[Federal Register Volume 65, Number 249 (Wednesday, December 27, 2000)]
[Notices]
[Pages 81945-81947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32944]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43749; File No. SR-NASD-00-59]


Self Regulatory Organizations; 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. to 
Permit the Inclusion of Certain Unit Investment Trusts in Nasdaq's 
Mutual Fund Quotation Service

December 20, 2000.

I. Introduction

    On October 20, 2000, 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 include certain unit 
investment trusts (``UITs'') in Nasdaq's Mutual Fund Quotation Service 
(``MFQS''). Notice of the proposed rule change was published for 
comment in the Federal Register on December 1, 2000.\3\ No comments 
were received on the proposal. On December 13, 2000, Nasdaq filed 
Amendment No. 1 to the proposal.\4\ This order approves the proposed 
rule change, as amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See securities Exchange Act Release No. 43613 (November 22, 
2000), 65 FR 75328 (December 1, 2000).
    \4\ See Letter from Jeffrey S. Davis, Office of General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission (December 13, 2000). Amendment No. 1 
amended the language of proposed NASD Rule 6800 to reflect that UITs 
have ``sponsors'' rather than ``investment advisors'' and that the 
assets of such trusts are not ``managed'' as that term is defined in 
the Investment Company Act of 1940. This is a technical amendment 
and is not subject to notice and comment.
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II. Description of the Proposal

    Nasdaq proposes to amend NASD Rule 6800 to permit the inclusion of 
certain UITs in the MFQS.\5\ Changes made by Amendment No. 1 are 
indicated as follows. Proposed new language is in italics; proposed 
deletions are in brackets.
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    \5\ Section 4(2) of the Investment Company Act of 1940 defines a 
Unit Investment Trust as ``an investment company which (A) is 
organized under a trust indenture, contract of custodianship or 
agency, or similar instrument, (B) does not have a board of 
directors, and (C) issues only redeemable securities, each of which 
represents an undivided interest in a unit of specified securities; 
but does not include a voting trust.'' 15 U.S.C. 80a-4(2).
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* * * * *
6800. Mutual Fund Quotation Service
    (a) Description.
    The Mutual Fund Quotation Service collects and disseminates through 
The Nasdaq Stock Market prices for [both] mutual funds, closed-end 
funds, [and] money market funds, and unit investment trusts.
    (b) Eligibility Requirements.
    To be eligible for participation in the Mutual Fund Quotation 
Service, a fund shall:
    (1) be registered with the Commission as an open-end (``open-end 
fund'') or a closed-end (``closed-end fund'') investment company or a 
unit investment trust pursuant to the Investment Company Act of 1940,
    (2) execute the agreement specified by the Association relating to 
the fund's obligations under the Program,
    (3) pay, and continue to pay, the fees as set forth in Rule 7090, 
and
    (4) submit quotations through an automatic quotation system 
operated by the Association.
    (c) News Media Lists.
    (1)(A) An eligible open-end fund shall be authorized for inclusion 
in the News Media List released by the Association if it has at least 
1,000 shareholders or $25 million in net assets.
    (B) An eligible closed-end fund or unit investment trust shall be 
authorized for inclusion in the News Media List released by the 
Association if it has at least $60 million in net assets.
    (C) Compliance with subparagraphs (1)(A) and (B) shall be certified 
by the fund to the Association at the time of initial application for 
inclusion in the List.
    (2)(A) An authorized open-end fund shall remain included in the New 
Media List if it has [either] at least 750 shareholders or $15 million 
in net assets.
    (B) An authorized closed-end fund or unit investment trust shall 
remain included in the News media List if it has at least $30 million 
in net assets.
    (C) Compliance with subparagraphs (2)(A) and (B) shall be certified 
to the Association upon written request by the Association.
    (d) Supplemental List.
    An eligible open-end fund, [or] closed-end fund or unit investment 
trust shall be authorized for inclusion in the Supplemental List 
released to vendors of Nasdaq Level 1 Service if it meets one of the 
criteria set out in subparagraph (1), subparagraph (2), or subparagraph 
(3) below:
    (1) the fund or unit investment trust has net assets of $10 million 
or more, or

