03-30839. Joint Industry Plan; Order Extending for One Year the Operation of the Reporting Plan for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privilege Basis, Submitted by the National Association of Securities Dealers, Inc....

December 4, 2003.

I. Introduction and Description

On August 8, 2003, the Cincinnati Stock Exchange, Inc. (“CSE”) on behalf of itself and the National Association of Securities Dealers, Inc. (“NASD”), the American Stock Exchange LLC (“Amex”), the Boston Stock Exchange, Inc. (“BSE”), the Chicago Stock Exchange, Inc. (“CHX”), the Pacific Exchange, Inc. (“PCX”), and the Philadelphia Stock Exchange, Inc. (“PHLX”) (hereinafter referred to collectively as “Participants”),^[1] as members of the operating committee (“Operating Committee” or “Committee”) of the Plan submitted to the Securities and Exchange Commission (“SEC” or “Commission”) a request to extend the operation of the Plan and also to extend certain exemptive relief as described below.^[2] On August 12, 2003, the Commission issued a notice for comment and simultaneously granted summary effectiveness to the request to extend the operation of the Plan and certain exemptive relief.^[3] No comments were received in response to the publication of this notice.

The Nasdaq UTP Plan governs the collection, processing, and dissemination on a consolidated basis of quotation and last sale information for each of its Participants. This consolidated information informs investors of the current quotation and recent trade prices of Nasdaq Stock Market, Inc. (“Nasdaq”) securities. It enables investors to ascertain from one data source the current prices in all the markets trading Nasdaq securities. The Plan serves as the required transaction reporting plan for its Participants, which is a prerequisite for their trading Nasdaq securities. Currently, the Plan is scheduled to expire on December 16, 2003.

This order approves, pursuant to Rule 11Aa3-2(c)(2) under the Securities Exchange Act of 1934 (“Act”),^[4] the request to extend operation of the Plan and the request to extend certain exemptive relief (“Date Extension”) for a one-year period ^[5] expiring one year from the date of publication in the Federal Register.

II. Exemptive Relief

While both Nasdaq and the NASD operate under the umbrella of a single Plan Participant, the submission of two distinct best bids and offers (“BBOs”) could be deemed inconsistent with Section VI.C.1 of the Plan.^[6] Pursuant to the 13th Amendment of the Plan and Rule 11Aa3-2(a),^[7] Nasdaq cannot be granted Plan Participant status until it is registered as a national securities exchange. While Nasdaq submits a distinct BBO from the NASD and until Nasdaq is registered as a national securities exchange, the NASD will submit quotes to the Plan's Securities Information Processor (“SIP”) in a manner different than specified in Section VI.C.1. of the Plan and, thus, in conflict with Commission Rule 11Aa3-2(d).^[8]

As discussed at length in the notice of the 13th Amendment,^[9] the Commission had determined to relieve the potential conflict among the SuperMontage approval order,^[10] Rule 11Aa3-2,^[11] and the Plan, by granting the NASD an exemption under Rule 11Aa3-2(f) ^[12] from compliance with Section VI.C.1. of the Plan as required by Rule 11Aa3-2(d) ^[13] until such time as Nasdaq is registered as a national securities exchange. The Plan Participants have requested an extension of such exemptive relief.

III. Discussion

The Commission finds that extending the operation of the Plan is consistent with the requirements of the Act and the rules and regulations thereunder, and, in particular, Section 12(f) ^[14] and Section 11A(a)(1) ^[15] of the Act and Rules 11Aa3-1 and 11Aa3-2 thereunder.^[16] Section 11A of the Act directs the Commission to facilitate the development of a national market system for securities, “having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets,” and cites as an objective of that system the “fair competition * * * between exchange markets and markets other than exchange markets.” ^[17] When the Commission first approved of the Plan on a pilot basis, it found that the Plan “should enhance market efficiency and fair competition, avoid investor confusion, and facilitate surveillance of concurrent exchange and OTC trading.” ^[18] The Plan has been in existence since 1990 and Participants have been trading Nasdaq securities under the Plan since 1993.

The Commission finds that extending the operation of the Plan for a year furthers the goals described above by preventing the lapsing of the sole effective transaction reporting plan for Nasdaq securities traded by exchanges pursuant to unlisted trading privileges. The Commission believes that the Plan is currently a critical component of the national market system and that the Plan's expiration would have a serious, detrimental impact on the further development of the national market system.

