[Federal Register Volume 59, Number 92 (Friday, May 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11700]
[[Page Unknown]]
[Federal Register: May 13, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34021; International Series Release No. 664; File No.
SR-NASD-94-25]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice and Order Granting Accelerated Approval to
Proposed Rule Change Extending the Informational Linkage With the Stock
Exchange of Singapore Ltd. for Six Months
May 6, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934\1\ (``Act''), notice is hereby given that on April 26, 1994, the
National Association of Securities Dealers, Inc. (``NASD'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the NASD. 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) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD hereby files, pursuant to Section 19(b)(1) of the Act and
Rule 19b-4 thereunder, for Commission authorization to extend the
operation of its Pilot Program with the Stock Exchange of Singapore
Limited (``SES'') for six months. The Pilot Program currently consists
of an interchange of closing price and volume data on up to 35 Nasdaq
securities that also may be traded through the SES's facilities
(collectively, ``Pilot Securities''). With the thirteen hour time
difference (twelve hours during EDT), the trading hours of the SES and
NASD markets do not overlap. The end-of-day information being exchanged
under the Pilot Program may assist in the establishment of opening
prices the following business day. The Pilot Program currently involves
no automated order routing or execution capabilities, and no such
capability will be established during the proposed extension.
The Commission originally authorized operation of the NASD-SES
Pilot Program for a two-year term\2\ that was extended most recently
through May 12, 1994.\3\ Commission approval of the instant filing
would permit continuation of this Pilot Program through November 12,
1994. During this interval, no more than 35 Nasdaq issues will be
included in this Pilot Program. That figure corresponds to the number
originally authorized at the inception of the Pilot Program in 1988. As
noted in File No. SR-NASD-93-28, the SES information being transmitted
to the NASD reflects the SES's use of an order-driven trading system
(known as the ``CLOB'').
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\2\See Release No. 34-25457 (Mar. 14, 1988), 53 FR 9156 (Mar.
21, 1988).
\3\See Release No. 34-33061 (Oct. 15, 1993), 58 FR 54617 (Oct.
22, 1993).
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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, 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 IV below. The NASD 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
The NASD-SES Pilot Program commenced operation with the
Commission's approval of File No. SR-NASD-87-40 on March 14, 1988. The
principal features of this Program were fully described in Section 1 of
that Form 19b-4, which description is hereby incorporated by
reference.\4\
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\4\See also Release No. 34-25065 (Oct. 28, 1987), 52 FR 42167
(Nov. 3, 1987).
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The current authorization of the NASD-SES Pilot Program will expire
on May 12, 1994. The NASD, on its own as well as on the SES's behalf,
hereby requests that the Commission approve a further extension of the
Pilot Program for six months, expiring on November 12, 1994.
During the proposed extension, each market will transmit to the
other static price/volume information compiled at the end of each
trading day on approximately 35 Nasdaq securities which are also traded
on the SES. The NASD will transmit for each Pilot Security the closing
inside quotes, cumulative volume, last sale price and the closing quote
of every Nasdaq market maker in each of the Pilot Securities
(collectively referred to as ``NASD information''). In recognition of
the SES's use of the order-driven CLOB system, the SES will transmit
the following data elements for each Pilot security: closing price
(i.e., the price of the final transaction in the CLOB on that business
day), the highest and lowest prices at which transactions were
effected, and the aggregate volume (collectively referred to as ``SES
information'').\5\ Because all trading of Pilot Securities on the SES
occurs in the CLOB, the price information sent to the NASD will reflect
the prices of actual trades consummated by the automated matching of
buy and sell orders resident in the CLOB system.
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\5\If no trades are effected in a Pilot security on a given day,
the SES will transmit no data on that issue even if bids or offers
had been entered into the CLOB for possible execution.
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The CLOB is a fully automated trading system that was instituted by
the SES in 1989. Prior to that time, the SES employed a quote-driven,
market maker system similar to the Nasdaq Stock Market. Orders to buy
and sell securities are entered into the CLOB through some 1,800
trading terminals on the premises of approximately 26 SES member firms.
The CLOB provides an electronic limit order file with open orders
ranked by price and time in each security. When the terms of two orders
match, the CLOB generates an automated execution accompanied by
confirmations back to the originating brokers.
As noted in File No. SR-NASD-93-28, the SES intends to incorporate
the Pilot Securities into ``CLOB International.'' The latter is a
separate section of the SES market system for the trading of foreign
issues that are not listed on the SES. These securities trade through
the CLOB in the same manner as SES-listed securities. CLOB
International currently includes the stocks of Malaysian, Hong Kong,
and Philippine issuers. The SES regards inclusion of the Pilot
Securities in CLOB International as a logical step in the progression
of the Pilot Program. Further, the SES believes that this step could
stimulate greater trading interest in Nasdaq securities among Singapore
investors. Accordingly, both the NASD and the SES desire to continue
the Pilot Program.
