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[Federal Register Volume 65, Number 190 (Friday, September 29, 2000)]
[Notices]
[Pages 58590-58592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25026]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43318; File No. SR-NASD-00-54]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. on Use of the .T Modifier for Extended Hours 
Trades in Listed Securities

September 21, 2000.
    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 September 1, 2000, 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, II, and III below, which Items

[[Page 58591]]

have been prepared by Nasdaq. On September 19, 2000, Nasdaq submitted 
Amendment No. 1 to the proposed rule change.\3\ Nasdaq has filed the 
proposed pursuant to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-
4(f)(b) thereunder, \5\ which renders the rule effective upon filing 
with the Commission. 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).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Peter R. Geraghty, Assistant General 
Counsel, Nasdaq, to Katherine England, Assistant Director, Division 
of Market Regulation, SEC, dated September 18, 2000 (``Amendment No. 
1''). In Amendment No. 1, Nasdaq amended the proposed rule language 
to clarify that transactions in CQS securities that occur between 
9:30 a.m. and 4:00 p.m. Eastern Time and that not reported within 90 
seconds after execution must be designated as late by using the 
appropriate modifier.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rule 6420, the transaction reporting 
rule for over-the-counter (``OTC'') trades in listed securities. The 
purpose of this amendment is to require members to append a ``.T'' 
modifier to Nasdaq InterMarket transactions in listed securities 
executed between 4:00 p.m. and 6:30 p.m. Eastern Time (``ET''). The 
text of the proposed rule change follows. Proposed new language is 
underlined; deleted language is bracketed.
* * * * *

6400. REPORTING TRANSACTIONS IN LISTED SECURITIES

6420. Transaction Reporting

    (a) When and How Transactions are Reported.
    (1) Registered Reporting Members shall transmit through ACT, 
within 90 seconds after execution, last sale reports of transactions 
in eligible securities executed during the trading hours of the 
Consolidated Tape otherwise than on a national securities exchange. 
Transactions not reported within 90 seconds after execution shall be 
designated as late and such trade reports must include the time of 
execution. Registered Reporting Members shall also transmit through 
ACT, within 90 seconds after execution, last sale reports of 
transactions in eligible securities executed in the United States 
otherwise than on a national securities exchange between 4:00 p.m. 
and 6:30 p.m. Eastern Time [.]; trades executed and reported after 
4:00 p.m. Eastern Time shall be designated as ``.T'' trades to 
denote their execution outside normal market hours. Transactions not 
reported within 90 seconds after execution [shall be designated as 
late and such trade reports] must include the time of execution on 
the trade report.
    (2)
    (A) Non-Registered Reporting Members shall, within 90 seconds 
after execution, transmit through ACT or the ACT Service Desk (if 
qualified pursuant to Rule 7010(i)), or if ACT is unavailable due to 
system or transmission failure by telephone to the Nasdaq Market 
Operations Department, last sale reports of transactions in eligible 
securities executed during the trading hours of the Consolidated 
Tape otherwise than on a national securities exchange.
    (B) Non-registered Reporting Members shall, within 90 seconds 
after execution, transmit through ACT or the ACT Service Desk (if 
qualified pursuant to Rule 7010(i)), of if ACT is unavailable due to 
system or transmission failure, by telephone to the Nasdaq Market 
Operations Department, last sale reports of transactions in eligible 
securities exeucted in the United States otherwise than on a 
national securities exchange between the hours of 4:00 p.m. and 6:30 
p.m. Eastern Time[.]; trades executed and reported after 4:00 p.m. 
Eastern Time shall be designated as ``.T'' trades to denote their 
execution outside normal market hours. Transactions not reported 
within 90 seconds after execution [shall be designated as late and 
such trade reports] must include the time of execution on the trade 
report.
    (3) to (6) No Change.

