[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20234]
[[Page Unknown]]
[Federal Register: August 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34527; File No. SR-NASD-94-35]
Self Regulatory Organizations; Order Approving Proposed Rule
Change by National Association of Securities Dealers, Inc., Relating To
Reporting of Transactions Executed Outside Normal Market Hours
August 11, 1994.
On June 2, 1994, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') 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\ a
proposed rule change (SR-NASD-94-35) consisting of amendments to Parts
X, XI, XII, and XIII of Schedule D and Section 2 of Schedule G to the
NASD By-Laws.
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\1\15 U.S.C. 78s(b)(1) (1988).
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The Commission published the proposed rule change in the Federal
Register on June 23, 1994.\2\ No comments were received. For the
reasons discussed below, the Commission is approving the proposed rule
change.
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\2\Securities Exchange Act Release No. 34229, 59 FR 32474 (June
23, 1994).
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I. Description
The proposed rule change amends the NASD By-Laws by establishing
procedures for members to report electronically trade data for
transactions executed outside normal business hours (9:30 a.m. to 4:00
p.m. E.T.),\3\ and outside the hours of the Automated Confirmation
Transaction Service (``ACT'') (9:00 a.m. to 5:15 p.m.).\4\ Members
currently use a manually-prepared paper form, Form T, to report these
transactions.\5\ Instead of Form T, members will use a NASDAQ
workstation unit or computer-to-computer interface to input reports for
transactions executed outside normal hours in NASDAQ National Market
securities, NASDAQ SmallCap securities, NASDAQ convertible debt
securities (``NASDAQ convertibles''), Over-The-Counter Equity
securities (``OTC Equities''), and exchange-listed securities eligible
for inclusion in the Consolidated Quotation Service (``CQS issues'').
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\3\Unless designated otherwise, all times referred to herein are
Eastern Time.
\4\ACT is the NASD's post-trade comparison system that, among
other things, accommodates reporting and dissemination of last sale
reports in NASDAQ/National Market, NASDAQ SmallCap, and exchange
listed securities.
\5\In addition to reporting trades effected outside normal
business hours and ACT hours, Form T is used to report transactions
that were executed during normal business hours, but not reported
into ACT through inadvertence or otherwise.
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The proposed rule change expands electronic reporting of
transactions executed in NASDAQ National Market issues, NASDAQ SmallCap
issues, NASDAQ Convertibles, and domestic OTC equities (including
Canadian issues and American Depository Receipts (``ADR's'')).\6\ The
rule change requires members to report trades executed between 8:00
a.m. and 9:30 a.m. to ACT on a real time basis and to designate such
trades as T to denote execution outside normal market hours.
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\6\Currently, NASD members are required to report trades
executed between 9:00 a.m. and 9:30 a.m. to ACT within 90 seconds of
execution (``real time'').
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For trades in the above-mentioned securities executed between
midnight and 8:00 a.m., the proposal requires members to report the
trades to ACT on the date of the trade during the expanded .T time
period (8:00 a.m. to 9:30 a.m. e.t.). These trades shall be designated
.T trades to denote execution outside normal hours and be accompanied
by time of execution since they are not being reported in real time.
For trades in these securities executed between 5:15 p.m. and
midnight, the proposal requires members to report transactions to ACT
on the next business day (``T+1'') between 8:00 a.m. and 1:30 p.m.
These entries shall be designated ``as/of'' trades to denote execution
on a prior day and be accompanied by a time of execution.
The proposed rule change also expands the time period for member
firms to electronically report trades executed in foreign OTC equity
securities (excluding Canadian issues and ADR's). The proposal requires
members to report these transactions to ACT on T+1 between 8:00 a.m.
and 1:30 p.m. regardless of the time the trade was actually executed
and to supply the time of execution with such trade reports.\7\ Member
firms currently report such trades between 9:00 a.m. and 9:30 a.m.
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\7\Member firms that have the operational capability to report
transactions in foreign securities (excluding ADR's and Canadian
issues) within 90 seconds, between the hours of 8:00 a.m. and 5:15
p.m. Eastern Time, may do so at their option and will not be
required to report the same transaction on T+1.
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Finally, the proposal requires member firms to report trades
executed in CQS issues outside the hours of 9:30 a.m. and 5:15 p.m. to
ACT on T+1 between 8:00 a.m. and 1:30 p.m. The proposal requires member
firms to designate such trades ``as of'' trades and to supply a time of
execution.
Because the NASD's related systems work is ongoing and will not be
completed until early October, the NASD plans to implement these
reporting requirements during the fourth quarter of 1994. Thereafter,
the NASD will provide written notice to member firms and vendors prior
to implementation.
II. Discussion
The Commission believes that the proposed rule change is consistent
with the requirements of the Act, and in particular, with Sections
15A(b)(2), 15A(b)(6) and 11A(a)(1)(C) of the Act. Section 15A(b)(2)
requires that a national securities association be appropriately
organized and have the capacity to enforce member firms' compliance
with all applicable provisions of the Act, the rules adopted
thereunder, and the association's own rules. Section 15A(b)(6) requires
that the rules of a national securities association be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, 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. Section 11A(a)(1)(C) sets
forth the objective of ensuring the availability to brokers, dealers,
and investors of information with respect to quotations for and
transactions in securities.
Substituting electronic reporting of trades for manual reporting
via Form T will result in greater and more timely dissemination of
reliable information respecting transactions in securities executed
outside normal market hours. For example, electronic reporting will
enable the NASD to compile and publish comprehensive volume data for
individual securities including block size and smaller round lot trades
executed by NASD members. This will provide broker-dealers and
investors information necessary to make informed judgments about the
securities offered for purchase or sale.
The proposed rule change will also result in increased real-time
trade reporting as members executing trades in NASDAQ National Market,
NASDAQ SmallCap, NASDAQ convertibles, and domestic OTC Equities
(including Canadian issues and ADR's) between 8:00 a.m. and 9:30 p.m.
will be required to report these trades into ACT within 90 seconds.
This will enable the NASD to disseminate trade reports for this
category of trades (excluding trade reports in non-domestic OTC
Equities) over the NASDAQ and vendor networks beginning at 8:00 a.m.
e.t. on each business day. Currently, there is no mechanism available
to systematically disseminate transaction data received via Form T.
Finally, the proposal will assist the NASD in performing its duty
to oversee trading activity of broker-dealers. The proposal will enable
the NASD to incorporate all of the reported data into its audit trail
for market surveillance purposes, thereby improving the NASD's capacity
to enforce member firms' compliance with the Act.
III. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Act and the rules and regulations
thereunder applicable to the NASD and, in particular, Sections
15A(b)(2), 15A(b)(6) and 11A(a)(1)(C) of the Act.
It is therefore ordered, pursuant to Section 19(b)(1) of the ACT,
that the proposed rule change (SR-NASD-94-35) be, and hereby is
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority. 17 CFR 200.30-3(a)(12) (1992).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20234 Filed 8-17-94; 8:45 am]
BILLING CODE 8010-01-M
