Federal Register / Vol. 66, No. 89 / Tuesday, May 8, 2001 / Notices 23289

11By approving the pilot, the Commission

permits Nasdaq, for the duration of the pilot period,

to replace the existing bid price and net tangible

assets standards with the new proposed standards.

However, if the pilot expires before the Commission

takes action on the proposed rule change, the old

standards would have to be reinstated because

Nasdaq would no longer have authority for the new

standards.

12For purposes of approving the pilot program on

an accelerated basis, the Commission has

considered the proposal’s impact on efficiency,

competition, and capital formation. See 15 U.S.C.

78c(f).

13 15 U.S.C. 78o–3(b)(6).

14See NASD Rules 4420(a)(5), 4420(b)(4), and

4420(c)(3).

15Compare NASD Rule 4420 (giving issuers of

Nasdaq National Market securities the option of

meeting one of three entry standards which include

requirements that the market value of publicly held

shares be at least $8 million, $18 million, or $20

million, respectively) with NASD Rule 4450 (giving

issuers of Nasdaq national Market securities the

option of meeting one of two maintenance

standards which include requirements that the

market value of publicly held shares be at least $5

million or $15 million, respectively).

16See Securities Exchange Act Release No. 42194

(December 1, 1999), 64 FR 69311 (December 10,

1999) approving SR–NYSE–99–29).

17See id., 64 FR at 69314.

18 15 U.S.C. 78s(b)(2).

19See Securities Exchange Act Release No. 41648

(July 26, 1999), 64 FR 41986 (August 2, 1999)

(publishing notice of SR–NYSE–99–29 and

approving on an accelerated basis a pilot program

relating to continued listing criteria); Securities

Exchange Act Release No. 41459 (May 27, 1999), 64

FR 30088 (June 4, 1999) (publishing notice of SR–

NYSE–99–17 and approving on an accelerated basis

a pilot program relating to original listing criteria).

20 15 U.S.C. 78s(b)(2).

21 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

option instead of meeting the new

maintenance standards. Similarly,

issuers that are applying for listing

could, during the pilot period, choose to

meet the proposed original listing

standards rather than the existing

original listing standards. The standards

that would be included in the pilot are:

(1) The new bid price requirement

found in NASD Rule 4450(b)(4); and (2)

the new stockholders’ equity standard,

which replaces the old net tangible

assets standard, found in NASD Rules

4310(c)(2)(A)(i), 4310(c)(2)(B)(i),

4320(e)(2)(A)(i), 4320(e)(2)(B)(i),

4420(a)(5), 4420(b)(1), and 4450(a)(3).

Nasdaq has proposed that the pilot

program would operate until July 1,

2001, or such earlier time as the

Commission acts on Nasdaq’s request

for permanent approval of the

proposal.11

The Commission finds that the

proposed pilot program is consistent

with the requirements of the Act and the

rules and regulations thereunder

applicable to the NASD.12 In particular,

the Commission believes that the

proposal is consistent with Section

15A(b)(6) of the Act.13 Section 15A(b)(6)

requires, among other things, that the

rules of a national securities association

be 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.

With respect to the pilot proposal to

lower the bid price requirement in

Maintenance Standard 2 of NASD rule

4450 from $5 to $3, the Commission

notes that the bid price requirement for

initial listing will remain $5.14 Nasdaq’s

listing rules generally establish a higher

initial requirement and a somewhat

lower continued requirement to allow

for market fluctuations.15 Establishing a

new bid price requirement of $3 for

continued listing would make this

standard similar to other existing

standards that require issuers to comply

with maintenance requirements that are

more flexible than the original listing

requirements. Accordingly, the

Commission believes it is reasonable

and consistent with the Act to approve

this aspect of the pilot program while

the Commission continues to study the

overall proposal by, among other things,

considering any public comments that

may be submitted.

