[Federal Register Volume 65, Number 209 (Friday, October 27, 2000)]
[Notices]
[Pages 64468-64469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27615]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43469; File No. SR-NASD-00-60]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Delay the Implementation Date of Changes to 
Riskless Principal Trade Reporting Rules

October 20, 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 October 18, 2000, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly owned subsidiary, The Nasdaq Stock 
Markets, Inc. (``Nasdaq''), filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change as 
described in Item I, II, and III below, which Items have been prepared 
by Nasdaq. Nasdaq filed the proposal pursuant to Section 19(b)(3)(A)(i) 
of the Act,\3\ and Rule 19b-4(f)(1) \4\ thereunder, which renders the 
proposal 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\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to delay until February 1, 2001, the implementation 
date of the riskless principal trade reporting rule changes announced 
in SR-NASD-98-59,\5\ SR-NASD-98-08,\6\ SR-NASD-00-52,\7\ and the 
interpretations thereto filed in SR-NASD-99-39,\8\ SR-NASD-99-52,\9\ 
SR-NASD-00-06,\10\ and SR-NASD-00-44.\11\
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    \5\ Securities Exchange Act Release No. 41208 (March 24, 1999), 
64 FR 15386 (March 31, 1999).
    \6\ Securities Exchange Act Release No. 41606 (July 8, 1999), 64 
FR 38226 (July 15, 1999).
    \7\ Securities Exchange Act Release No. 43303 (September 19, 
2000), 65 FR 57853 (September 26, 2000).
    \8\ Securities Exchange Act Release No. 41731 (August 11, 1999), 
64 FR 44983 (August 18, 1999).
    \9\ Securities Exchange Act Release No. 41974 (October 4, 1999), 
64 FR 55508 (October 13, 1999).
    \10\ Securities Exchange Act Release No. 41494 (March 3, 2000), 
65 FR 13069 (March 10, 2000).
    \11\ Securities Exchange Act Release No. 43103 (August 1, 2000), 
65 FR 48774 (August 9, 2000).
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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, Nasdaq included statements 
concerning the purpose of and basis for its proposal and discussed any 
comments it received regarding the proposal. 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

    On March 24, 1999 and July 8, 1999, the Commission approved 
proposals to amend the NASD trade reporting rules relating to riskless 
principal transactions in Nasdaq National Market, Nasdaq SmallCap 
Market, Nasdaq convertible debt, and non-Nasdaq over-the-counter 
(``OTC'') equity securities, and exchange-listed securities traded in 
the Nasdaq InterMarket (``Riskless Principal Trade Reporting 
Rules'').\12\ Under the new Riskless Principal Trade Reporting Rules, a 
``riskless'' principal transaction is one where an NASD member, after 
having received an order to buy (sell) a security, purchases (sells) 
the security as principal at the same price to satisfy the order to buy 
(sell). The Rules require a firm to report a riskless principal trade 
as one transaction.
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    \12\ See footnotes 5 and 6, supra.
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    In the Order approving SR-NASD-98-59, the Commission asked Nasdaq 
to submit an interpretation providing examples of how mark-ups, mark-
downs, and other fees would be excluded for purposes of the amended 
riskless principal rules.\13\ As requested, on August 5, 1999, Nasdaq 
filed with the Commission SR-NASD-99-39,\14\ attached to which was 
Notice to Members 99-65, which gave examples of how mark-ups and other 
fees will be

[[Page 64469]]

excluded for purposes of the Riskless Principal Trade Reporting Rules. 
SR-NASD-99-39 \15\ and Notice to Members 99-65 were filed as an 
interpretation to NASD Rules 4632, 4642, 4652, and 6620.
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    \13\ Securities Exchange Act Release No. 41208 (March 24, 1999), 
64 FR 15386 (March 31, 1999) at footnote 15.
    \14\ See footnote 8, supra.
    \15\ Id.
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    Notices to Members 99-65 (discussing the trade reporting rules for 
riskless principal transactions in Nasdaq and OTC securities) and 99-66 
(discussing, among other things, the trading reporting rules for the 
Nasdaq InterMarket) were published in August 1999. The Notices 
announced that the Riskless Principal Trade Reporting Rules would go 
into effect on September 30, 1999.
    Shortly after publication of Notices to Members 99-65 and 99-66, a 
number of firms represented that they were unable to prepare their 
systems for compliance with the new Riskless Principal Trade Reporting 
Rules by the September 30, 1999 deadline, due (in large part) to Year 
2000 (``Y2K'') remediation and testing requirements. In response, 
Nasdaq filed a proposed interpretation to NASD Rules 4632, 4642, 4652, 
and 6620, the purpose of which was to delay the implementation date of 
the new Riskless Principal Trade Reporting Rules until March 1, 
2000.\16\
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    \16\ See footnote 9, supra.
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    Subsequently, a number of NASD member firms requested a further 
extension of the implementation date of the Riskless Principal Trade 
Reporting Rules.\17\ The firms stated that the approach described in 
Notices to Members 99-65 and 99-66 for riskless principal trade 
reporting raised significant issues that needed to be addressed in 
greater detail through, for example, interpretive guidance. The firms 
requested an extension of the implementation date until September 1, 
2000 to provide time to resolve the issues posed and to program 
systems. On February 23, 2000, and then again on July 28, 2000, Nasdaq 
filed a proposed interpretation to NASD Rules 4632, 4642, 4652, and 
6620 to delay the implementation date of the new Riskless Principal 
Trade Reporting Rules until September 1, 2000 and November 1, 2000, 
respectively.\18\
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    \17\ See letter to Belinda Blaine, Associate Director, SEC, 
dated February 18, 2000 from Automated Securities Clearance, Ltd. 
and the following NASD member firms: Bernard L. Madoff Securities; 
CIBC World Markets; Credit Suisse First Boston; Deutsche Banc Alex. 
Brown; Donaldson, Lufkin & Jenrette; Goldman Sachs & Co.; Jeffries & 
Company, Inc.; Lehman Bros.; Merrill Lynch, Pierce, Fenner & Smith, 
Inc.; Morgan Stanley Dean Witter; and Salomon Smith Barney Inc.
    \18\ See footnotes 10 and 11, supra.
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    Nasdaq is now requesting a further extension of the implementation 
date until February 1, 2001. Nasdaq believes the extension is necessary 
to allow Nasdaq and the firms the time to complete the programming and 
testing of systems that is necessary to implement the new Rules and to 
devise solutions to the interpretive questions that have arisen 
recently with respect to the implementation of the Rules. Nasdaq 
believes that a delay in the implementation of the Riskless Principal 
Trade Reporting Rules is reasonable in light of the efforts required to 
implement the programming changes required by the rule change and the 
complex issues that have been raised.
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\19\ in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, 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.
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    \19\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq believes that the proposed rule change will not 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.

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

    The foregoing proposal has become effective pursuant to section 
19(b)(3)(A)(i) of the Act,\20\ and rule 19b-4(f)(1) \21\ thereunder, in 
that it constitutes a stated policy and interpretation with respect to 
the enforcement of an existing rule.
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    \20\ 15 U.S.C. 78s(b)(3)(A)(i).
    \21\ 17 CFR 240.19b-4(f)(1).
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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 proposal 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 number SR-NASD-00-60 and should be 
submitted by November 17, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27615 Filed 10-26-00; 8:45 am]
BILLING CODE 8010-01-M