Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices 21225

4 In addition, purusant to Section 3(f) of the Act,

the Commission has considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. 78c(f).

5 15 U.S.C. 78f(b)(5).

6See Securities Exchange Act Release No. 42455

(February 24, 2000), 65 FR 11401 (March 2, 2000)

(File No. 10–127).

7 15 U.S.C. 78s(b)(2).

8 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Letter to Katherine A. England, Assistant

Director, Commission, from Robert E. Aber, Senior

Vice President and General Counsel, Nasdaq, dated

March 30, 2000 (‘‘Amendment No. 1’’). Amendment

No. 1 makes certain technical corrections to the

proposed rule change.

the requirements of the Act. 4 In

particular, the Commission finds the

proposal is consistent with Section

6(b)(5)5 of the Act. Section 6(b)(5)

requires, among other things, that the

rules of an exchange be designed to

promote just and equitable principles of

trade and to protect investors and the

public interest.

The Commission believes that the

proposal is consistent with the Act. In

particular, Amex represented that

splitting the Chairman/CEO functions

will allow the CEO to focus on the

operations of the Exchange. The

Commission agrees and believes that the

proposal should allow the CEO to

devote more time to the day-to-day

operations of the Exchange.

In approving this rule change,

however, the Commission notes that the

proposed language now permits the

Chairman to be affiliated with a member

of the Exchange if separate persons hold

the Chairman and CEO positions. As the

Commission stated in the order

approving the International Securities

Exchange LLS’s application for

registration as a national securities

exchange, the affiliation of the

Chairman with one of the Exchange’s

members implicates certain conflicts of

interest, or at least gives the appearance

of such conflicts.6 Amex represented

that it made this change to make its

corporate governance structure

consistent with other NASD entities,

such as NASD Regulation, which in

1999 had a Chairman who was affiliated

with an NASD member. Amex also

represented that the change, other than

splitting the Chairman and CEO

positions, will have no substantive

effect on the operation of the Exchange.

Nevertheless, if Amex chooses to split

the Chairman/CEO positions and has a

Chairman affiliated with a member,

Amex’s Chairman should avoid actual

or apparent conflicts of interest.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

proposed rule change (SR–Amex–99–

25) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Jonathan G. Katz,

Secretary.

[FR Doc. 00–9919 Filed 4–19–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42672; File No. SR–NASD–

00–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to Its

Transaction Credit Pilot Program

April 12, 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 March 6,

2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its whollyowned subsidiary, The Nasdaq Stock

Market, Inc. (‘‘Nasdaq’’), filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by Nasdaq. Nasdaq filed an

amendment to the proposed rule change

on March 31, 2000,3 which amendment

replaces and supersedes the original

proposal. The Commission is publishing

this notice to solicit comments on the

proposed rule change, as amended, from

interested persons.

I. Self Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Nasdaq is filing a proposed rule

change amending NASD Rule 7010 to

extend Nasdaq’s transaction credit pilot

program for an additional six months for

Tape A reports and to discontinue the

pilot program for Tape B reports. Below

is the text of the proposed rule change.

Proposed new language is in italic;

proposed deletions are in brackets.

7010 System Services

(a)–(b) No Change.

(c)(1) No Change.

(2) Exchange-Listed Securities

Transaction Credit. For a pilot period,

qualified NASD members that trade

securities listed on the NYSE [and

Amex] in over-the-counter transactions

reported by the NASD to the

Consolidated Tape Association may

receive from the NASD transaction

credits based on the number of trades so

reported. To qualify for the credit with

respect to Tape A reports, an NASD

member must account for 500 or more

average daily Tape A reports of overthe-counter transactions as reported to

the Consolidated Tape during the

concurrent calendar quarter. [To qualify

for the credit with respect to Tape B

reports, an NASD member must account

for 500 or more average daily Tape B

reports of over-the-counter transactions

as reported to the Consolidated Tape

during the concurrent calendar quarter.]