With respect to the pilot proposal to

replace the net tangible assets standard

with a stockers’ equity standard, the

Commission notes that it has previously

approved a similar proposal to institute

market capitalization and stockholders’

equity requirements on the NYSE.16 In

that case, the Commission stated that

the amount of stockholders’ equity is

not an inappropriate measure of a

company’s suitability for listing on an

exchange.17 Accordingly, the

Commission believes it is reasonable

and consistent with the Act to approve

this aspect of the pilot program while

the Commission continues to study the

overall proposal by, among other things,

considering any public comments that

may be submitted.

Pursuant to Section 19(b)(2) of the

Act,18 the Commission finds good cause

for approving the pilot program prior to

the thirtieth day after publication of the

filing of this proposal in the Federal

Register. The Commission believes that

accelerated approval of the pilot will

enable the Commission and Nasdaq to

gain experience with the new standards

before the Commission considers

granting them permanent approval.

Furthermore, the Commission notes that

accelerated approval of the pilot

program will allow certain issuers that

meet the proposed standards to remain

listed even if they might fail to meet the

existing standards. These companies, in

the absence of the pilot, would

immediately be subject to delisting as

required by the existing maintenance

criteria. If the Commission were

subsequently to approve the proposal on

a permanent basis, these companies

would be eligible to relist under the new

standards but only after delisting had

disrupted trading in their securities.

However, if the Commission were to

approve the pilot but not permanently

approve the proposal, these companies

would still have to be delisted, but the

timing of their delisting would have far

less potential for market disruption. In

the interests of reducing market

disruption, the Commission believes

that the better course of action would be

to approve the pilot program on an

accelerated basis. The Commission also

notes that it has approved similar pilot

programs on the NYSE relating to the

implementation of new listing

standards.19 Finally, the Commission

notes that the pilot will be of only short

duration, and the public will have an

opportunity to offer comments on all

aspects of the overall proposal.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,20 that the

proposed rule change (SR–NASD–2001–

14) is partially approved with respect to

the pilot program which will bend on

the earlier of July 1, 2001, or when the

Commission takes final action on the

overall proposal.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–11473 Filed 5–7–01; 8:45am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44246; File No. SR–NASD–

2001–29]

Self Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.

To Establish the Nasdaq ReSource SM

Service

May 2, 2001.

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 April 24,

2001, the National Association of

23290 Federal Register / Vol. 66, No. 89 / Tuesday, May 8, 2001 / Notices

3 17 CFR 240.11Ac1–5.

4 17 CFR 240.11Ac1–5.

5 17 CFR 240.11Ac1–6.

6See Securities Exchange Act Release No. 43590

(November 17, 2000), 65 FR 75414 (‘‘Adopting

Release’’).

7The Rule defines ‘‘covered order’’ as any market

order or any limit order (including immediate-orcancel orders) received by a market center during

regular trading hours at a time when a consolidated

best bid and offer is being disseminated, and, if

executed, is executed during regular trading hours.

Excluded from the definition of ‘‘covered order’’ is

any order for which the customer requests special

handling for execution, including, but not limited

to, orders to be executed at a market opening or

closing price, orders submitted with stop prices,

orders to be executed only at their full size, orders

to be executed on a particular type of tick or bid,

orders submitted on a ‘‘not held’’ basis, orders for

other than regular settlement, and orders to be

executed at prices unrelated to the market price at

the time of execution. 17 CFR 240.11Ac1–5(a)(8).

8 17 CFR 240.11Ac1–5(a)(14).

9See NASD Rule 4632(d)(B) and NASD Notice to

Members 00–79.

10 15 U.S.C. 78k–1(a)(1)(C).

11 15 U.S.C. 78o–3(b)(6).

Securities Dealers, Inc. (‘‘NASD’’),

through its 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 to

solicit comments on the proposed rule

change from interested persons. For the

reasons discussed below, the

Commission is granting accelerated

approval of the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Pursuant to the provisions of Section

19(b)(1) of the Act, and Rule 19b–4

thereunder, Nasdaq is herewith filing a

proposed rule change of the NASD to

establish Nasdaq’s new ReSource SM

Service. The ReSource SM Service is

voluntary and is designed to assist

NASD members in complying with Rule

11Ac1–5 under the Act.3 Nasdaq will

file a separate proposed rule change

outlining the fee schedule for the

ReSource SM Service.

