[Federal Register Volume 63, Number 197 (Tuesday, October 13, 1998)]
[Notices]
[Pages 54740-54741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27306]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40519; File No. SR-NASD-98-53]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change To Include Closed-
End Funds in Nasdaq's Mutual Fund Quotation System
October 5, 1998.
I. Introduction
On July 24, 1998, 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 amend NASD Rule 6800 to
include closed-end funds on Nasdaq's Mutual Fund Quotation System
(``MFQS'' or ``Service''). The proposed rule change and Amendment No. 1
\3\ were published for comment in the Federal Register on September 4,
1998.\4\ The Commission received one comment on the proposal. This
order approves the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 U.S.C. 240.19b-4.
\3\ See Letter from Robert E. Aber, Senior Vice President and
General Counsel, Office of the General Counsel, Nasdaq, to Katherine
England, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated August 26, 1998 (``Amendment No.
1'').
\4\ Securities Exchange Act Release No. 40380 (August 27, 1998),
63 FR 47336.
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II. Description of the Proposal
The proposed rule change amends NASD Rule 6800 to establish minimum
requirements for the inclusion of closed-end funds in Nasdaq's MFQS.
Presently, the MFQS collects daily price and related data for open-end
funds and money market funds, and publicly disseminates the information
to the news media and market data vendors. To assist the news media and
market data vendors in determining which funds have the broadest appeal
to the investing public, Nasdaq divides the participating funds into
two separate lists: the ``News Media List'' and the ``Supplemental
List.'' Open-end funds on the News Media List are eligible for
inclusion in the fund tables of newspapers nationwide, as well as for
dissemination over Nasdaq's Level 1 data feed service distributed by
market data vendors. Open-end funds on the Supplemental List are
disseminated over Nasdaq's Level 1 data feed service, thus providing
significant visibility for funds that do not qualify for the News Media
List. NASD Rule 6800 contains initial inclusion (minimum eligibility)
requirements for both the News Media List and the Supplemental List,
and contains maintenance (continued inclusion) requirements for the
News Media List.
In the past, closed-end funds expressed an interest in being able
to enter their daily prices into the Service for dissemination to the
newspapers, market data vendors, and news wires. However, prior to the
proposed rule change, closed-end funds were ineligible for inclusion in
the MFQS under NASD Rule 6800 because the MFQS application did not
accommodate some of the data attributes needed for closed-end funds.
Recently, Nasdaq re-designed and upgraded the MFQS. The improved
Service will be able to support the data attributes necessary to
support closed-end funds and is expected to be implemented in the third
quarter of 1998. Accordingly, Nasdaq proposes to add new standards for
the inclusion of closed-end funds in the MFQS to Rule 6800.\5\
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\5\ Under the improved MFQS, Nasdaq plans to disseminate on a
daily basis a closed-end fund's net asset value and closing share
price (as applicable). Additionally, Nasdaq will disseminate
information relating to a fund's unallocated distributions. Each
fund will provide the aforementioned information to Nasdaq on a
daily basis through an interface of the MFQS.
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The proposed standards contain initial inclusion requirements for
the News Media List and the Supplemental List, and maintenance
requirements for the News Media List. Specifically, the criteria for
the News Media List will be $100 million in assets for initial
inclusion and $60 million in assets for maintenance. The criteria for
initial inclusion in the Supplemental List will be $10 million or two
full years of operation; there will be no maintenance requirement for
the Supplemental List.\6\ The proposed initial inclusion and
maintenance requirements for the News Media List for closed-end funds
are higher than the current requirements for open-end funds because the
asset base of a closed-end fund is fixed upon initiation whereas the
asset base of an open-end fund often starts small and grows over time;
thus, closed-end funds
[[Page 54741]]
tend to have higher initial asset bases than open-end funds.
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\6\ This is consistent with the current standards for the
Supplemental List for open-end funds. See NASD Rule 6800.
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The proposed rule change also makes a technical amendment to NASD
Rule 6800 clarifying that there is a single News Media List, not
multiple lists, as the current rule language suggests.
III. Comments
The Commission received a comment letter from the Investment
Company Institute (``ICI'') strongly supporting the proposed rule
change to include closed-end funds in Nasdaq's MFQS.\7\ The ICI agreed
with the NASD that investor protection and the public interest would be
served by disseminating closed-end fund pricing information on a daily
basis and in a manner similar to open-end funds. The ICI believes that
the inclusion of closed-end fund information in the MFQS will allow
closed-end fund shareholders and investment professionals to track
closed-end fund investments on a more timely basis. The ICI also stated
that it may be appropriate for Nasdaq to consider lowering the initial
inclusion and maintenance requirements for closed-end funds in the
future if newspapers are willing to include additional closed-end fund
information.
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\7\ See letter from Amy B.R. Lancellotta, Senior Counsel,
Investment Company Institute to Jonathan G. Katz, Secretary, Office
of the Secretary, Commission, dated September 24, 1998.
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IV. Discussion
Upon careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities association.
The Commission believes that the proposed rule change is consistent
with Section 15A(b)(6) of the Act,\8\ in that it is designed to promote
just and equitable principles of trade, to prevent fraudulent and
manipulative acts and practices, to foster cooperation and coordination
with persons engaged in regulating and facilitating transactions in
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.\9\ The Commission believes
that the proposed rule change should increase the transparency of
closed-end fund prices and increase investor confidence by making
valuable pricing information more readily available to investors.
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\8\ 15 U.S.C. 78o-3(b)(6).
\9\ In approving this rule, 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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Previously, the technological limitations of the MFQS prevented
Nasdaq from disseminating the Net Asset Value for closed-end funds to
newspapers and market vendors, thus the task of disseminating this
information to various data vendors by telephone, telefacsimile, or
electronic mail fell upon the individual closed-end funds.\10\ Now that
the MFQS has been redesigned and upgraded, the Commission believes that
investors and the closed-end funds will benefit from a centralized
dissemination of the Net Asset Values and prices for closed-end funds.
Through participation in the MFQS, the affected closed-end funds should
be able to have this valuable information distributed to investors more
easily and efficiently. As a result, the Commission believes that the
proposal may increase the transparency of closed-end fund prices.
Furthermore, the Commission believes the Service may help affected
funds reduce the costs associated with distributing Net Asset Value
information to various entities by telephone, telefacsimile, or
electronic mail.
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\10\ Telephone conversation between John Malitzis, Senior
Attorney, Office of the General Counsel, Nasdaq, and Marc McKayle,
Attorney, Division, Commission (September 30, 1998).
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With respect to the proposed initial inclusion and maintenance
requirements, the Commission believes that the NASD has provided
appropriate initial inclusion requirements for both the News Media List
and the Supplemental List, and maintenance requirements for the News
Media List which should provide greater exposure for closed-end fund
pricing information than was previously available.\11\ In addition,
under the proposed standards, certain closed-end funds that may not
have their value printed due to limited print space should be able to
avoid the higher annual fee for the News Media List by being on the
Supplemental List. Finally, the Commission believes that the technical
amendment to NASD Rule 6800 clarifying that there is a single, and not
multiple, News Media List is reasonable and consistent with the Act.
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\11\ Nasdaq has represented that under the proposed standards
approximately 78% of the closed-end funds would be eligible for the
News Media List which may be printed in the newspaper either in part
or in its entirety. See Securities Exchange Act Release No. 40380
(August 27, 1998), 63 FR 47336 (September 4, 1998).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change, as amended, (SR-NASD-98-53) is
approved.
\12\ 15 U.S.C. 78s(b)(2).
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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)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27306 Filed 10-9-98; 8:45 am]
BILLING CODE 8010-01-M
