00-26281. Self-Regulatory Organizations; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval of Amendment No. 3 to Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to ...

October 5, 2000.

I. Introduction

On April 4, 2000, 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 relating to amendments to the minimum listing requirements for the inclusion and maintenance of open and closed-end funds in Nasdaq's Mutual Fund Quotation Service (“MFQS” or “Service”).^[3] On May 16, 2000, the Nasdaq submitted Amendment No. 2 to the proposed rule change.^[4] The proposed rule change was published in the Federal Register on June 5, 2000.^[5] On September 29, 2000, the Nasdaq submitted Amendment No. 3 to the proposed rule change.^[6] No comments were received on the proposal. This order approves the proposed rule change, as amended. Also, Amendment No. 3 is approved on an accelerated basis.

II. Description of the Proposal

Nasdaq proposes to amend NASD Rule 6800 regarding the minimum listing requirements for the inclusion and maintenance of open and closed-end funds in Nasdaq's Mutual Fund Quotation Service (“MFQS”). Proposed new language is in italics; proposed deletions are in brackets.

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6800. MUTUAL FUND QUOTATION SERVICE

(a)-(b) No Change.

(c) News Media Lists.

(1)(A) An eligible open end fund shall be authorized for inclusion in the News Media List released by the Association if it has at least 1,000 shareholders or $25 million in net assets.

(B) An eligible closed-end fund shall be authorized for inclusion in the News Media List released by the Association if it has at least $60 [100] million in net assets.

(C) Compliance with subparagraphs (1)(A) and (B) shall be certified by the fund to the Association at the time of initial application for inclusion in the List.

(2)(A) An authorized open-end fund shall remain included in the New Media List if it has either 750 shareholders or $15 million in net assets.

(B) An authorized closed-end fund shall remain included in the News Media List if it has $30 [60] million in net assets.

(C) Compliance with subparagraphs (2)(A) and (B) shall be certified to the Association upon written request by the Association.

(d) Supplemental List.

An eligible open-end or closed-end fund shall be authorized for inclusion in the Supplemental List released to vendors of Nasdaq Level 1 Service if it meets one of the criteria set out in subparagraph (1), subparagraph (2), or subparagraph (3) below:

(1) The fund has net assets of $10 million or more; or

(2) The fund has had two full years of operation; or

(3) The fund's investment adviser:

(A) Is the investment adviser of at least one other fund that is listed on the Mutual Fund Quotation Service and that has net assets of $10 million or more; and

(B) Has at least $15 million in total assets of open-end and closed-end funds under management.

(e) No Change.

* * * * *

The MFQS was created to collect daily price and related data for mutual funds and money market funds and to disseminate that information to the news media and market data vendors.^[7] Currently, the MFQS disseminates the valuation data for over 11,000 funds. This information dissemination process is facilitated by the use of web browser-based technology, which enables funds included in the Service, or the pricing agents designated by such funds, to transmit directly to Nasdaq a multitude of pricing information, including information about a fund's net asset value, offer price, and closing market price.

Funds must meet minimum eligibility criteria in order to be included in the MFQS.^[8] The MFQS has two “lists” in which a fund may be included—the News Media List and the supplemental List—and each list has its own initial inclusion requirements.^[9] The News Media List also has maintenance/continued inclusion requirements. If a fund qualifies for the News Media List, pricing information about the fund is eligible for inclusion in the fund tables of newspapers and is also eligible for dissemination over Nasdaq's Level 1 Service, which is distributed by market data vendors.^[10] If a fund qualifies for the Supplemental List, the pricing information about that fund generally is not included in newspaper fund tables, but is disseminated over Nasdaq's Level 1 Service. The Supplemental List thus provides significant visibility for funds that do not otherwise qualify for inclusion in the News Media List. Each fund incurs an annual fee for inclusion in the Service.^[11]

Nasdaq proposes to amend the MFQS inclusion criteria for both the Supplemental and News Media List by expanding the universe of funds that are eligible for inclusion in the Service. The proposal lowers both the initial and maintenance requirements for closed-end funds to participate in the News Media List. Currently, in order to qualify initially for inclusion in the News Media List, a closed-end fund must have at least $100 million in net assets. To remain in the News Media List, a closed-end fund must maintain at least $60 million in net assets. The proposal would lower the net asset requirement for a closed-end fund to qualify initially for inclusion in the News Media List to at least $60 million in net assets. The net asset requirement for a closed-end fund to remain included in the News Media List would be lowered to at least $30 million.