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

On November 17, 2000, the

Commission adopted Rules 11Ac1–5 4

and 11Ac1–6 5 under the Act.6

Generally, the Rules seek to improve the

ability of public investors to evaluate

how their orders are handled after being

submitted to a broker-dealer for

execution. Rule 11Ac1–5 (the ‘‘Rule’’)

requires ‘‘market centers’’ that trade

national market system securities to

prepare and make publicly available

standardized, monthly reports

containing statistical information

concerning the handling and execution

of their ‘‘covered orders.’’ 7 A ‘‘market

center’’ under the Rule is defined as

‘‘any exchange market maker, OTC

market maker, alternative trading

system, national securities exchange, or

national securities association.’’ 8 To

facilitate cross-market comparisons, the

Rule establishes and defines uniform

measures of execution quality,

including effective spread, rate of price

improvement and disimprovement, fill

rate, and execution speed.

Nasdaq proposes to offer a new

voluntary service—Nasdaq

ReSource SM—to assist NASD member

market centers in meeting their

reporting obligations under Rule

11Ac1–5. Nasdaq plans to collect,

compile, and web-host the reports

required by the Rule. These reports will

be referred to as Execution Quality

Reports (or ‘‘XQ Reports SM’’) and will

be made available on a free, publicly

accessible web site. Through certain

existing systems, members already

provide Nasdaq with a portion of the

data required to complete XQ

Reports SM. In order to ensure complete

XQ Reports SM, however, firms will be

required to submit additional data to

Nasdaq for certain categories of orders.

Member firms will be required to

provide an electronic file containing

execution and cancellation information

for orders routed to Nasdaq execution

systems, orders routed to ECNs, orders

routed to non-NASD members, and

certain orders executed as riskless

principal, depending on which method

the subscriber chooses to report riskless

principal transactions.9

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with Section

11A(a)(1)(C) of the Act, which provides,

in relevant part, that it is in the public

interest and appropriate for the

protection of investors and the

maintenance of fair and orderly markets

to assure: (1) Economically efficient

execution of securities transactions; (2)

fair competition among brokers and

dealers; (3) the availability to brokers,

dealers and investors of information

with respect to quotations and

transactions in securities; (4) the

practicability of brokers executing

investors’ orders in the best market; and

(5) an opportunity for investors orders

to be executed without the participation

of a dealer.10 In adopting Rule 11Ac1–

5, the Commission stated that the Rules

would help further these important

national market system objectives.

Nasdaq represents that many market

centers, however, do not have the

necessary systems in place to collect

and disseminate the required statistical

information. Moreover, developing such

systems and allocating firm personnel

necessary to produce internally the

reports required by the Rule may be a

significant burden on some firms and

may not be completed by the applicable

compliance dates. Nasdaq believes that

the ReSource SM Service will enable

NASD member market centers to

comply with Rule 11Ac1–5 in a more

cost-effective and timely manner. By

facilitating compliance with Rule

11Ac1–5 by NASD members that are

market centers, the ReSource SM Service

would serve to advance the purposes of

Section 11A(a)(1)(C).

In addition, Nasdaq believes that the

proposed rule change is consistent with

Section 15A(b)(6) of the Act.11 Section

15A(b)(6) requires the NASD’s rules,

among other things, to protect investors

and the public interest. As described

above, the Nasdaq ReSource SM Service

is designed to assist NASD members in

complying with SEC Rule 11Ac1–5, and

the rule is designed to improve the

ability of public investors to evaluate

how broker-dealers are handling their

orders. Nasdaq believes that by

providing the service to members, it will

both facilitate the Commission’s goals

and fulfill its own obligations to protect

investors and the public interest.

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.

Federal Register / Vol. 66, No. 89 / Tuesday, May 8, 2001 / Notices 23291

12 In approving this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

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

13 15 U.S.C. 78o–3(b)(6).

14 15 U.S.C. 78k–1(a)(1)(C).

15See supra note 6.

16The initial compliance date for the reporting of

listed securities under Rule 11Acl–5 was May 1,

2001. The Commission has temporarily exempted

(until July 31, 2001) all orders in Nasdaq securities.

