[Federal Register Volume 65, Number 132 (Monday, July 10, 2000)]
[Notices]
[Pages 42411-42412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17330]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43005; File No. S7-24-89]


Joint Industry Plan; Solicitation of Comments and Order Approving 
Request To Extend Temporary Effectiveness of Reporting Plan for Nasdaq/
National Market Securities Trade on an Exchange on an Unlisted or 
Listed Basis, Submitted by the National Association of Securities 
Dealers, Inc., and the Boston, Chicago, Philadelphia and Cincinnati 
Stock Exchanges

June 30, 2000.

I. Introduction

    On June 27, 2000, the National Association of Securities Dealers, 
Inc. (``NASD''), on behalf of itself and the Boston Stock Exchange, 
Inc. (``BSE''), the Chicago Stock Exchange, Inc. (``CHX''), the 
Cincinnati Stock Exchange (``CSE'') and the Philadelphia Stock 
Exchange, Inc. (``Phlx'') submitted to the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposal to extend the 
operation of a joint transaction reporting plan (``Plan'') \1\ for 
Nasdaq/National Market (``Nasdaq/NM'') (previously referred to as 
Nasdaq/NMS) securities traded on an exchange on an unlisted or listed 
basis.\2\ The proposal would extend the effectiveness of the Plan, as 
amended by Amendment No. 10, through March 31, 2001.\3\ The Commission 
also is extending certain exemptive relief as described below. The June 
2000 Extension Request also request that the Commission approve the 
Plan, as amended, on a permanent basis on or before March 31, 2001. 
During the extension of the Plan, the Commission will consider whether 
to approve the proposed Plan, as amended, on a permanent basis.
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    \1\ See Letter from Robert E. Aber, Vice President and General 
Council, Nasdaq, to Jonathan G. Katz, Secretary, Commission, dated 
June 27, 2000 (``June 2000 Extension Request''). The June 2000 
Extension Request also requests that the Commission continue to 
provide exemptive relief, previously granted in connection with the 
Plan on a temporary basis, from Rules 11Ac1-2 and 11Aa3-1 under the 
Securities Exchange Act of 1934, as amended (``Act''). 15 U.S.C. 78a 
et seq. The signatories to the Plan are the Participants for 
purposes of this release, however, the BSE joined the Plan as a 
``limited participant'' and reports quotation information and 
transaction reports only in Nasdaq/NM securities listed on the BSE. 
Originally, the American Stock Exchange Inc. (``Amex'') was a 
Participant but withdrew its participation from the Plan in August 
1994.
    \2\ Section 12 of the Act generally requires an exchange to 
trade only those securities that the exchange lists, except that 
Section 12(f) of the Act permits unlisted trading privileges 
(``UTP'') under certain circumstances. For example, Section 12(f), 
among other things, permits exchanges to trade certain securities 
that are traded over-the-counter (``OTC/UTP''), but only pursuant to 
a Commission order or rule. The present order fulfills this Section 
12(f) requirement. For a more complete discussion of the Section 
12(f) requirement, see November 1995 Exchange Order, infra note 7.
    \3\ On December 23, 1999, the Commission approved the addition 
of CSE as a Participant to the Plan. The Plan was also changed to 
reflect that the Midwest Stock Exchange is now called the Chicago 
Stock Exchange. See Securities Exchange Act Release No. 42269 
(December 23, 1999), 65 FR 799 (January 6, 2000).
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II. Background

