal Business Hours of the CQS. In addition, 
expansion of listed trade reporting obligations to 6:30 p.m. Eastern 
Time will allow NASD member firms to modify their Nasdaq-related trade 
reporting programming to the same time parameters. To allow sufficient 
time for NASD members to modify their internal systems to comply with 
the expansion of 90-second trade reporting for listed securities, 
Nasdaq requests that, like its 90-second trade reporting rules for 
Nasdaq securities, its proposed changes to NASD Rule 6240 not take 
effect until November 15 1999. All member firms participating in the 
Third Market are expected, however, to report trades as soon as 
possible after execution and, to the extent they are able to do so 
before November 15, 1999, within 90 seconds.
    In addition, Nasdaq will make available, on or about October 29, 
1999, its ITS/CAES system until 6:30 p.m. Eastern Time. Operation of 
Nasdaq's ITS/CAES system beyond its current 4:00 p.m. close will be 
consistent with all rules and procedures that are currently applicable 
to ITS/CAES trading and quotation activity during the 9:30 a.m. to 4:00 
p.m. Eastern Time period.
    Finally, Nasdaq has agreed to coordinate with both NYSE and AMEX 
regarding the dissemination of material news by their listed companies 
during 4:00 p.m. to 6:30 p.m. Eastern Time, and will, if appropriate, 
initiate trading and

[[Page 60258]]

quotation halts in the Third Market in consultation with those markets.
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \6\ in that it is 
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.
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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 result 
in any 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, NW, Washington, DC 20549-0609. 
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-99-62 and should 
be submitted by November 26, 1999.

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

    The Commission has reviewed carefully the NASD's proposal,\7\ and 
for the reasons discussed below, finds that the proposed rule change, 
as amended, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to the NASD and, in 
particular, the requirements of Sections 11A and 15A.\8\
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    \7\ 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).
    \8\ 15 U.S.C. 78k-1 and 78o-3.
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    Specifically, the Commission finds that the proposed rule change 
furthers the goals of the national market system as reflected in 
Sections 11A(a)(1)(C)(iii) and (iv) of the Act.\9\ Congress found in 
those provisions that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities, and to assure the practicability of brokers executing 
investors' orders in the best market. Section 11A(a)(1) further 
provides that the linking of all markets for qualified securities 
through communication and data processing facilities would foster 
efficiency, enhance competition, increase the information available to 
brokers, dealers, and investors, facilitate the offsetting of 
investors' orders, and contribute to best execution of such orders. The 
proposed rule will make available with respect to listed securities the 
same trade reporting information currently available for transactions 
involving Nasdaq National Market, SmallCap, Convertible Debt and over-
the-counter equity issues until 6:30 p.m. Eastern Time. The proposed 
rule will enhance transparency in the after-hours market, allowing 
investors an opportunity to better evaluate the after-hours market 
before deciding to participate. Ultimately, the proposed rule should 
enhance investor protection and confidence, because it will provide 
more complete information upon which to base trading decisions.
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    \9\ 15 U.S.C. 78k-1(a)(1)(C)(iii) and (iv).
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    The Commission finds that the proposed rule change is consistent 
with Section 15A of the Act in that it is 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 proposal accomplishes 
these objectives by extending to listed securities Nasdaq's systems, so 
that market participants who choose to offer trading to customers in 
the after-hours market reap the benefits of greater transparency, and 
linkage of the various market participants engaged in after-hours 
trading through ITS/CAES.
    Nasdaq has requested that the Commission find good cause pursuant 
to Section 19(b)(2) of the Act \10\ for approving the proposed rule 
change prior to the 30th day after publication in the Federal Register. 
The Commission finds good cause for granting accelerated approval for 
the proposed rule change because the pilot will benefit investors by 
improving the transparency of the after-hours market and assisting 
broker-dealers in fulfilling their duty of best execution for their 
customer orders.
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    \10\ 15 U.S.C. 78s(b)(2).
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    The Commission further finds that good cause exists for approving 
Amendment No. 1 to the proposed rule change prior to the thirtieth day 
after the date of publication of notice thereof in the Federal 
Register. The first item in Amendment No. 1 merely changes the start 
date for mandatory 90-second trade reporting for listed securities 
until 6:30 p.m. Eastern Time from October 25, 1999, to November 15, 
1999. The second item in Amendment No. 1 makes Nasdaq's ITS/CAES, 
system available until 6:30 p.m. Eastern Time beginning on or about 
October 29, 1999. The filing originally stated that ITS/CASES would not 
be available until on or about November 8, 1999. Finally, in Amendment 
No. 1, Nasdaq states it will coordinate with both the NYSE and the AMEX 
regarding the dissemination of material news by those exchanges' listed 
companies during 4:00 p.m. to 6:30 p.m. Eastern Time, and will, if 
appropriate, initiate trading and quotation halts in the Third Market 
in consultation with those markets. The availability of ITS/CAES during 
the 4:30 p.m. to 6:30 p.m. Eastern Time period, and the coordination 
with the NYSE and AMEX regarding trading halts, further ensure investor 
protection. Accordingly, the Commission believes that there is good 
cause for accelerating the approval of all of the items in Amendment 
No. 1.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NASD-99-62), as amended, is 
approved as a pilot program through March 1, 2000.

    \11\ Id.

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[[Page 60259]]

    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. 99-28874 Filed 11-3-99; 8:45 am]
BILLING CODE 8010-01-M