[Federal Register Volume 66, Number 162 (Tuesday, August 21, 2001)]
[Notices]
[Pages 43943-43944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21016]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44706; File No. SR-NASD-2001-50]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
National Association of Securities Dealers, Inc. Relating To Trade 
Reporting of Listed Securities

August 15, 2001.
    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 August 13, 2001, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its subsidiary, The Nasdaq 
Stock Market, Inc. (``Nasdaq'') filed with the Securities and Exchange 
Commission (``Commission'') 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\ which renders the proposal effective upon filing with the 
Commission. On August 14, 2001, Nasdaq amended the proposal.\4\ 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\ See August 13, 2001 letter from Thomas P. Moran, Office of 
General Counsel, Nasdaq to Alton Harvey, Division of Market 
Regulation, Commission (``Amendment No. 1''). In Amendment No. 1, 
Nasdaq converted the proposal to a non-controversial filing pursuant 
to Rule 19b-4(f)(6). 17 CFR 240.19b-4(f)(6). Nasdaq has asked the 
Commission to waive the 5-day pre-filing notice requirement and the 
30-day operative delay contained in Rule 19b-4(f)(6)(iii). 17 CFR 
240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to make permanent 90-second trade reporting for 
over-the-counter transactions in listed securities that take place 
between 4 p.m. and 6:30 p.m. Eastern Time (``ET''). This proposed rule 
change is designed to conform the trade reporting obligations for 
transactions involving listed securities with those now in place for 
Nasdaq National Market, SmallCap, Convertible Debt and over-the-counter 
equity issues that were alerted as part of a separately operating pilot 
program extending the availability of several Nasdaq services and 
facilities until 6:30 p.m. ET.\5\ The text of the proposed rule change 
is below. Proposed new language is in italics. Proposed deletions are 
in brackets.
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    \5\ See Securities Exchange Act Release No. 42003 (October 13, 
1999), 64 FR 56554 (October 10, 1999) (SR-NASD-99-57) (order 
extending the operation of certain Nasdaq services and facilities 
until 6:30 p.m. ET).
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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 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 is 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 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 a.m. and [5:15] 6:30 p.m. 
Eastern Time;
    (ii) No Change.
    (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 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's Third Market is a quotation, communication and execution 
system that allows NASD members to trade stocks listed on the New York 
Stock Exchange (``NYSE'') and the American Stock Exchange (``AMEX''). 
The NASD collects quotations from broker-dealers that trade these 
securities over-the-counter and provides such quotations to the 
Consolidated Quotation System for dissemination. Additionally, the NASD 
collects trade reports from these broker-dealers trading such 
securities in the over-the-counter market and provides the trade 
reports to the Consolidated Tape Association (``CTA/CQA'') for 
inclusion in the Consolidated Tape. From 9:30 a.m. to 4 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. Operation of ITS/CAES after 
4 p.m. is consistent with all rules and procedures currently applicable 
to ITS/CAES trading and quotation activity during normal market hours.
    In October of 1999, the Commission approved, on a pilot basis until 
March 1, 2000, a Nasdaq rule change mandating 90-second trade reporting 
of transactions in listed securities executed by NASD members in the 
third market until 6:30 p.m. ET. Previously, NASD member firms had to 
report such transactions within 90 seconds only until 5:15 p.m. ET. Due 
to an

[[Page 43944]]

administrative oversight by Nasdaq, the rule was not extended when its 
pilot approval terminated on March 1, 2000. Despite this lapse, NASD 
firms have continued to report listed trades done before 6:30 p.m. 
within 90 seconds of execution.\6\ To avoid such lapses in the future, 
and as an expression of its intent that 90-second after-hours trade 
reporting in listed securities should not have lapsed at any time, 
Nasdaq has determined to file the instant proposal to make permanent 
the rule mandating 90-second ACT trade reporting for all transactions 
in listed securities executed by NASD members prior to 6:30 p.m. ET. 
Nasdaq believes that 90-second trade reporting is an important 
component in increasing transparency and improving investor protection 
outside of normal market hours. By permanently extending 90-second 
listed trade reporting to 6:30 p.m. ET, the rule also becomes 
consistent with the Normal Business Hours of the Consolidated Quotation 
Service (``CQS'') established in NASD Rule 6340. Approval of the rule 
change will also conform the time-related trade reporting obligations 
for transactions involving listed securities with those now in place 
for Nasdaq National Market, SmallCap, Convertible Debt and over-the-
counter equity issues that were altered as part of a separately 
operating pilot program extending the availability of several Nasdaq 
services and facilities until 6:30 p.m. ET.
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    \6\ Nasdaq notes that the inadvertent lapse of the rule did not 
impact any firm's ultimate obligation to report third market trades. 
Instead, the rule governed only the time period after execution in 
which a member must report. See NASD Rule 6420(3)(A).
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2. Statutory Basis
    Nasdaq believes that the proposed rule changes are consistent with 
the provisions of 15(a)(b)(6) of the Act \7\ in that they are 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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    \7\ 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. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \8\ and 
Rule 19b-4(f)(6) thereunder.\9\ 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission accelerate the operative 
date. The Commission finds good cause to waive the 30-day operative 
waiting period, because such designation is consistent with the 
protection of investors and the pubic interest. Acceleration of the 
operative date will correct the inadvertent lapse of the rule as soon 
as possible. For these reasons, the Commission finds good cause to 
waive both the 5-day pre-filing requirement and the 30-day operative 
waiting period.\10\
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    \10\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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, 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 
withdrawn 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 Association. All 
submissions should refer to file number SR-NASD-2001-50 and should be 
submitted by September 11, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-21016 Filed 8-20-01; 8:45 am]
BILLING CODE 8010-01-M