    The Plan governs the collection, consolidation and dissemination of 
quotation and transaction information for Nasdaq/NM securities listed 
on an exchange or traded on an exchange pursuant to a grant of UTP.\4\ 
The Commission approved trading pursuant to the Plan on a one-year 
pilot basis, with the pilot period to commence when transaction 
reporting pursuant to the Plan commenced. The Commission originally 
approved the Plan on June 26, 1990.\5\ Accordingly, the pilot period 
commenced on July 12, 1993 and was scheduled to expire on July 12, 
1994.\6\ The Plan has since been in operation on an extended pilot 
basis.\7\
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    \4\ See Section 12(f)(2) of the Act.
    \5\ See Securities Exchange Act Release No. 28146 (June 26, 
1990), 55 FR 27917 (July 6, 1990) (``1990 Plan Approval Order'').
    \6\ See letter from David R. Rusoff, Foley & Lardner, to Betsy 
Prout, Division of Market Regulation. (``Division''), dated May 9, 
1994.
    \7\ See Securities Exchange Act Release No. 34371 (July 13, 
1994), 59 FR 37103 (July 20, 1994); Securities Exchange Act Release 
No. 35221 (January 11, 1995), 60 FR 3886 (January 19, 1995); 
Securities Exchange Act Release No. 36102 (August 14, 1995), 60 FR 
43626 (August 22, 1995); Securities Exchange Act Release No. 36226 
(September 13, 1995), 60 FR 49029 (September 21, 1995); Securities 
Exchange Act Release No. 36368 (October 13, 1995); 60 FR 54091 
(October 19, 1995); Securities Exchange Act Release No. 36481 
(November 13, 1995), 60 FR 58119 (November 24, 1995) (``November 
1995 Extension Oder''); Securities Exchange Act Release No. 36589 
(December 13, 1995), 60 FR 65696 (December 20, 1995); Securities 
Exchange Act Release No. 36650 (December 28, 1995), 61 FR 358 
January 4, 1996); Securities Exchange Act Release No. 36934 (March 
6, 1996), 61 FR 10408 (March 13, 1996); Securities Exchange Act 
Release No. 36985 (March 18, 1996), 61 FR 12122 (March 25, 1996); 
Securities Exchange Act Release No. 37689 (September 16, 1996), 61 
FR 50058 (September 24, 1996); Securities Exchange Act Release No. 
37772 (October 1, 1996), 61 FR 52980 (October 9, 1996); Securities 
Exchange Act Release No. 38457 (March 31, 1997), 62 FR 16880 (April 
8, 1997); Securities Exchange Act Release No. 38794 (June 30, 1997) 
62 FR 36586 (July 8, 1997); Securities Exchange Act Release No. 
39505 (December 31, 1997) 63 FR 1515 (January 9, 1998); Securities 
Exchange Act Release No. 40151 (July 1, 1998) 63 FR 36979 (July 8, 
1998); Securities Exchange Act Release No. 40896 (December 31, 
1998), 64 FR 1834 (January 12, 1999); Securities Exchange Act 
Release No. 41392 (May 12, 1999), 64 FR 27839 (May 21, 1999); and 
Securities Exchange Act Release No. 42268 (December 23, 2999), 65 FR 
1202 (January 6, 2000).
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III. Description of the Plan

    The Plan provides for the collection from Plan Participants and the 
consolidation and dissemination to vendors, subscribers and others of 
quotation and transaction information in ``eligible securities.'' \8\ 
The Plan contains various provisions concerning its operation, 
including: Implementation of the Plan; Manner of Collecting, 
Processing, Sequencing, Making Available and Disseminating Last Sale 
Information; Reporting Requirements (including hours of operation); 
Standards and Methods of Ensuring Promptness, Accuracy and Completeness 
of Transaction Reports; Terms and Conditions of Access, Description of 
Operation of Facility Contemplated by the Plan; Method and Frequency of 
Processor Evaluation; Written Understandings of Agreements Relating to 
Interpretation of, or Participation in, the Plan; Calculation of the 
Best Bid and Offer (``BBO''); Dispute Resolution; and Method of 
Determination and Imposition, and Amount of Fees and Charges.\9\
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    \8\ The Plan defines ``eligible security'' as any Nasdaq/NM 
security as to which unlisted trading privileges have been granted 
to a national securities exchange pursuant to Section 12(f) of the 
Act or that is listed on a national securities exchange. On May 12, 
1999, the Commission expanded the number of eligible Nasdaq/NM 
securities that may be traded by the CHX pursuant to the Plan from 
500 to 1000. See May 1999 Approval Order, supra note 7.
    \9\ The full text of the Plan, as well as ``Concept Paper'' 
describing the requirements of the Plan, are contained in the 
original filing which is available for inspection and copying in the 
Commission's public reference room.
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IV. Exemptive Relief

