[Federal Register Volume 66, Number 62 (Friday, March 30, 2001)]
[Notices]
[Pages 17457-17459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7893]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44099; 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 Traded on an Exchange on an Unlisted or 
Listed Basis, Submitted by the National Association of Securities 
Dealer, Inc., the Pacific Exchange and the Boston, Chicago, 
Philadelphia, and Cincinnati Stock Exchanges

March 23, 2001.

I. Introduction

    On March 19, 2001, 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, Inc. (``CSE''), Pacific Exchange, Inc. 
(``PCX''), and the Philadelphia Stock Exchange, Inc. (``Phlx'') 
(hereinafter referred to as the ``Participants'') 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'') securities 
traded on an exchange on an unlisted or listed basis.\2\ The proposal 
would extend the effectiveness of the Plan through May 31, 2001. The 
Commission also is extending certain exemptive relief as described 
below. The March 2001 Extension Request does not seek permanent 
approval of the Plan

[[Page 17458]]

because the Participants currently are negotiating certain amendments 
to the Plan for which they will seek approval in the future.\3\
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    \1\ See Letter from Jeffrey T. Brown, Vice President Regulation 
and General Counsel, CSE, to Jonathan G. Katz, Secretary, 
Commission, dated March 16, 2001 (``March 2001 Extension Request''). 
The March 2001 Extension Request also request 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 Extension Order, infra note 7.
    \3\ In accordance with the Commission's statements in its order 
approving the establishment of the Nasdaq Order Display Facility and 
Order Collector Facility (``SuperMontage''), the Participants 
represent that they are revising the Plan. (See Securities Exchange 
Act Release No. 43863 (January 19, 2001) 66 FR 8020 (January 26, 
2001).) Using a two-pronged approach, the Participants are 
negotiating certain amendments to be included in an interim plan, 
which will be effective until July 19, 2001. The Participants also 
are considering issues regarding a new permanent plan that could 
include a full viable alternative exclusive or non-exclusive 
securities information processor. Accordingly, at this time, the 
Participants only are requesting an extension of the current Plan 
until May 31, 2001. See supra note 1.
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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 originally approved the Plan on a pilot basis on 
June 26, 1990.\5\ The parties did not begin trading until July 12, 
1993, accordingly, the pilot period commenced on July 12, 1993. The 
Plan has since been in operation on an extended pilot basis.\6\
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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 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 Order''); 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); 
Securities Exchange Act Release No. 42268 (December 23, 1999), 65 FR 
1202 (January 6, 2000); and Securities Exchange Act Release No. 
43005 (June 30, 2000), 65 FR 42411 (July 10, 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.''\7\ 
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.\8\
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    \7\ 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, in response to a request from the CHX, 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. On November 17, 2000, the Commission noticed 
and requested comment on a proposal by the PCX to expand the maximum 
number of securities eligible to trade to include all Nasdaq/NM 
securities. See Securities Exchange Act Release No. 43545 (November 
9, 2000), 65 FR 69581 (November 17, 2000).
    \8\ The full text of the Plan, as well as a ``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 
granted an exemption to vendors from Rule 11Ac1-2 under the Act 
regarding the calculation of the BBO \9\ 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. In the March 2001 Extension 
Request, the Participants ask 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 March 2001 
Extension Request, the Participants request that the Commission grant 
an extension of the exemptive relief described above to the BSE until 
May 31, 2001.

V. Solicitation of Comment
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    \9\ 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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    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 statements with respect to the proposal that are filed with the 
Commission, and 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 April 20, 2001.

VI. Discussion

    The Commission finds that an extension of temporary approval of the 
operation of the Plan, as amended, through May 31, 2001, is appropriate 
and in furtherance of Section 11A of the Act.\10\ The Commission has 
previously stated that a revised Plan must be filed with the Commission 
by July 19, 2001, or the Commission will amend the Plan directly.\11\ 
The Participants represent in their proposal that they are negotiating 
certain amendments to be included in an interim plan, which would be 
effective from the date of Commission approval, and no later than the 
expiration of this extension on May 31, 2001, until July 19, 2001. The 
Participants also represent that they are considering a permanent plan 
(that would include a fully viable alternative exclusive or non-
exclusive securities

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information processor) to be filed with the Commission on July 19, 
2001. In light of the current negotiations regarding the existing Plan 
and the representations of the Participants in their request to the 
Commission, the Commission approves the requested extension of the Plan 
until May 31, 2001.
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    \10\ 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).
    \11\ See supra note 4.
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    The Commission notes that the revised Plan, which must be filed 
with the Commission by July 19, 2001, must provide for either (1) a 
fully viable alternative exclusive securities information processor 
(``SIP'') for all Nasdaq securities, or (2) a fully viable alternative 
nonexclusive SIP in the event that the Plan does not provide for an 
exclusive SIP. If the revised Plan provides for an exclusive 
consolidating SIP, a function currently performed by Nasdaq, the 
Commission believes that, to avoid conflicts of interest, there should 
be a presumption that a Plan participant, and in particular Nasdaq, 
should not operate such exclusive consolidating SIP. The presumption 
may be overcome if: (1) the Plan processor is chosen on the basis of 
bona fide competitive bidding and the participant submits the 
successful bid; and (2) any decision to award a contract to a Plan 
Participant, and any ensuing review or renewal of such contract, is 
made without that Plan Participant's direct or indirect voting 
participation. If a Plan Participant is chosen to operate such 
exclusive SIP, the Commission believes there should be a further 
presumption that the Participant-operated exclusive SIP should operate 
completely separate from any order matching facility operated by that 
Participant and that any order matching facility operated by the 
Participant must interact with the plan-operated SIP on the same terms 
and conditions as any other market center trading Nasdaq listed 
securities. Further, the Commission will expect the NASD to provide 
direct or indirect access to the alternative SIP, whether exclusive or 
non-exclusive, by any of its members that qualifies, and to disseminate 
transaction information and individually identified quotation 
information for these members through the SIP.
    In addition, the revised Plan should resolve the issues, which have 
been pending since the implementation of the Plan, of whether there is 
a need for an intermarket linkage for order routing and execution, 
whether there is a need for a trade-through rule to facilitate the 
trading of OTC securities pursuant to UTP, and how the BBO calculation 
should be determined for securities traded pursuant to the Plan.
    Furthermore, the revised Plan should be open to all SROs, and the 
Plan should share governance of all matters subject to the Plan 
equitably among the SRO Participants. The Plan also should provide for 
sharing of market data revenues among SRO Participants. Finally, the 
Plan should provide a role for participation in decision making to non-
SROs that have direct or indirect access to the alternative SIP 
provided by the NASD. The Commission expects the parties to continue to 
negotiate in good faith on the above matters \12\ as well as any other 
issues that arise during Plan negotiations.
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    \12\ See also discussion in the SuperMontage order, supra note 
4.
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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 
May 31, 2001, or until such time as the calculation methodology of the 
BBO is based on 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 to the BSE 
through May 31, 2001. The Commission believes that the temporary 
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 sections 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 
May 31, 2001, and certain exemptive relief through May 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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-7893 Filed 3-29-01; 8:45 am]
BILLING CODE 8010-01-M