Letter from Annette L. Nazareth, Director, Division

of Market Regulation, SEC, to Stuart J. Kaswell,

Senior Vice President and General Counsel,

Securities Industry Association, dated April 12,

2001.

17See supra note 6.

18 15 U.S.C. 78s(b)(2).

19 15 U.S.C. 78s(b)(2).

20 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

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. 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 of the NASD. All

submissions should refer to File No.

SR–NASD–2001–29 and should be

submitted by May 29, 2001.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

association.12 In particular, the

proposed rule change is consistent with

the requirements of Section 15A(b)(6) 13

of the Act in that it is designed 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 system, and, in

general, to protect investors and the

public interest.

In addition, the proposed rule change

is consistent with Section 11A(a)(1)(C)

of the Act,14 which provides 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. In adopting

Rule 11Ac1–5, the Commission stated

that the Rules would help further this

and other national market system

objectives.15 Many market centers may

not have the necessary systems in place

to collect and disseminate the statistical

information required by the Rule.

Moreover, developing such systems and

allocating firm personnel necessary to

produce internally the reports required

by the rule may be a significant burden

on some firms and may not be

completed by the applicable compliance

dates.16 The Commission anticipated

that self-regulatory organizations might

choose to provide services to assist their

members in complying with the Rule.17

The ReSourceSM Service could enable

many NASD member market centers to

comply with Rule 11Acl–5 in a more

cost-effect and timely manner.

Pursuant to Seciton 19(b)(2),18 the

Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. Accelerated approval

of the ReSourceSM Service will give

subscribing firms an alternative means

to comply with Rule 11Ac1–5 and allow

sufficient time for market centers to

develop and test their systems. Members

must begin this process as soon as

possible to ensure that they are prepared

to comply with the Rule on August 1,

2001. Nasdaq states that many NASD

members have inquired as to whether

Nasdaq will offer such a service. Nasdaq

believes that members may be hesitant

to subscribe to the Service due to

concern the ReSourceSM Service may

not be approved or approved too late to

enable members to comply with Rule

11Ac1–5. Moreover, a prospective

subscriber of Nasdaq’s ReSourceSM

Service may be hesitant to commit

resources to programming and testing

systems for ReSourceSM if there is a

possibility that approval will be

delayed. Accelerated approval will

eliminate uncertainty regarding the

ReSourceSM Service.

Accelerated approval of the

ReSourceSM Service also will facilitate

Nasdaq’s ability to develop and test

systems. Nasdaq represents that based

on conversations with members, it has

developed an estimate of the number of

firms that are likely to subscribe and the

resources required to provide the

ReSourceSM Service. However, Nasdaq

cannot confirm its estimates until it

confirms the number of subscribers,

which practically can be accomplished

only when a subscriber pays for the

ReSourceSM service. In addition, the

cost of the ReSourceSM Service will be

an important factor that potential

subscribers will consider in determining

whether to subscribe. Accelerated

approval of the ReSourceSM service will

enable Nasdaq to finalize their fee

schedule sooner.

It is therefore ordered, pursuant to

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

proposed rule change, SR–NASD–2001–

29 is approved on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–11518 Filed 5–7–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

(Release No. 34–44233; File No. SR–PCX–

00–25)

Self-Regulatory Organizations; Notice

of Filing of Amendment No. 3 to

Proposed Rule Change by the Pacific

Exchange, Inc. Relating to the

Archipelago Exchange

April 30, 2001.

Pursuant to Section 19(b)(1) under the

Securities Exchange Act of 1934

(‘‘Exchange Act’’) 1 and Rule 19b–4

thereunder,2 notice is hereby given that

on April 19, 2001, the Pacific Exchange,

Inc. (‘‘PCX’’ or ‘‘Exchange’’), through its

subsidiary PCX Equities, Inc. (‘‘PCXE’’

or ‘‘Corporation’’), filed with the

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) Amendment

No. 3 to the proposed rule change as

described in Items I, II and III below,

which Items have been prepared by the

PCXE. On December 15, 2000, the

proposed rule change and Amendment

No. 1 was published for comment in the