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 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
    In its June 2000 Special Study: Electronic Communication Networks 
and After-Hours Trading, the SEC's Division of Market Regulation stated 
that U.S. equity markets should take the necessary steps to preserve 
regular trading session closing prices that are distinct from prices at 
which equity securities trade in the after-hours trading session.\6\ 
For Nasdaq securities and non-Nasdaq OTC equity securities, this is 
accomplished by requiring firms to use a special ``.T'' modifier on 
trade reports transmitted through Nasdaq's Automated Confirmation 
Transaction Service (``ACT'') outside normal market hours.\7\ Trades in 
Nasdaq and non-Nasdaq OTC securities that occur outside normal market 
hours are counted into the current day's trading volume, but do not 
affect the security's daily high, low, or last sale price, and do not 
affect Index calculations or mutual fund net asset values.
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    \6\ NASD Rule 4617 defines normal market hours as 9:30 a.m. 
through 4:00 p.m. ET. The extended hour trading session currently 
takes place between 4:00 p.m. and 6:30 p.m. ET.
    \7\ See NASD Rules 4632, 4642, 4652, and 6620.
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    NASD members trading securities listed on the New York Stock 
Exchange (``NYSE''), the American Stock Exchange (``Amex''), or the 
regional exchanges in the Nasdaq InterMarket are not currently required 
to use a ``.T'' modifier for trades that occur outside normal market 
hours. As a result, extended trading hour session InterMarket trades 
are treated the same as regular session trades and are used to 
calculate NYSE and Amex closing prices. This has resulted in corporate 
and investor confusion over stock pricing.
    In order to address this issue, and provide for consistency in the 
use of the ``.T'' modifier, Nasdaq proposes to require NASD members to 
follow the same ``.T'' reporting rules for listed equities as they use 
for Nasdaq and OTC equity securities during the extended hour trading 
session. This will be accomplished by amending the Transaction Report 
Rules for trades in listed securities to require members to designate 
as ``.T'' transactions executed and reported to ACT after 4:00 p.m. ET 
to denote their execution outside normal market hours. As with Nasdaq 
and non-Nasdaq OTC securities, firms must report late trades during 
this time period with the ``.T'' modifier and the execution time 
because ACT does not allow firms to enter two modifiers (i.e., a firm 
cannot include both ``.T'' and ``.SLD'' on a trade report to denote 
both an extended hour trading session trade and a late trade). 
Inclusion of the time of execution on the ``.T'' trade report indicates 
a late trade occurring outside normal market hours.
2. Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \8\ because it will 
result in more accurate and reliable information regarding last sale 
transaction reports. Section 15A(b)(6) of the Act \9\ requires that the 
rules of a registered securities association be designed to prevent 
fraudulent and manipulative acts and

[[Page 58592]]

practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
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, and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78o-3(b)(6).
    \9\ Id.
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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, as amended.

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.

II. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest; impose any 
significant burden on competition; and become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ thereunder. At 
any time within 60 days of the filing of a rule change pursuant to 
Section 19(b)(3)(A) of the Act,\12\ the Commission may summarily 
abrogate the 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
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    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. Nasdaq seeks to have the proposed 
rule change become operative on or before September 21, 2000.\14\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ See letter from Mary N. Revell, Assistant General Counsel, 
Nasdaq, to Alton Harvey, Office Chief, Division of Market 
Regulation, SEC, dated September 6, 2000.
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    The Commission, consistent with the protection of investors and the 
public interest, has determined to make the proposed rule change 
operative on September 21, 2000. The Commission notes that the use of 
the ``.T'' modifier proposed by Nasdaq is intended to help clarify 
those trades in listed securities that are executed after normal 
trading hours similar to that which is used in Nasdaq issues and OTC 
equity issues. The Commission believes that extending the use of ``.T'' 
to trades executed in listed securities during extended hours trading 
should provide consistency of after hours trade reporting, which should 
help to quell corporate and investor confusion over the closing prices 
of listed securities as determined at the close of normal market hours.
    Based on these reasons, the Commission believes that it is 
consistent with the protection of investors and the public interest 
that the proposed rule change be operative on September 21, 2000. 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 person 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, NW., Washington, DC 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 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 No. SR-NASD-00-54 and should 
be submitted by October 20, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-25026 Filed 9-28-00; 8:45 am]
BILLING CODE 8010-01-M
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