[Federal Register Volume 65, Number 232 (Friday, December 1, 2000)]
[Notices]
[Pages 75328-75330]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30664]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43613; File No. SR-NASD-00-59]


Self Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change by the National Association of Securities Dealers, Inc. To 
Permit the Inclusion of Certain Unit Investment Trusts in Nasdaq's 
Mutual Fund Quotation Service

November 22, 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 20, 2000, the National Association of Securities Dealers, 
Inc. (``NASD'') 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 have been prepared 
by Nasdaq. 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is proposing to amend NASD Rule 6800 to permit the inclusion 
of certain Unit Investment Trusts (``UITs'') in Nasdaq's Mutual Fund 
Quotation Service (``MFQS''). Proposed new language is in italics; 
proposed deletions are in brackets.
* * * * *
6800. MUTUAL FUND QUOTATION SERVICE
    (a) Description
    The Mutual Fund Quotation Service collects and disseminates through 
The Nasdaq Stock Market prices for [both] mutual funds, [and] money 
market funds, and unit investment trusts.
    (b) Eligibility Requirements
    To be eligible for participation in the Mutual Fund Quotation 
Service, a fund shall:
    (1) be registered with the Commission as an open-end (``open-end 
fund'') or a closed-end (``closed-end fund'') investment company or a 
unit investment trust pursuant to the Investment Company Act of 1940,
    (2) execute the agreement specified by the Association relating to 
the fund's obligations under the Program,
    (3) pay, and continue to pay, the fees as set forth in Rule 7090, 
an d
    (4) submit quotations through an automatic quotation system 
operated by the Association.
    (c) News Media Lists
    (1) (A) An eligible open-end fund shall be authorized for inclusion 
in the News Media List released by the Association if it has at least 
1,000 shareholders or $25 million in net assets.
    (B) An eligible closed-end fund or unit investment trust shall be 
authorized for inclusion in the News Media List released by the 
Association if it has at least $60 million in net assets.
    (C) Compliance with subparagraphs (1)(A) and (B) shall be certified 
by the fund to the Association at the time of initial application for 
inclusion in the List.

[[Page 75329]]