The incorporation of Pilot Securities into CLOB International will
not alter the basic operation of the Pilot Program, namely, the
interchange of static, end-of-day information on the Pilot Securities.
SES information will continue to be offered only to subscribers of
Nasdaq Level 2/3 services.\6\ Similarly, NASD information transmitted
to Singapore will be available only on the terminals used by SES
members to access the CLOB. The original linkage agreement between the
NASD and the SES will remain in effect for the term of the extended
Pilot Program. That agreement, which provides for the sharing of
regulatory information as needed, is believed adequate given the
limited nature and limited scope of the Pilot Program.
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\6\To retrieve this information, a Nasdaq subscriber must enter
a discrete query through a Nasdaq Workstation device.
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Finally, the NASD acknowledges that any further enhancement to the
Pilot Program, including the introduction of automated order routing
and execution facilities, would require concurrent authorizations from
the Commission and the Monetary Authority of Singapore. No such
enhancement is planned for implementation during the requested
extension.
The NASD believes that Sections 11A(a)(1) (B) and (C), 15A(b)(6),
and 17A(a)(1) of the Act provide the statutory basis for this proposed
rule change. Subsections (B) and (C) of Section 11A(a)(1) set forth the
Congressional goals of achieving more efficient and effective market
operations, the availability of information with respect to quotations
for securities and the execution of investor orders in the best market
through the application of new data processing and communications
techniques. Section 15A(b)(6) requires, among other things, that the
rules of the NASD be designed to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market. Finally, Section 17A(a)(1) reflects the
Congressional goals of linking all clearance and settlement facilities
and reducing costs involved in the clearance and settlement process
through new data processing and communications techniques. The NASD
submits that extension of the Pilot Program will further these ends by
providing the cooperative regulatory environment and operating
experience needed for advancement of these goals in the context of
internationalization of securities markets.
B. Self-Regulatory Organization's Statement on Burden on Competition
The extended Pilot Program will permit the continued exchange of
static market data on a limited group of Nasdaq securities between the
NASD and the SES on a non-exclusive basis. The costs of supporting the
Pilot Program are nominal, and the sponsoring markets absorb their
respective costs. The market information being exchanged by the NASD
and SES under the Pilot Program is deemed to constitute an exchange of
equivalent value. Hence, no additional fee is paid by NASD and SES
member firms for receipt of the static data being provided on Pilot
Securities.
The NASD submits that neither the structure no operation of the
present Pilot Program poses any burden on competition.
C. Self-Regulatory Organization's Statement on Comment on the Proposed
Rule Change Received From Members, Participants, or Others
The NASD did not solicit or receive written comments on this rule
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The NASD requests that the Commission find, pursuant to Section
19(b)(2) of the Act, good cause for approving the proposed rule change
prior to the 30th day after the date of publishing notice of the filing
and, in any event, by May 12, 1994. The NASD believes that accelerated
approval is appropriate for the following reasons: (1) The experimental
character of the Pilot Program and the need to maintain continuity in
its operation; (2) the commitment not to make any significant
operational changes during the requested extension absent Commission
approval; (3) the limited nature of the Pilot Program, both in terms of
the number of Pilot securities and the amount of market information
being exchanged; and (4) the limited utility of end-of-day, static
information to the NASD and SES member firms capable of accessing,
respectively, SES and NASD information. Moreover, during the period of
the proposed extension, the sponsoring markets remain committed to
exchange regulatory information whenever the need arises. Finally, if
accelerated approval is not granted, the sponsors will be obliged to
terminate this experimental program before its potential benefits can
be realized in relation to the globalization of securities markets.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to the NASD and, in particular, the requirements
of Sections 11A(a)(1) (B) and (C), 15A(b)(6), 17A(a)(1) and the rules
and regulations thereunder.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publishing of notice of
filing thereof. The Commission believes that accelerated approval is
appropriate to maintain continuity in the Pilot Program and to allow
the sponsors to continue to assess the impact of the trading of these
securities in the international section of the SES's order-driven
market system. Further, the Pilot Program is of a limited nature and no
substantive changes will be implemented during the proposed extension.
Accordingly, the Commission believes that the Pilot Program should not
be terminated under these circumstances.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. 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 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 Number SR-NASD-94-25 and
should be submitted by June 3, 1994.
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change be, and hereby is, approved for a period
of six months, through November 12, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-11700 Filed 5-12-94; 8:45 am]
BILLING CODE 8010-01-M