If an NASD member is so qualified to

earn credits based [either] on its Tape A

activity, [or its Tape B activity, or both,]

that member may earn credits from [one

or both (as the case may be, depending

on the qualification standards) pools]

the Tape A pool maintained by the

NASD, [each] such pool representing

40% of the revenue paid by the

Consolidated Tape Association to the

NASD for [each of] Tape A [and Tape

B] transactions. A qualified NASD

member may earn credits from [such

pools] the Tape A pool according to the

member’s pro rata share of the NASD’s

over-the-counter trade reports in [each

of] Tape A [and Tape B] for each

calendar quarter starting with [July 1,

1999, and ending with the calendar

quarter starting on October 1, 1999]

January 1, 2000, and ending with the

calendar quarter starting on April 1,

2000.

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.

21226 Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices

4The transaction credit can be applied to any and

all charges imposed by the NASD or its non-selfregulatory organization affiliates. Any remaining

balance may be paid directly to the member.

5Both the CHX and the CSE have established

similar programs. See Securities Exchange Act

Release Nos. 38237 (Feb. 4, 1997), 62 FR 6592 (Feb.

12, 1997) (SR–CHX–97–01) and 39395 (Dec. 3,

1997), 62 FR 65113 (Dec. 10, 1997) (SR–CSE–97–

12).

6See Securities Exchange Act Release No. 41174

(March 16, 1999), 64 FR 14034 (March 23, 1999)

(SR–NASD–99–13). The original pilot was effective

from October 1, 1998 through June 30, 1999. Nasdaq

subsequently extended the pilot through December

31, 1999. See Securities Exchange Act Release No.

42095 (Nov. 3, 1999), 64 FR 61680 (Nov. 12, 1999)

(SR–NASD–99–59).

7The qualification thresholds were selected based

on Nasdaq’s belief that such numbers represent

clear examples of a member’s commitment to

operating in the Third Market and competing for

order flow.

8 15 U.S.C. 78o-3(b)(6).

9 15 U.S.C. 78o-3(b)(5).

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Nasdaq is proposing to extend, for an

additional six months, its pilot program

to provide a transaction credit 4 to

NASD members that exceed certain

levels of over-the-counter (‘‘OTC’’)

trading activity in securities listed on

the New York Stock Exchange

(‘‘NYSE’’). In addition, Nasdaq is

proposing to discontinue the pilot

program for OTC trading in securities

listed on the American Stock Exchange

(‘‘Amex’’). The NASD established its

transaction credit pilot program to assist

in finding ways to lower investor costs

associated with trading listed securities,

and to respond to steps taken by other

exchanges that compete with Nasdaq for

investor order flow in those issues.

Background. Nasdaq’s Third Market is

a quotation, communication, and

execution system that allows NASD

members to trade stocks listed on the

NYSE and the Amex. The Third Market

competes with the regional exchanges

like the Chicago Stock Exchange

(‘‘CHX’’) and the Cincinnati Stock

Exchange (‘‘CSE’’) for retail order flow

in stocks listed on the NYSE and the

Amex. The NASD collects quotations

from broker-dealers that trade these

securities OTC and provides such

quotations to the Consolidated

Quotation System for dissemination.

Additionally, the NASD collects trade

reports from broker-dealers trading

these securities in the OTC market and

provides the trade reports to the

Consolidated Tape Association (‘‘CTA’’)

for inclusion in the Consolidated Tape.

As a participant in the CTA, the NASD

earns a share of the revenue from trades

that it reports on behalf of those brokerdealers in NYSE-listed securities (‘‘Tape

A’’) and in Amex-listed securities

(‘‘Tape B’’). Nasdaq created the credit

pools for qualified pilot participants

from the NASD’s share of these

revenues.

Nasdaq’s transaction credit pilot

program is intended to lower costs for

Third Market Makers and their

customers who execute trades in

exchange-listed stocks through NASD

members and Nasdaq facilities. The

NASD believes that lowering the cost of

trading increases competition among

market centers trading listed securities.