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    (2) the fund or unit investment trust has had two full years of 
operation, or
    (3) the fund's investment adviser or unit investment trust's 
sponsor:
    (A) is the investment adviser or sponsor of at least one other fund 
or unit investment trust that is listed on the Mutual Fund Quotation 
Service and that has net assets of $10 million or more; and
    (B) [has at least $15 million in total assets of open-end and 
closed-end funds under management] manages or sponsors open-end funds, 
closed-end funds, or unit investment trusts that have aggregate assets 
of at least $15 million.
* * * * *
    The MFQS was created to collect and to disseminate data pertaining 
to the value of open-end and closed-end funds. Currently, the MFQS 
disseminates the valuation date for over 11,000 funds. The Service 
facilitates this process by permitting funds included in the Service 
(or pricing agents designated by such funds) to use browser-based 
technology to transmit directly to Nasdaq a multitude of pricing 
information, including information about a fund's net asset value, 
offer price, and closing market price.
    Funds must meet minimum eligibility criteria in order to be 
included in the MFQS.\6\ The MFQS has two ``lists'' in which a fund may 
be included--the News Media List and the Supplemental List--and each 
list has its own initial inclusion requirements.\7\ In addition, there 
are maintenance/continued inclusion requirements for the News Media 
list only. If a fund qualifies for the News Media List, pricing 
information about the fund is eligible for inclusion in the fund tables 
of newspapers and is also eligible for dissemination over Nasdaq's 
Level 1 Service, which is distributed by market data vendors. If a fund 
qualifies for the Supplemental List, the pricing information about that 
fund generally is not included in newspaper fund tables, but is 
disseminated over Nasdaq's Level 1 Service. Therefore, the Supplemental 
List provides significant visibility for funds that do not otherwise 
qualify for inclusion in the News Media List. Each fund incurs an 
annual fee for inclusion in the Service.\8\
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    \6\ See NASD Rule 6800.
    \7\ See id.
    \8\ See NASD Rule 7090.
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    MFQS provides valuable pricing information for a large portion of 
funds for which there is significant investor interest, but it 
currently covers no UITs. According to data compiled by the Investment 
Company Institute, as of the end of 1999, there were a total of 10,418 
trusts with a market value of $94.60 billion, including 8,924 tax-free 
bond trusts, with a market value of $25.56 billion; 409 taxable bond 
trusts, with a market value of $4.28 billion; and 1,085 equity trusts, 
with a market value of $64.76 billion.
    Due to the similarity in pricing characteristics, Nasdaq proposes 
to apply to UITs the same MFQS listing standards that will apply to 
closed-end mutual funds. To qualify for initial inclusion in the News 
Media Lists, a closed-end fund must have at least $60 million in net 
assets, and to remain in the News Media List, a closed-end fund would 
have to maintain at least $30 million in net assets. These listing 
standards are designed to identify securities in which there is 
significant investor interest. Likewise, Nasdaq would apply to UITs the 
same criteria for inclusion in the Supplemental List as it applies to 
open and closed-end funds. An open-end or closed-end fund qualifies for 
inclusion in the Supplemental List if the fund has at least $10 million 
in net assets, or the fund has had two full years of operation or if 
the investment advisor to the fund has at least one other fund listed 
on MFQS that has $10 million in assets. In addition, the investment 
advisor must have under management at least $15 million from open-end, 
closed-end, or money-market funds. Managed assets from other sources--
such as pension funds--would not be included for purposes of 
determining whether the investment firm meets the requirement that it 
manage at least $15 million in fund-related assets. Nasdaq proposes to 
apply the same three alternative criteria to UITs, requiring that they 
have $10 million in assets, be in operation for two full years, or have 
a sponsor with sufficient fund- or UIT-related assets.

III. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change as Amended

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities association, 
\9\ and in particular, the requirements of Section 15A(b)(6) \10\ of 
the Act, because it is designed to foster cooperation and coordination 
with persons engaged in processing information with respect to 
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.
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    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposal, as amended, will protect 
investors and the public interest by promoting better processing of 
fund pricing information. Specifically, the Commission notes that in 
Section 11A(a)(1)(C), \11\ Congress found 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 and transactions in securities. The Commission believes that 
the proposed rule change will help to protect investors and the public 
interest by promoting better processing of price information in UITs. 
Accordingly, the Commission believes that the new listing criteria will 
provide greater transparency to the markets by providing greater 
pricing information for a broader base of investments for which there 
is significant investor interest. Nasdaq estimates that nearly all of 
the equity-based UITs that exist today would be eligible for inclusion 
in the MFQS under the proposed new standards. The Commission also 
believes the proposed listing standards serve as a means for the 
marketplace to screen issuers and to provide listed status only to bona 
fide investment companies with sufficient investor base and trading 
interest to maintain fair and orderly markets.
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    \11\ 15 U.S.C. 78k-1(a)(1)(C)
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    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. The Commission 
notes that Nasdaq hopes to begin including UITs in the MFQS beginning 
on January 1, 2001 to enable investors to more easily monitor the 
performance of covered securities on a year-to-date basis, which is 
consistent with common practice. Accelerated approval of the proposed 
rule change, as amended, would therefore provided this improvement in 
service to investors more quickly. Further, proposed Amendment No. 1 
provides clarity to the rule. It amended the language of proposed NASD 
Rule 6800 to reflect that UITs have ``sponsors'' rather than 
``investment advisors'' and that the assets of such trusts are not 
``managed'' as that term is defined in the Investment Company Act of 
1940.\12\ The Commission believes, therefore, that

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granting accelerated approval of the proposed rule change, as amended, 
is appropriate and consistent with Section 15A(b)(6) \13\ of the Act.
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    \12\ 15 U.S.C. 80b-2(a)(11).
    \13\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal, as amended, is consistent with the Act and the rules and 
regulations thereunder.
    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change, SR-NASD-00-59, as amended, be 
and hereby is approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-32944 Filed 12-26-00; 8:45 am]
BILLING CODE 8010-01-M