[Federal Register Volume 64, Number 197 (Wednesday, October 13, 1999)]
[Notices]
[Pages 55508-55510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26621]
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SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-41974; File No. SR-NASD-99-52)
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. Relating to a Delay in Implementing Changes to
Nasdaq Riskless Principal Trade Reporting Rules
October 4, 1999.
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 September 29, 1999, the National Association of Securities Dealers
(``NASDA'' or ``Association''), through its wholly-owned subsidiary,
Nasdaq Stock Market, Inc. (``Nasdaq''), filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by Nasdaq. Nasdaq has designated this proposal as one
constituting a stated policy and interpretation with respect to the
meaning of an existing rule under Section 19(b)(3)(A)(i) of the Act \3\
and Rule 19b-4(f)(1) \4\ thereunder, which renders the rule effective
upon the Commission's receipt of this filing. The Commission is
publishing this notice to solicit comments on the proposed rule change
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)(i).
\4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Nasdaq filed with the SEC a re-interpretation to NASD Rules 4632,
4642, 4652, and 6620, regarding Nasdaq riskless principal trade
reporting. The purpose of this re-interpretation of NASD Rules 4632,
4642, 4652, and 6620, is to delay the effective date of the Nasdaq
riskless principal trade reporting rule changes announced in SR-NASD-
98-59 \5\ and the interpretation thereto file in SR-NASD-99-39.\6\
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\5\ Securities Exchange Act Release No. 40382 (August 28, 1998),
63 FR 47337 (September 4, 1998).
\6\ Securities Exchange Act Release No. 41731 (August 11, 1999),
64 FR 44983 (August 18, 1999).
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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 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 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
On March 24, 1999, the Commission approved a proposal to amend the
trade reporting rules relating to riskless principal transactions in
Nasdaq National Market, Nasdaq Small Cap Market, Nasdaq convertible
debt, and non-Nasdaq OTC equity securities (``Riskless Principal Rule
Changes'').\7\ Under the proposed Riskless Principal Rule Changes, a
``riskless'' principal transaction is one where an NASD member, after
having received an order to buy (sell) a security, purchases (sells)
the security as principal at the same price to satisfy the order to buy
(sell). The proposed rule changes provide that if a transaction is
``riskless'', the offsetting transaction/leg (i.e., the transaction
with the customer), does not need to be reported to the tape.
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\7\ See Securities Exchange Act Release No. 41208 (March 24,
1999), 64 FR 15386 (March 31, 1999).
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When the SEC approved the rule change, the Commission asked Nasdaq
to submit an interpretation giving examples of how mark-ups, mark-
downs, and other fees will be excluded for purposes of the amended
riskless
[[Page 55509]]
principal rules.\8\ As requested, on August 5, 1999, Nasdaq filed SR-
NASD-99-39 with the Commission, attached to which was Notice to Members
99-65, which gave examples of how mark-ups and other fees will be
excluded for purposes of the riskless principal trade reporting rules.
SR-NASD-99-39 and Notice to Members 99-65 were filed as an
interpretation to existing NASD Rules 4632, 4642, and 6620.\9\ In
addition to giving examples of how mark-ups and other fees will be
excluded for purposes of the riskless principal trade reporting rules,
Notice to Members 99-65 stated that the rule changes announced in SR-
NASD-98-59 and the interpretations to those rules contained in the
Notice would become effective on September 15, 1999.
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\8\ See id. at footnote 15.
\9\ See Securities Exchange Act Release No. 41731 (August 11,
1999), 64 FR 44983 (August 18, 1999) (SR-NASD-99-39).
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Nasdaq is filing this proposal to delay implementation of the
Nasdaq Riskless Principal Rule Changes until March 1, 2000, because a
number of NASD members have represented that they are unable to prepare
their systems for compliance with the changes by the September 30, 1999
deadline. The firms' inability to meet the September 30, 1999 deadline
is due (in large part) to Year 2000 (``Y2K'') remediation and testing
requirements, as well as other code changes. In addition, the firms
have represented that, due to a Y2K code freeze--which most firms will
implement from September 30, 1999, until mid-January 2000--they will
not be able to complete programming for the Riskless Principal Rule
Changes until the end of the first quarter of 2000.