    In conjunction with the Plan, on a temporary basis, the Commission

[[Page 42412]]

granted an exemption to vendors from Rule 11Ac1-2 under the Act 
regarding the calculation of the BBO \10\ and granted the BSE an 
exemption from the provision of Rule 11Aa3-1 under the Act that 
requires transaction reporting plans to include market identifiers for 
transaction reports and last sale data. As discussed further below in 
the Summary of Comments, the Participants ask in the June 2000 
Extension Request that the Commission grant an extension of the 
exemptive relief described above to vendors until the BBO calculation 
issue is fully resolved. In addition, in the June 2000 Extension 
Request, the Participants request that the Commission grant an 
extension of the exemptive relief described above to the BSE for as 
long as the BSE is a Limited Participant under the Plan.
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    \10\ Rule 11Ac1-2 under the Act requires that the best bid or 
best offer be computed on a price/size/time algorithm in certain 
circumstances. Specifically, Rule 11Ac1-2 under the Act provides 
that ``in the event two or more reporting market centers make 
available identical bids or offers for a reported security, the best 
bid or offer . .. shall be computed by ranking all such identical 
bids or offers * * * first by size * * * then by time.'' The 
exemption permits vendors to display the BBO for Nasdaq securities 
subject to the Plan on a price/time/size basis.
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether it is consistent 
with the Act. The Commission continues to solicit comment regarding the 
BBO calculation, the trade through rule and any issues presented by 
changes occurring in the market place. 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 communications relating to the proposal 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 at the Commission's Public Reference Room. 
All submissions should refer to File No. S7-24-89 and should be 
submitted by July 31, 2000.

VI. Discussion

    The Commission finds that an extension of temporary approval of the 
operation of the Plan, as amended, through March 31, 2001, is 
appropriate and in furtherance of Section 11A of the Act.\11\ The 
Commission believes that the extension will provide the Participants 
with additional time to seek Commission approval of pending proposals 
concerning the BBO calculation and to begin to make reasonable 
proposals concerning a trade through rule to facilitate the trading of 
OTC securities pursuant to UTP. With respect to a trade through rule, 
the Commission notes that it has recently expanded the ITS linkage to 
all securities, thereby expanding the coverage of the ITS trade through 
rule.\12\ While the Commission continues to solicit comment on these 
matters, the Commission believes that these matters should be addressed 
directly by the Participants on or before December 31, 2001 so that the 
Commission may have ample time to determine whether to approve the Plan 
on a permanent basis by March 31, 2001.
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    \11\ In approving this extension, the Commission has considered 
the extension's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78(c)(f).
    \12\ Securities Exchange Act Release No. 42212 (December 9, 
1999), 64 FR 70297 (December 16, 1999).
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    The Commission also finds that it is appropriate to extend the 
exemptive relief from Rule 11Ac1-2 under the Act until the earlier of 
March 31, 2001, or until such time as the calculation methodology of 
the BBO is based on a price/size/time algorithm pursuant to a mutual 
agreement among the Participants approved by the Commission. The 
Commission further finds that it is appropriate to extend the exemptive 
relief from Rule 11Aa3-1 under the Act, that requires transaction 
reporting plans to include market identifiers for transaction reports 
and last sale data, to the BSE through March 31, 2001. The Commission 
believes that the extensions of the exemptive relief provided to 
vendors and the BSE, respectively, are consistent with the Act, the 
Rules thereunder, and specifically with the objectives set forth in 
Sections 12(f) and 11A of the Act and in Rules 11Aa3-1 and 11Aa3-2 
thereunder.

VII. Conclusion

    It Is Therefore Ordered, pursuant to Section 12(f) and 11A of the 
Act and paragraph (c)(2) of Rule 11Aa3-2 thereunder, that the 
Participants' request to extend the effectiveness of the Joint 
Transaction Reporting Plan, as amended, for Nasdaq/National Market 
securities traded on an exchange on an unlisted or listed basis through 
March 31, 2001, and certain exemptive relief through March 31, 2001, is 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(29).
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Jonathan G. Katz,
Secretary.
[FR Doc. 00-17330 Filed 7-7-00; 8:45 am]
BILLING CODE 8010-01-M