[Federal Register Volume 66, Number 200 (Tuesday, October 16, 2001)]
[Notices]
[Pages 52650-52652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25955]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44915; File No. SR-NASD-2001-65]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Extending the Pilot Term of the 
Nasdaq International Service and the Effectiveness of Nasdaq 
International Service Rules

October 9, 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 October 2, 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'' or ``SEC'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
Nasdaq. The Commission is publishing this notice and order to solicit 
comments on the proposed rule change from interested persons and to 
approve the proposed rule change on an accelerated basis.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission made a typographical and formatting change at 
the request of the NASD. The changes are reflected in this notice. 
Telephone discussion between Peter R. Geraghty, Associate General 
Counsel, Nasdaq, and Christopher B. Stone, Attorney Advisor, 
Division of Market Regulation, Commission (Oct. 5, 2001).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD proposes to extend for one year (1) the pilot term of the 
Nasdaq International Service (``Service''), and (2) the effectiveness 
of certain rules (``International Rules'') that are unique to the 
Service. This rule change does not entail any modification of the 
International Rules. The present authorization for the Service and the 
International Rules expires on October 9, 2001. With this filing, the 
pilot period for the Service and the International Rules would be 
extended until October 9, 2002.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange 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
    The NASD proposed to extend for an additional year, until October 
9, 2002, the pilot operation of the Service and the effectiveness of 
the International Rules governing broker-dealers' access to and use of 
the Service. The Commission originally approved the

[[Page 52651]]

existing pilot operation of the Service and the International Rules in 
October 1991.\4\ The Service was launched on January 20, 1992. The 
pilot has since been extended and is currently set to expire on October 
9, 2001.\5\
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    \4\ See Securities Exchange Act Release No. 29812 (Oct. 11, 
1991), 56 FR 52082 (Oct. 17, 1991) (File No. SR-NASD-90-33).
    \5\ See Securities Exchange Act Release No. 43218 (Aug. 29, 
2000), 65 FR 54095 (Sept. 6, 2000) (File No. SR-NASD-00-51).
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    The Service supports an early trading session running from 3:30 
a.m. to 9:00 a.m., Eastern Time, on each U.S. business day (``European 
Session'') that overlaps the business hours of the London financial 
markets. Participation in the Service is voluntary and is open to any 
authorized NASD member firm or its approved broker-dealer affiliate in 
the U.K. A member participates as a Service market maker either by 
staffing its trading facilities in the U.S. or the facilities of its 
approved affiliate during the European Session. The Service also has a 
variable opening feature that permits Service market makers to elect to 
participate starting from 3:30 a.m., 5:30 a.m. or 7:30 a.m., Eastern 
Time. The election is required to be made on a security-by-security 
basis at the time a firm registers with the NASD as a Service market 
maker.\6\ At present, there are no Service market makers participating 
in the Service.
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    \6\ Regardless of the opening time chosen by the Service market 
maker, the Service market maker is required to fulfill all the 
obligations of a Service market maker from that time (i.e., either 
3:30 a.m., 5:30 a.m. or 7:30 a.m.) until the European Session closes 
at 9:00 a.m., Eastern Time. See Securities Exchange Act Release No. 
32471 (June 16, 1993), 58 FR 33965 (June 22, 1993) (File No. SR-
NASD-92-54).
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    As noted above, the NASD is seeking to extend the pilot term for 
one year, During this period, the NASD will continue to reevaluate the 
Service's operation and consider possible enhancements to the Service 
to broaden market participation. The NASD continues to view the Service 
as a significant experiment in expanding potential opportunities for 
international trading via systems operated by Nasdaq. Accordingly, the 
NASD believes that this pilot operation warrants an extension to permit 
possible enhancements that will increase the Service's utility and 
attractiveness to the investment community.\7\ The NASD maintains its 
belief that it is extremely important to preserve this facility and the 
opportunities it provides, especially in light of the increasingly 
global nature of the securities markets and the trend of cross-border 
transactions generally.
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    \7\ Assuming that the pilot term is extended, the NASD will 
continue to supply the Commission with the statistical reports 
prescribed in the initial approval order for the Service at six-
month intervals.
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    In addition, the Service still serves an invaluable role as a 
critical early warning mechanism in the context of significant changes 
involving Nasdaq software and hardware systems. Specifically, because 
the Service operates in the early morning hours prior to the opening of 
trading in the domestic session of Nasdaq, the Service has provided for 
the early detection of systems or communications problems when Nasdaq 
implements these systems changes.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
Sections 11A(a)(1)(B) and (C) and 15A(b)(6) of the Act. Subsections (B) 
and (C) of Section 11A(a)(1) set forth the Congressional goals of 
achieving more efficient and effective market operations, broader 
availability of information with respect to quotations for securities, 
and the execution of investor orders in the best market through the use 
of advanced data processing and communications techniques. Section 
15(A)(b)(6) requires, among other things, that the NASD rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities. The NASD believes that the 
proposed extension of the Service and the International Rules is fully 
consistent with these statutory provisions.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change will impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The NASD has neither solicited nor received written comments on the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submission 
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 data 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 inspecting 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 No. 
SR-NASD-2001-65 and should be submitted by November 6, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with Sections 11A(a)(1)(B) and (C) and 15A(b)(6) of the Act.\8\ The 
Commission believes that, in connection with the globalization of 
securities markets, the Service provides an opportunity to advance the 
statutory goals of (1) Achieving more efficient and effective market 
operations; (2) broader availability of information with respect to 
quotations for securities; (3) the execution of investor orders in the 
best market through the use of advanced data processing and 
communications techniques; and (4) fostering cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to and facilitating transactions in 
securities.
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    \8\ In reviewing this proposal, the Commission has considered 
its potential impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f)
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    The Commission views the Service as providing potential 
opportunities for international trading via a system operated by 
Nasdaq. The Service is intended to promote additional commitments of 
member firms' capital to market making and to attract commitments from 
firms based in Europe that currently do not function as Nasdaq market 
makers. Although there are no Service market makers participating in 
the Service, the NASD plans to reevaluate the plans to reevaluate the 
Service's operation and consider possible enhancements to the Service 
to broaden market maker participation. Additionally, the Service 
provides an early warning system when

[[Page 52652]]

Nasdaq implements significant changes involving its hardware and 
software systems. Because the Service operates before the opening of 
the domestic session of Nasdaq, the Service allows for the early 
detection of systems or communication problems. Accordingly, the 
Commission believes that this pilot operation warrants an extension to 
permit possible enhancements that will increase the Service's utility 
and attractiveness to the investment community. Any changes to the 
operation of the Service will be filed pursuant to Section 19(b)(2) of 
the Act.\9\
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    \9\ 15 U.S.C. 78s(b)(2).
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    Pursuant to Section 19(b)(2) of the Act,\10\ the Commission finds 
good cause for approving the proposed rule change prior to the 
thirtieth day after the date of publication of notice of filing thereof 
in the Federal Register. The Commission believes that it is appropriate 
to approve on an accelerated basis the one-year extension of the 
Service, until October 9, 2002, to ensure the continuous operation of 
the Service, which is set to expire on October 9, 2001.
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    \10\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NASD-2001-65) is hereby 
approved an accelerated basis.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-25955 Filed 10-15-01; 8:45 am]
BILLING CODE 8010-01-M