Specifically, Nasdaq received a letter dated September 3, 1999
(``September 3 Letter''),\10\ and a letter dated August 27, 1999
(``August 27 Letter''),\11\ in which the signatory NASD member firms
requested a delay of the implementation of the Riskless Principal Rule
Changes. The August 27 Letter stated that the signatory NASD member
firms (``Firms'') were requesting a delay because they need additional
time to implement the sophisticated software changes necessary to
modify their trading systems. In addition, the August 27 Letter
represented that most firms in the industry have taken the prudent step
of imposing freezes on system changes beginning as early as September
15, 1999, to ensure a smooth Y2K transition. The letter further stated
that meeting the September 30, 1999 implementation deadline, however,
could have a significant impact on the Firms' Y2K efforts. The August
27 Letter represented that the Firms will work closely with the NASD
and Nasdaq to ensure a smooth implementation of the new reporting
requirement after the Firms have successfully met the challenges
presented by the Y2K transition.\12\
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\10\ The September 3 Letter was submitted to Robert E. Aber,
Senior Vice President and General Counsel, The Nasdaq Stock Market,
Inc., from Richard T. Sharp, Solomon, Zauder, Ellenhorn Frischer &
Sharp, on behalf of the following NASD member firms: Banc of America
Securities; Cantor Fitzgerald & Co.; Deutsche Bank Securities, Inc.;
Fidelity Capital Markets; Herzog, Heine, Geduld, Inc.; J.P. Morgan
Securities, Inc.; Knight Securities L.P.; Mayer & Schweitzer, Inc.;
OLDE Discount Corporation; Paine Webber Incorporated; Sherwood
Securities Corp.; Spear, Leeds & Leeds & Kellogg Capital Markets;
Warburg Dillon Read LLC; and Weeden & Co.
\11\ The August 27 letter was submitted to Robert E. Aber,
Senior Vice President and General Counsel, The Nasdaq Stock Market,
Inc., and was signed by the following NASD member firms: Merrill
Lynch, Pierce, Fenner & Smith; Morgan Stanley Dean Witter; Salomon,
Smith Barney; Credit Suisse First Boston Corporation; Donaldson,
Luftkin & Jenrette Securities; Goldman, Sachs & Co.; and Lehman
Brothers Inc.
\12\ The letter also stated that the Firms support the rule
change because it will reduce transaction fees, including SEC fees.
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The September 3 Letter stated that, given the complexity of
programming changes required by the Riskless Principal Rule Changes in
combination with Y2K approaching, it would be difficult for the 14
signatory firms to meet the September 30, 1999 implementation date. The
letter represented that systems personnel at each of the 14 firms have
indicated that the programming changes necessitated by the Riskless
Principal Rule Changes are very complicated and would require
significant programming and testing. The September 3 Letter stated that
since the adoption of the Riskless Principal Rule Changes, the NASD has
issued Notice to Members 99-65 (August 1999), which raises several
issues of application and interpretation, the resolution of which may
require further programming changes. The September 3 Letter requested
additional time to reasonably assure that programming changes are
properly analyzed and implemented.
Nasdaq believes that a delay in the implementation of the Nasdaq
Riskless Principal Rule Changes is reasonable in light of the Y2K
remediation efforts, the code freeze that most NASD members will
observe, and the programming changes required by the rule change.
Nasdaq believes it would not be prudent or consistent with Section 15A
of the Act \13\ to require members to implement substantial system
changes at a time when they are focusing significant resources and time
to perform Y2K testing to insure the integrity of their major market
systems. Thus, Nasdaq believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) \14\ in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, 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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\13\ 15 U.S.C. 78o-3.
\14\ 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, as amended.
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
The proposed rule change has become effective pursuant to Section
19(b)(3)(A)(i) \15\ of the Act and Rule 19b-4(f)(1) thereunder,\16\ in
that it constitutes a stated policy and interpretation with respect to
the meaning of an existing rule.
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\15\ 15 U.S.C. 78s(b)(3)(A)(i).
\16\ 17 CFR 240.19b-4(f)(1).
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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.
IV. 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 submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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
[[Page 55510]]
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 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 NASD. All
submissions should refer to File No. SR-NASD-99-52, and should be
submitted by November 3, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-26621 Filed 10-12-99; 8:45 am]
BILLING CODE 8010-01-M
