[Federal Register Volume 63, Number 182 (Monday, September 21, 1998)]
[Notices]
[Pages 50272-50273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25134]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40437; File No. SR-NASD-98-60]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the National
Association of Securities Dealers, Inc. Relating to Nasdaq's Automated
Confirmation Transaction Service
September 14, 1998.
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 August 12, 1998, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association), through its wholly-owned subsidiary,
The Nasdaq Stock Market, Inc. (``Nasdaq''), filed with the Securities
and Exchange Commission (``SEC'' or Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by Nasdaq. The Commission is publishing this notice and order
to solicit comments on the proposed rule change from interested persons
and to grant accelerated approval to the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change is designed to integrate Nasdaq's
Automated Confirmation Transaction Service (``ACT'') trade reporting
system with the recently approved Order Audit Trail System (``OATS'').
The text of the proposed rule change is available at the Office of the
Secretary, Nasdaq, 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 III below. Nasdaq 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
1. Purpose
Nasdaq is proposing to amend its ACT trade-reporting rules to
integrate them with the OATS rules, which were recently approved by the
Commission.\3\ OATS is designed to provide the NASD's regulatory
subsidiary, NASD Regulation, Inc. (``NASDR''), with the ability to
reconstruct markets promptly, conduct efficient surveillance, and
enforce NASD and SEC rules. The Commission has directed that OATS must
provide an accurate, time-sequenced record of orders and transactions
from the receipt of an order through its execution.\4\ To accomplish
this goal, NASDR will combine information submitted to OATS with
transaction data reported by members through ACT, as well as quotation
information disseminated by Nasdaq. These proposed rules provide for
the submission of data to ACT sufficient to allow for effective
analysis and comparison of trading activity.
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\3\ See Securities Exchange Act Release No. 39729 (March 6,
1998) 63 FR 12559 (March 13, 1998) (order approving OATS rules);
NASD Notice to Members 98-33 (March 1998).
\4\ See In the Matter of National Association of Securities
Dealers, Inc., Securities Exchange Act Release No. 37538, August 8,
1996; Administrative Proceeding File No. 3-905, at 7-8.
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Under the proposal, all trade reports for OATS-eligible securities
entered into Nasdaq's ACT system will be required to have a time of
execution expressed in hours, minutes, and seconds. Such trade reports
also will be required to have an order identifier, to be prescribed by
the Association, sufficient to allow a comparison of the information
contained in the trade report with data submitted to NASDR via OATS. In
addition, Nasdaq is proposing to codify the requirement that all ACT
participants, including those who have trade report information
submitted to
[[Page 50273]]
Nasdaq through third parties, obtain and use a unique Market
Participant Symbol (``MPID'') or ``MMID'') for trade reporting and
audit trail purposes.
Nasdaq proposes that the rule changes requested here be implemented
in tandem with the OATS testing and effectiveness dates, already
approved by the Commission.\5\ NASD Rule 6957 establishes the following
schedule for implementation of OATS reporting requirements: (1) March
1, 1999--electronic orders received by market makers or ECNs; (2)
August 1, 1999--all electronic orders; (3) July 31, 2000--all non-
electronic (manual) orders. Nasdaq believes that coordinating effective
dates with the OATS schedule will help ensure that any new member
obligations under the rule changes proposed here will not take effect
materially in advance of the corresponding OATS mandates. Such
coordination also will assist in a smooth migration of systems in
conformity with OATS timetables. In addition, these limited changes to
ACT's trade-reporting rules will allow Nasdaq to meet its OATS
obligations to provide audit trail information to NASDR while
protecting the current functionality and capacity of the ACT system.
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\5\ See Release No. 39729, supra note 3.
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2. Statutory Basis
Based on the foregoing, Nasdaq believes the proposed rule change is
consistent with Section 15A(b)(6) of the Act \6\ in that the proposal
is designed to prevent fraudulent and manipulative acts and practices
and to promote just and equitable principles of trade.
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\6\ 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 impose a
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 Change Received From Members, Participants or Others
Written comments were neither solicited nor received
III. 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.
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, 450 Fifth Street, N.W., Washington
D.C. Copies of such filing also will be available for inspection and
copying at the NASD. All submissions should refer to File No. SR-NASD-
98-60 and should be submitted by October 13, 1998.
IV. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
Nasdaq has requested that the Commission approve the proposal prior
to the thirtieth day after publication in the Federal Register. The
Commission finds the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities association.\7\ Specifically, the
Commission believes the proposal is consistent with the requirements of
Section 15A(b)(6) of the Act \8\ in that it is designed to prevent
fraudulent and manipulative acts and practices and to protect investors
and the public interest. The Commission believes that the proposal,
which integrates ACT with OATS, is designed to prevent fraudulent and
manipulative acts and practices by providing the Association with
sufficient information to effectively surveil transactions in Nasdaq
securities.
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\7\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78o-3(b)(6).
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Nasdaq's proposal requires all trade reports for OATS-eligible
securities, as defined by NASD Rule 6952(c), to identify the time of
execution in hours, minutes, and seconds. The Commission believes that
this requirement is reasonable, given that the NASD's OATS rules
require that level of specificity for all ``reportable events.'' \9\
Similarly, Nasdaq proposes to require a unique order identifier that
satisfies such parameters as established by the Association, as
required by the OATS rules. In addition, Nasdaq proposes to codify the
requirement that all ACT participants obtain and use a unique Market
Participant Symbol, regardless of whether third parties transmit trade
report information on their behalf. The Commission believes that
Nasdaq's proposal, with respect the specificity of time of execution,
the unique order identifier, and the unique Market Participant Symbol,
is designed to achieve uniformity between the NASD's rules governing
OATS and ACT. The proposed uniformity between the NASD's rules
governing ACT and OATS should assist the Association's efforts to more
easily scrutinize transactions in Nasdaq securities. As a result, the
Commission believes that the proposal is consistent with the Act.
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\9\ Such ``reportable events'' include the origination, receipt,
transmission, modification, cancellation, or execution of orders by
NASD members relating to equity securities traded on Nasdaq. See
Release No. 39729, supra note 3.
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Nasdaq also proposes to establish an implementation schedule for
the proposed changes to the ACT rules that mirrors the schedule
previously approved by the Commission for the OATS rules. The
Commission believes that establishing a single implementation schedule
may ease the compliance burdens on both member firms and Nasdaq.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after publication of the proposed
rule change in the Federal Register. The Commission notes that the
proposed rule change merely incorporates the changes to ACT
necessitated by the Commission's approval of the OATS rules, for which
the Commission has previously solicited comments. As a result, the
Commission believes that the proposal raises no new issues of
regulatory concern. For the foregoing reasons, the Commission believes
that good cause exists, pursuant to Section 19(b)(2) of the Act,\10\ to
approve the proposed rule change on an accelerated basis.
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\10\ 15 U.S.C. 78s(b)(2).
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It is Therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-NASD-98-60) is hereby
approved on an accelerated basis.
\11\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-25134 Filed 9-18-98; 8:45 am]
BILLING CODE 8010-01-M