[Federal Register Volume 64, Number 148 (Tuesday, August 3, 1999)]
[Notices]
[Pages 42158-42160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19876]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41666; File No. SR-NASD-99-31]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. Relating to the Automated Confirmation and
Transaction Service Desk
July 28, 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 June 15, 1999, the National Association of Securities Dealers,
Inc.(``NASD'' or ``Association''), through its wholly owned subsidiary,
the Nasdaq Stock Market, Inc. (``Nasdaq''), filed a proposed rule
change with the Securities and Exchange Commission (``SEC or
``Commission''). The proposed rule change is described in Items I, II,
and III below, which Items have been prepared by Nasdaq. Nasdaq filed
Amendment No. 1 to the proposal on June 18, 1999.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule changes
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 includes Exhibit A, which was missing from
NASD's original filing. See letter to Katherine A. England,
Assistant Director, Division of Market Regulation (``Division''),
SEC, from Robert E. Aber, Senior Vice President and General Counsel,
Nasdaq, dated June 17, 1999.
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[[Page 42159]]
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Nasdaq is proposing to amend NASD rules relating to the Automated
Confirmation Transaction Service (``ACT'') and the ACT Service Desk.
The proposal would permit NASD members who currently use the Nasdaq
Workstation I (``NWI'') to report trades, to instead use the ACT
Service Desk to report trades, provided that the members have reported
an average or 20 or fewer trades per day. The text of the proposed rule
hang is available at the NASD and at the Commission.
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 section 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
1. Purpose
Nasdaq is proposing to amend rules governing the use of ACT to
permit NASD members who currently use the NWI to report trades, to
instead use the Nasdaq ACT Service Desk to report trades to ACT,
provided that the members report an average of 20 or fewer trades per
day.
ACT is the Nasdaq system used by members to report and compare
trades for clearance and settlement. ACT transmits trade reports for
regulatory purposes and public dissemination. After members enter trade
information into ACT (as required by NASD and trade-reporting
rules),\4\ the systems sends locked-in trades to clearing. Under
current NASD rules, members must report trades to ACT for certain
transactions executed in the over-the-counter market, including
transactions in Nasdaq National Market securities (NNM''), Nasdaq
SmallCap securities (``SmallCap''), Over-the-Counter Bulletin Board
(``OTCBB'') securities, Nasdaq convertible debt securities, exchange-
listed securities effected in the over-the-counter market, and
securities traded exclusively in the over-the-counter market (e.g.,
Pink Sheet securities).\5\
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\4\ See NASD Rules 4630, 4640, 4650, 6100, 6400, 6600, and 6700.
\5\ Id.
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There generally are three methods to report trades to ACT: (1) By
ordering a Nasdaq Workstation II service (``NWII''); (2) by using the
Nasdaq ACT Service Desk; or (3) by having another firm that has access
to ACT through NWII report the trades (commonly known as a ``give-up''
relationship). The ACT Service Desk is a phone-based service that
allows firms to report trades over the phone to Nasdaq Market
Operations staff, who in turn input the trades into the ACT system for
dissemination to the tape. The ACT Service Desk is not meant as a
replacement to the trade-reporting facility of the NWII. The ACT
Service Desk was designed as a cost effective method of trade reporting
for firms that effect very few transactions in Nasdaq securities or
other securities traded in the over-the-counter market.\6\ As such,
NASD rules limit participation in the ACT Service Desk to only those
members who do not have access to Nasdaq equipment and who have
effected an average of five or fewer trades per day during the previous
calendar quarter.\7\ If a firm has reported more than five trades per
day during the previous calendar quarter, the firm must either order an
NWII to report trades or enter into a give-up arrangement.
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\6\ See generally, Securities Exchange Act Release No. 27908
(Apr. 17, 1990), 55 FR 15313 (Apr. 23, 1990) (Approval order for ACT
Service Desk).
\7\ See NASD Rule 7010 (h), note 2.
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As a last method of trade reporting, currently approximately 62
firms \8\ have access to the NWI terminal--the predecessor to the
NWII--which serves as an ``ACT only'' terminal (i.e., the terminal is
used only to input ACT trades). The NWI, however, resides on the Nasdaq
Special Services Network, which is being eliminated in July 1999
because that network is not Year 2000 compliant. Accordingly, when the
Nasdaq Special Services Network is eliminated, approximately 62 firms
will lose their current method of trade reporting and will have to
either order an NWII or enter into a give-up arrangement. The former
option may be undesirable and/or not feasible from a cost
perspective,\9\ while the later may not be feasible for business
reasons.
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\8\ Of those 62 firms, 24 would be eligible to use the ACT
Service Desk. Of the remaining 38 firms, 10 have upgraded to the
NWII, 4 have canceled, and 24 have not yet taken action. Telephone
conversation between John Malitzis, Assistant General Counsel,
Office of General Counsel, Nasdaq, and David Sieradzki, Special
Counsel, Division, SEC, on July 20, 1999.
\9\ The cost of obtaining NWII service with one presentation
device currently is $2,025 per month, while the cost of subscribing
to the ACT Service Desk is $57 per month. See NASD Rules 7010(g) and
(h).
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In an effort to minimize the effects of the elimination of the NWI
trade-reporting capability, Nasdaq proposes to expand access to the ACT
Service Desk by raising the trade cap or eligibility limit, from 5
trades to 20 trades per day. Specifically, members who currently
utilize the NWI would be permitted to use the ACT Service Desk to
report trades if the member has reported an average of 20 or fewer
trades per day during the previous calendar quarter. The increase in
the cap to the 20 trades per day level would be temporary until Nasdaq
has developed a replacement for the current NWI trade-reporting
facility.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
Section 15A(b)(6) \10\ of the Act, which requires, among other things,
that the Association's rules must be designed 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. Nasdaq believes that the
proposed rule change is consistent with the purposes of the Act in that
it will provide a cost-effective and efficient mechanism to report
trades, and therefore facilitates clearance and settlement of
transactions in securities. Additionally, the proposed rule change will
enhance the process through which members engage in the comparison and
clearing of securities transactions.
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\10\ 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule C'hange Received From Members, Participants, or Others
Written comments were neither solicited nor received.
[[Page 42160]]
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The foregoing rule change has become effective immediately under
Section 19(b)(3)(A) of the Act \11\ and subparagraph (f)(5) of Rule
19b-4 thereunder,\12\ in that it constitutes a change in an existing
order-entry or trading system that: does not significantly affect the
protection of investors or the public interest; does not impose any
significant burden on competition; and does not have the effect of
limiting the access to or availability of the system. Specifically, the
proposed rule change expands the universe of members that may quality
to use the ACT Service Desk to report trades to NASD. Additionally, the
proposal provides a cost-effective mechanism for qualifying firms that
use out-dated technology, to report trades to the NASD, until the NASD
has created a replacement for the NWI. The proposal will benefit
members and will enhance the ability of members to reconcile and report
trades efficiently. Thus, Nasdaq believes that these changes are
properly characterized as routine modifications warranting prompt
implementation, and consistent with the Commission's stated suggestion
that self-regulatory organizations could take better advantage of the
expedited process available under Section 19(b)(3)(A) of the Act.\13\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(5).
\13\ See Exchange Act Release No. 38672 (May 23, 1997), 62 FR
30485 (June 4, 1997) at footnote 200.
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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 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 at the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at the principal office of the
NASD.
All submissions should refer to File No. SR-NASD-99-31 and should
be submitted by August 24, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19876 Filed 8-2-99; 8:45 am]
BILLING CODE 8010-01-M