Continuation of the pilot will allow

Nasdaq to continue to evaluate the

efficacy of its revenue sharing model

and continue to effectively compete for

the retention of Third Market

participants with other regional

exchanges that have adopted similar

revenue distribution methodologies.5

Pilot Program. Under the original

transaction credit pilot program,6

Nasdaq calculated two separate pools of

revenue from which credits can be

earned. The first represented 40% of the

gross revenues received by the NASD

from the CTA for providing trade

reports in NYSE-listed securities

executed in the Third Market for

dissemination by the CTA (‘‘Tape A’’).

The other represented 40% of the gross

revenue received from the CTA for

reporting Amex trades (‘‘Tape B’’).

Under the proposal, the Tape A

calculation pool will remain at the same

40% level, and the pool of revenue

previously generated from gross revenue

received from the CTA for reporting

Amex trades will be discontinued.

Eligibility for transaction credits

during the pilot’s extension will be

based upon concurrent quarterly trading

activity in NYSE-listed securities. For

example, a Third Market participant

that recently entered the market for

Tape A securities during the first

quarter of 2000 and printed an average

of 500 daily trades of Tape A securities

during the time it is in the market, or

that averaged 500 daily Tape A prints

during the entire quarter, would be

eligible to receive transaction credits

based on its trades during the first

quarter. As in the original pilot, only

those NASD members who continue to

average an appropriate daily execution

level during the term of the pilot’s

extension would be eligible for

transaction credits and thus able to

receive a pro-rata portion of the 40%

revenue calculation pools.7 The NASD

chose to create these thresholds to

permit the NASD to recover appropriate

administrative costs related to NASD

members that do not exceed the

threshold and to encourage NASD

members to actively trade in these

securities.

As before, a fully-qualifying NASD

member’s transaction credit will be

determined by taking its percentage of

total Third Market transactions during

the applicable calculation period and

providing an equivalent percentage from

the appropriate Tape A calculation pool.

Thus, for each calendar quarter

commencing with the calendar quarter

that began on January 1, 2000, the

NASD will measure a qualified

member’s Tape A trade reports for that

calendar and create a credit for the

member based upon this activity. For

example, if a qualifying NASD

member’s transactions represent 10% of

the NASD’s Tape A transactions, that

member would receive a 10% share of

the Tape A 40% calculation pool.

Unlike the original pilot, however, the

transaction credit will be available only

to NASD members that trade NYSElisted securities in the Third Market in

order to focus the competitive thrust of

this initiative toward the NYSE during

the tme the NASD remains the sole

shareholder of Nasdaq.

Nasdaq’s transaction credit program is

being proposed on a pilot basis only.

There can be no guarantee that

transaction credits will be available to

qualifying NASD members beyond the

term of the pilot.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(6) of the

Act,8 in that the proposal is designed to

promote just and equitable principles of

trade and to remove impediments to and

perfect the mechanisms of a national

market system and, in general, to protect

investors and the public interest.

Nasdaq believes the proposed rule

change is also consistent with Section

15A(b)(5) 9 of the Act in that it provides

for the equitable allocation of reasonable

dues, fees and other charges among

members and issuers and other persons

using any facility or system that the

Association operates or controls.

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.

Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices 21227

10 15 U.S.C. 78s(b)(3)(A)(ii).

11 17 CFR 240.19b-4(f)(2).

12Because Amendment No. 1 replaces the

original proposal, the 60 day period will be

calculated based on a March 31, 2000 filing date.

13 In reviewing this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formationl 15 U.S.C. 78c(f).

14 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the NYSE clarified the

method of analysis of a listed company’s goodstanding status. See letter from James E. Buck,

Senior Vice President and Secretary, NYSE, to

Belinda Blaine, Associate Director, Division of

Market Regulation (‘‘Division’’, SEC, dated March

24, 2000 (‘‘Amendment No. 1’’).