    (2) (A) An authorized open-end fund shall remain included in the 
New Media List if it has either 750 shareholders or $15 million in net 
assets.
    (B) An authorized closed-end fund or unit investment trust shall 
remain included in the News Media List if it has $30 million in net 
assets.
    (C) Compliance with subparagraphs (2)(A) and (B) shall be certified 
to the Association upon written request by the Association.
    (d) Supplemental List
    An eligible open-end fund, [or] closed-end fund or unit investment 
trust shall be authorized for inclusion in the Supplemental List 
released to vendors of Nasdaq Level 1 Service if it meets one of the 
criteria set out in subparagraph (1), subparagraph (2), or subparagraph 
(3) below:
    (1) the fund or unit investment trust has net assets of $10 million 
or more, or
    (2) \3\ the fund or unit investment trust has had two full years of 
operation, or
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    \3\ Nasdaq corrected a typographical error that appeared in the 
proposed rule language. Telephone conversation between Jeffrey S. 
Davis, Assistant General Counsel, Nasdaq and Susie Cho, Attorney, 
Division of Market Regulation, Commission, November 16, 2000.
    \4\ Id.
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    (3) \4\ the fund's or unit investment trust's investment adviser:
    (A) is the investment adviser of least one other fund or unit 
investment trust that is listed on the Mutual Fund Quotation Service 
and that has net assets of $10 million or more; and
    (B) has at least $15 million in total assets of open-end, [and] 
closed-end, or unit investment trust funds under management.
    (e) 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
    Nasdaq is proposing to amend NASD Rule 6800 to add listing 
standards for the inclusion of Unit Investment Trusts (``UITs'') to 
Nasdaq's Mutual Fund Quotation Service (``MFQS'' or the 
``Service'').\5\ The MFQS was created to collect and to disseminate 
data pertaining to the value of open-end and closed-end funds. 
Currently, the MFQS disseminates the valuation data for over 11,000 
funds. The Service facilitates this process by permitting funds 
included in the Service (or pricing agents designated by such funds) to 
use browser-based technology to transmit directly to Nasdaq a multitude 
of pricing information, including information about a fund's net asset 
value, offer price, and closing market price.
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    \5\ Section 4(2) of the Investment Company Act of 1940 defines a 
Unit Investment Trust as ``an investment company which (A) is 
organized under a trust indenture, contract of custodianship or 
agency, or similar instrument, (B) does not have a board of 
directors, and (C) issues only redeemable securities, each of which 
represents an undivided interest in a unit of specified securities; 
but does not include a voting trust.'' 15 U.S.C. 80a-4(2).
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    Funds must meet minimum eligibility criteria in order to be 
included in the MFQS.\6\ The MFQS has two ``lists'' in which a fund may 
be included--the News Media List and the Supplemental List--and each 
list has its own initial inclusion requirements.\7\ In addition, there 
are maintenance/continued inclusion requirements for the News Media 
list only. If a fund qualifies for the News Media List, pricing 
information about the fund is eligible for inclusion in the fund tables 
of newspapers and is also eligible for dissemination over Nasdaq's 
Level 1 Service, which is distributed by market data vendors. If a fund 
qualifies for the Supplemental List, the pricing information about that 
fund generally is not included in newspaper fund tables, but is 
disseminated over Nasdaq's Level 1 Service. Therefore, the Supplemental 
List provides significant visibility for funds that do not otherwise 
qualify for inclusion in the News Media List. Each fund incurs an 
annual fee for inclusion in the Service.\8\
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    \6\ See NASD Rule 6800.
    \7\ See id.
    \8\ See NASD Rule 7090.
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    MFQS provides valuable pricing information for a large portion of 
funds for which there is significant investor interest, but it 
currently covers no UITs. According to data complied by the Investment 
Company Institute, as of the end of 1999 there were a total of 10,418 
trusts with a market value of $94.60 billion, including 8,924 tax-free 
bond trusts, with a market value of $25.56 billion, 409 taxable bond 
trusts, with a market value of $4.28 billion; and 1,085 equity trusts, 
with a market value of $64.76 billion. Nasdaq estimates that nearly all 
of the equity-based UITs that exist today would be eligible for 
inclusion in the MFQS under the proposed new standards. Although many 
of the bond-based UITs will qualify under these standards, industry 
participants have indicated to Nasdaq that few of these funds will 
elect to participate in the MFQS.
    Due to their similarly in pricing characteristics, Nasdaq proposes 
to apply to UITs the same MFQS listing standards that will apply to 
closed-end mutual funds. To qualify for initial inclusion in the News 
Media Lists, a closed-end fund must have at least $60 million in net 
assets, and to remain in the News Media List, an closed-end fund would 
have to maintain at least $30 million in net assets. These listing 
standards are designed to identify securities in which there is 
significant investor interest. Likewise, Nasdaq would apply to UITs the 
same criteria for inclusion in the Supplemental List as it currently 
applies to open and closed-end funds. Currently, an open-end or closed-
end fund qualifies for inclusion in the Supplemental List if the fund 
has at least $10 million in net assets, or the fund has had two full 
years of operation or if the investment advisor to the fund has at 
least one other fund listed on MFQS that has $10 million in assets. In 
addition, the investment advisor must have under management at least 
$15 million from open-end, closed-end, or money-market funds. Managed 
assets from other sources--such as pension funds--would not be included 
for purposes of determining whether the investment firm meets the 
requirement that it manage at least $15 million in fund-related assets. 
Nasdaq proposes to apply the same three alternative criteria to UITs, 
requiring that they have $10 million in assets, be in operation for two 
full years, or have an investment advisor with sufficient fund- or UIT-
related assets under management.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(6) \9\ and section 11A \10\ of the 
Act. Section 15A(b)(6) \11\ of the Act requires the rules of a 
registered national securities association to foster cooperation and 
coordination with persons engaged in processing information with 
respect to securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market

[[Page 75330]]

system, and, in general, to protect investors and the public interest. 
In section 11A(a)(1)(C),\12\ the Congress found that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations and transactions in securities.
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    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78k-1.
    \11\ 15 U.S.C. 78o-3(b)(6).
    \12\ 15 U.S.C. 78k-1(a)(1)(C).
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    Nasdaq believes that the proposed rule change will protect 
investors and the public interest by promoting better processing of 
price information in UITs. Accordingly, the new listing criteria will 
provide greater transparency to the markets by providing greater 
pricing information for a broader base of investments for which there 
is significant investor interest. Nasdaq believes the proposed listing 
standards serve as a means for the marketplace to screen issuers and to 
provide listed status only to bona fide investment companies with 
sufficient investor base and trading interest to maintain fair and 
orderly markets.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will impose 
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 Change Received From Members, Participants, or Others

    Nasdaq did not solicit or receive written comments on the proposed 
rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the NASD consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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, 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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office at the 
NASD. All submissions should refer to File No. SR-NASD-00-59 and should 
be submitted by December 22, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Security.
[FR Doc. 00-30664 Filed 11-30-00; 8:45 am]
BILLING CODE 8010-01-M