The Commission also finds that it is appropriate to extend the exemption under Rule 11Aa3-2(f) ^[19] from compliance with Section VI.C.1. of the Plan as required by Rule 11Aa3-2(d).^[20] The Commission believes that the Plan is a critical component of the national market system and that the requested exemptive relief is necessary to assure the effective operation of the Plan. The Commission believes that the requested exemptive relief extension is consistent with the Act, the Rules thereunder, and, specifically, with the objectives set forth in Sections 12(f) and 11A of the Act ^[21] and Rules 11Aa3-1 and 11Aa3-2 thereunder.^[22]

IV. Conclusion

It is therefore ordered, pursuant to sections 12(f) and 11A of the Act ^[23] and paragraph (c)(4) of Rule 11Aa3-2 ^[24] thereunder, that the operation of the Plan be, and hereby is, extended and that certain exemptive relief also be extended until December 15, 2004.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[25]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  The CSE was elected chair of the Operating Committee for the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privilege Basis (“Nasdaq UTP Plan” or “Plan”) by the Participants.

2.  See letter from Jeffrey T. Brown, Chairman, Plan Operating Committee, to Jonathan G. Katz, Secretary, Commission, dated August 8, 2003.

3.  See Securities Exchange Act Release No. 48318, 68 FR 49534 (August 18, 2003).

4.  17 CFR 240.11Aa3-2(c)(2).

5.  As discussed in the order granting partial temporary approval of Amendment No. 13 to the Plan, see Securities Exchange Act Release No. 46729 (October 25, 2002), 67 FR 66685 (November 1, 2002) (“Partial Approval”), proposed amendments to the Plan had been segregated into four categories: (1) Category 1, “Effective Upon Nasdaq's Exchange Registration;” (2) Category 2, “Effective Upon Launch of the Internal SIP;” (3) Category 3, “Effective Upon End of Parallel Period—Elimination of the Legacy SIP;” and (4) Category 4, “Timing Not An Issue.” Through the Partial Approval, the Commission approved the Category 2, 3, and 4 amendments on a pliot basis, but did not approve the Category 1 amendments. Therefore, the Plan the Commission extends today is the Plan, as modified, by all changes previously approved. In the Partial Approval, the Commission explicitly noted its intention to address the Category 1 amendments through separate action when the Commission acts on the Nasdaq exchange registration application. This order does not approve the Category 1 amendments and the Commission reiterates its intent to act upon the Category 1 amendments through separate action in conjunction with the Nasdaq exchange registration application.

6.  Section VI.C.1. of the Plan, as approved by the Operating Committee in the 13th Amendment, states that “[t]he Processor shall disseminate on the UTP Quote Data Feed the best bid and offer information supplied by each Participant, including the NASD. * * *”

7.  17 CFR 240.11Aa3-2(a).

8.  17 CFR 240.11Aa3-2(d). Commission Rule 11Aa3-2(d) requires a self-regulatory organization participant of national market system plan to comply with the terms of that plan.

9.  See Securities Exchange Act Release No. 46139 (June 28, 2001 [sic]), 67 FR 44888 (July 5, 2002).

10.  See Securities Exchange Act Release No. 43863 (January 19, 2001), 66 FR 8020 (January 26, 2001).

11.  17 CFR 240.11Aa3-2.

12.  17 CFR 240.11Aa3-2(f).

13.  17 CFR 240.11Aa3-2(d).

14.  15 U.S.C. 78l(f). The Commission finds that extending the Plan is consistent with fair and orderly markets, the protection of investors and the public interest, and otherwise in furtherance of the purposes of the Act. The Commission has taken into account the public trading activity in securities traded pursuant to the Plan, the character of the trading, the impact of the trading of such securities on existing markets, and the desirability of removing impediments to, and the progress that has been made toward the development of a national market system.

15.  15 U.S.C. 78k-1(a)(1).

16.  17 CFR 240.11Aa3-1 and 17 CFR 240.11Aa3-2.

17.  15 U.S.C. 78k-1(a).

18.  See Securities Exchange Act Release No. 28146 (June 26, 1990), 55 FR 27917 (July 6, 1990).

19.  17 CFR 240.11Aa3-2(f).

20.  17 CFR 240.11Aa3-2(d).

21.  15 U.S.C. 78l(f) and 15 U.S.C. 78k-1.

22.  17 CFR 240.11Aa3-1 and 11Aa3-2.

23.  15 U.S.C. 78 l (f) and 15 U.S.C. 78k-1.

24.  17 CFR 240.11Aa3-2(c)(4).

25.  17 CFR 200.30-3(a)(27).