4 In Amendment No. 2, the Exchange proposed to

apply the changes proposed in Amendment No. 1

to paragraph 102.01C, U.S. companies, to paragraph

103.01B, Non-U.S. companies. The Exchange also

proposed to delete the proposed rule text from

paragraph 802.01C which would have applied the

Price Criteria standard to a situation which is the

subject of a separate proposed rule change by the

Exchange. Furthermore, the Exchange changed their

request for accelerated approval to April 12 from

April 10, 2000, and the Exchange expanded their

explanation of the proposed rule change in the

purpose section of the filing. See letter from James

E. Buck, Senior Vice President and Secretary,

NYSE, to Belinda Blaine, Associate Director,

Division, SEC, dated April 11, 2000 (‘‘Amendment

No. 2’’).

5The formatting of the components in the

proposed Affiliated Company listing standard were

changed from capital letters (A, B, C, and D) to

numbers (1, 2, 3, and 4). Telephone conversation

between James Duffy, Senior Vice President and

Associate General Counsel, NYSE, and Heather

Traeger, Attorney, Division, SEC, on April 12, 2000.

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

The proposed rule change has become

immediately effective pursuant to

Section 19(b)(3)(A)(ii) of the Act 10 and

Rule 19b–4(f)(2) thereunder,11 in that it

establishes or changes a due, fee or

other charge imposed by the

Association. At any time within 60

days 12 of the filing of such 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.13

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 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 the File No.

SR–NASD–00–10 and should be

submitted by May 11, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 14

Jonathan G. Katz,

Secretary.

[FR Doc. 00–9878 Filed 4–19–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42671; File No. SR–NYSE–

00–12]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change and Amendment Nos. 1

and 2 Thereto by the New York Stock

Exchange, Inc. Relating to Original and

Continued Listing Standards for

Affiliated Companies

April 12, 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 March 15,

2000, the New York Stock Exchange,

Inc. (‘‘NYSE’’ or ‘‘Exchange’’) 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 the Exchange.

On March 28, 2000, the Exchange

submitted Amendment No. 1 to the

proposed rule change.3 On April 12,

2000, the Exchange submitted

Amendment No. 2 to the proposed rule

change.4 The Commission is publishing

this notice to solicit comments on the

proposed rule change, as amended, from

interested persons and to grant

accelerated approval to the proposed

rule change and Amendment Nos. 1 and

2.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change consists of

amendments to Sections 102.01B,

102.01C, 103.01A, 103.01B, 802.01B and

802.01C of the Listed Company Manual

(‘‘Manual’’) of the Exchange. These

sections of the Manual set forth the

financial original and continued listing

standards of the Exchange. The text of

the proposed rule change, as amended,

is as follows. New text is italicized.

NYSE Listed Company Manual

* * * * *

Section 1

The Listing Process

* * * * *

102.01B. A company must demonstrate

an aggregate market value of

publicly-held shares of $60,000,000

for companies that list either at the

time of their initial public offerings

(‘‘IPOs’’)(C) or as a result of spinoffs or under the Affiliated

Company standard, and

$100,000,000 for other companies

(D).

102.01C. A company must meet one of

the following financial standards:

* * * * *

(IV) Affiliated Company Standard 5

(1) Market capitalization of $500

million or greater (as evidenced by

written representation from the

underwriter, company, or its investment

advisor);

(2) Minimum of 12 months of

operations (although it is not required to

have been a separate corporate entity

for such period);

(3) Parent or affiliated company is a

listed company in good standing (as

evidenced by written representation

from the company or its financial

advisor excluding that portion of the

balance sheet attributable to the new

entity); and

(4) Parent/affiliated company retains

control* of the entity or is under

common control* with the entity.

* ‘‘Control’’ for these purposes will mean

the ability to exercise significant influence

over operating and financial policies, and

will be presumed to exist when the parent

involved holds directly or indirectly 20% or

more of the entity’s voting stock. Other idicia