Nasdaq also proposes to amend the inclusion criteria for the Supplemental List by providing an alternative means for a fund to be included in the Service. Under this alternative, a fund would qualify for the MFQS if the investment adviser is the investment adviser of at least one other fund listed on MFQS that has $10 million in net assets. In addition, the firm must have at least $15 million from open-end and closed-end funds under management. Nasdaq notes that manages assets from other sources—such as pension funds—would not be included for purposes of determining whether the investment firm meets the requirement that it manage at least $15 million in fund-related assets.

III. Decision

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,^[12] and in particular, the requirements of Section 15A(b)(6) ^[13] of the Act, because it is designed to foster cooperation and coordination with persons engaged in processing information with respect to 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.

The Commission believes that the proposal will protest investors and the public interest by promoting better processing of fund pricing information. Specifically, the Commission notes that in Section 11A(a)(1)(C),^[14] Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations and transactions in securities. The Commission also believes that the proposed new listing criteria will provide greater transparency to the markets by providing pricing information for a broader base of funds for which there is significant investor interest. Further, by providing listed status to investment companies with a sufficient investor base and trading interest, the proposed new listing standards will continue to serve as a means for the marketplace to screen issuers and maintain fair and orderly markets.

The Commission also finds good cause for approving proposed Amendment No. 3 prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. Proposed Amendment No. 3 provides clarity to the rule.^[15] It replaces the term “investment management firm and managing the fund” in NASD Rule 6800(d)(3) with “investment adviser,” a term which is defined in the Investment Advisers Act of 1940.^[16]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 3. 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 other 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. Copies of such filing will also be available for inspection and copying at the principal office of the Association. All submissions should refer to the File No. SR-NASD-00-16 and should be submitted by November 3, 2000.

V. Conclusion

For the reasons discussed above, the Commission finds that the proposal is consistent with the Act and the rules and regulations thereunder.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[17] that the proposed rule change, SR-NASD-00-16, as amended, be and hereby is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[18]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  The NASD filed its proposed rule change on March 31, 2000. On April 4, 2000, the NASD filed Amendment No. 1 that entirely replaced the original rule filing.

4.  See Letter from Rober E. Aber, General Counsel and Senior Vice President, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission (May 16, 2000). Amendment No. 2 corrected a typographical error that appeared in the proposed rule language and clarified that the Mutual Fund Quotation Service includes only 73.8% of the total open-end and closed-end fund population.

5.  Securities Exchange Act Release No. 42831 (May 25, 2000), 65 FR 35693.

6.  See Letter from Edward S. Knight, General Counsel and Senior Vice President, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission (September 29, 2000). Amendment No. 3 amended the language of proposed NASD Rule 6800(d)(3) to replace the phrase “investment management firm managing the fund” with “investment adviser” and make other technical corrections.

7.  See Securities Exchange Act Release No. 22264 (July 23, 1985), 50 FR 30899 (July 29, 1985).

8.  See NASD Rule 6800.

9.  See id.

10.  See NASD Rule 7010.

11.  See NASD Rule 7090.

12.  In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

13.  15 U.S.C. 78o-3(b)(6).

14.  15 U.S.C. 78k-1(a)(1)(C).

15.  See supra n. 6.

16.  15 U.S.C. 80b-2(a)(11).

17.  15 U.S.C. 78s(b)(2).

18.  17 CFR 200.30-3(a)(12).