[Federal Register Volume 65, Number 89 (Monday, May 8, 2000)]
[Notices]
[Pages 26647-26649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11400]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42749; File No. SR-NASD-00-26]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Market-Wide Trading Halts

May 2, 2000.
    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 April 28, 2000, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') through its wholly

[[Page 26648]]

owned subsidiary, the Nasdaq Stock Market, Inc. (``Nasdaq''), filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by Nasdaq. Nasdaq filed the proposal 
pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(1) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission. On May 1, 2000, Nasdaq amended the filing.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(1).
    \5\ See April 28, 2000 letter from Thomas P. Moran, Assistant 
General Counsel, Office of General Counsel, Nasdaq, to Katherine A. 
England, Assistant Director, Division of Market Regulation, SEC 
(``Amendment No. 1''). Amendment No. 1 changed the file number from 
SR-NASD-00-25 to SR-NASD-00-26, and changed Section III of Exhibit 1 
to properly reflect that the proposal was filed pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(1) thereunder. 15 U.S.C. 
78s(b)(3)(A) and 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposal

    Nasdaq's proposal is an interpretation to NASD Rule 4120 dealing 
with trading halts due to extraordinary market price movements, 
otherwise known as ``circuit breakers.'' The text of the proposed rule 
change is below. Proposed new language is in italics. Proposed 
deletions are in brackets.
* * * * *

IM-4120-3. Market Closing Policy

    Since 1988, the NASD has consistently asserted that circuit 
breakers should only be used in response to extraordinary price 
movement. The NASD's strong preference is that markets remain open 
wherever possible and, most importantly, remain open at the end of the 
day.
    The NASD recognizes, however, the risks imposed on any single 
market that remains open while all other U.S. markets have halted 
trading in response to extraordinary price movements. Therefore, the 
NASD Board of Governors has determined to halt, upon SEC request, all 
domestic trading in both the securities listed on The Nasdaq Stock 
Market and all equity and equity-related securities trading in the 
over-the-counter market should other major securities markets initiate 
market-wide trading halts in response to extraordinary market 
conditions.
    This determination reflects the NASD's long-time policy of 
cooperation with the Commission and other market participants on issues 
relating to trading halts and represents the Association's continued 
commitment to the establishment of circuit breaker standards that both 
keep markets open longer during periods of market stress and that are 
also more reflective of market activity as a whole.
    Towards that end, the NASD believes that additional future changes 
to circuit breakers are warranted. In particular, the NASD is concerned 
that the Dow Jones Industrial Average, [which contains no Nasdaq 
stocks,] despite recent improvements including the addition of a small 
number of Nasdaq stocks, [is] remains an inappropriately narrow 
indicator of market price declines. As an alternative, the NASD 
believes that the Commission should consider replacing the DJIA with 
the larger and more diverse Standard and Poor's 500 Index as the 
measure that best reflects overall market activity for circuit breaker 
purposes. [Moreover, recent attempts to commercially leverage the DJIA 
may result in that average being less immediately available to the 
investing public during periods of market stress.] The NASD hopes to 
revisit [these] this issue[s] with the Commission in the future. [with 
a view towards the adoption of a more representative [, and more 
readily-available, market index for circuit breaker purposes.]
    This Policy Statement on Market Closings shall remain in effect 
until April 30, [2000] 2002, unless otherwise modified, or extended 
prior thereto, by the NASD Board of Governors.
* * * * *

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 its proposal and discussed any 
comments it received regarding the proposal. 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
    Nasdaq proposes to extend and modify, on a two-year pilot basis, 
NASD IM-4120-3, which expresses the Association's agreement to halt, 
upon SEC request, all domestic trading in both the securities listed on 
Nasdaq and all equity and equity-related securities trading in the 
over-the-counter market, should any of the other major United States 
securities markets initiate market-wide trading halts in response to 
extraordinary market conditions. As outlined in the Interpretive 
Material (``IM''), the NASD reiterates its commitment to halt trading 
on Nasdaq and the over-the-counter market when any other major 
securities market declares a market-wide trading halt in response to 
extraordinary market conditions. In addition, Nasdaq proposes to modify 
the current market closing policy statement to reflect the recent 
addition of two Nasdaq stocks to the Dow Jones Industrial Average 
(``DJIA''), while still expressing the Association's view that the DJIA 
is too small and narrow an index to serve as the circuit-breaker price-
decline standard.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\6\ in that the proposed 
IM is designed to foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities. In addition, 
Nasdaq believes the IM removes impediments to, and perfects the 
mechanism of, a free and open market and a national market system as 
well as, in general, protecting investors.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement of 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

    Written comments were neither solicited nor received.

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

    The foregoing proposal has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act,\7\ and Rule 19b-4(f)(1) \8\ thereunder, in 
that it constitutes

[[Page 26649]]

a stated policy and interpretation with respect to the meaning of an 
existing rule.
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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 17 CFR 240.19b-4(f)(1).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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. 20549-0609. 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 number SR-NASD-00-26 and 
should be submitted by May 30, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).

Jonathan G. Katz,
Secretary.
[FR Doc. 00-11400 Filed 5-05-00; 8:45 am]
BILLING CODE 8010-01-M