31262 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Notices

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

2 17 CFR 240.19b–4.

3See August 2, 2000 letter from Kathleen A.

O’Mara, Assistant General Counsel, NASD

Regulation, to Katherine A. England, Assistant

Director, Division of Market Regulation

(‘‘Division’’), SEC (‘‘Amendment No. 1’’). In

Amendment No. 1, NASD Regulation broadened the

scope of the proposed rule change.

4See Securities Exchange Act Release No. 43346

(September 26, 2000), 65 FR 59036.

5See October 30, 2000 letter from Cameron

Smith, General Counsel, Island ECN, Inc. to

Jonathan Katz, Secretary, SEC (‘‘Island Letter’’).

6The Commission may impose trading

suspensions in the United States securities markets

under Section 12(k) of the Act. See 15 U.S.C. 781(k).

NASD Rule 4120 provides that Nasdaq may halt

trading: (1) In the over-the-counter market of a

security listed on Nasdaq to permit the

dissemination of material news; or (2) in the overthe-counter market of a security listed on a national

securities exchange during a trading halt imposed

by such exchange to permit the dissemination of

material news; or (3) by (i) Consolidated Quotation

System (‘‘CQS’’) market makers in a CQS security

because of an order imbalance or influx

(‘‘operational trade halt’’); or (ii) Nasdaq market

makers in a security listed on Nasdaq, when the

security is a derivative or component of a CQS

security and a national securities exchange imposes

an operational trading halt in that CQS security; or

(4) in an American Depositary Receipt (‘‘ADR’’) or

other security listed on Nasdaq, when the Nasdaqlisted security or the security underlying the ADR

is listed on or registered with a national or foreign

securities exchange or market, and the national or

foreign securities exchange or market, or regulatory

authority overseeing such exchange or market, halts

trading in such security for regulatory reasons; or

(5) in a security listed on Nasdaq when Nasdaq

requests from the issuer information relating to: (i)

Material news; (ii) the issuer’s ability to meet

Nasdaq listing qualification requirements, as set

forth in NASD Rule 4300 and 4400 Series; or (iii)

any other information which is necessary to protect

investors and the public interest. See also Securities

Exchange Act Release No. 42806 (May 22, 2000), 65

FR 34518 (May 30, 2000) (SR–NASD–99–33), which

establishes Nasdaq’s trade and quote halt authority

in certain specific circumstances in securities

included in the OTC Bulletin Board Service

(‘‘OTCBB’’), and Notice to Members 99–69 soliciting

comments on whether NASD Regulation should

have authority to halt trading in non-Nasdaq, nonOTCBB, over-the-counter securities under certain

circumstances.

7NASD Rule 3310 states that: [n]o member shall

publish or circulate, or cause to be published or

circulated, any notice, circular, advertisement,

newspaper article, investment service, or

Notice is hereby given that pursuant

to the Paperwork Reduction Act of 1995

(44 U.S.C. 3501 et seq.), the Securities

and Exchange Commission

(‘‘Commission’’) has submitted to the

Office of Management and Budget a

request for extension of the previously

approved collection of information

discussed below.

Rule 19b–5 provides a temporary

exemption from the rule-filing

requirements of Section 19(b) of the

Securities Exchange Act of 1934 (‘‘Act’’)

to self-regulatory organizations

(‘‘SROs’’) wishing to establish and

operate pilot trading systems. Rule 19b–

5 permits an SRO to develop a pilot

trading system and to begin operation of

such system shortly after submitting an

initial report on Form PILOT to the

Commission. During operation of the

pilot trading system, the SRO must

submit quarterly reports of the system’s

operation to the Commission, as well as

timely amendments describing any

material changes to the system. After

two years of operating such pilot trading

system under the exemption afforded by

Rule 19b–5, the SRO must submit a rule

filing pursuant to Section 19(b)(2) of the

Act in order to obtain permanent

approval of the pilot trading system

from the Commission.

The collection of information is

designed to allow the Commission to

maintain an accurate record of all new

pilot trading systems operated by SROs

and to determine whether an SRO has

properly availed itself of the exemption

afforded by Rule 19b–5.

The respondents to the collection of

information are SROs, as defined by the

Act, including national securities

exchanges and national securities

associations.

Ten respondents file an average total

of 6 initial reports, 24 quarterly reports,

and 12 amendments per year, with an

estimated total annual response burden

of 252 hours. At an average hourly cost

of $51.71, the aggregate related cost of

compliance with Rule 19b–5 for all

respondents is $13,032 per year (252

burden hours multiplied by $51.71/

hour=$13,032).

Although Rule 19b–5 does not in

itself impose recordkeeping burdens on

SROs, it relies on existing requirements

imposed by Rule 17a–1 under the Act to

require SROs to retain all the rules and

procedures relating to each pilot trading

system operating pursuant to Rule 19b–

5 and to make such records available for

Commission inspection for a period of

not less than five years, the first two

years in an easily accessible place.

Compliance with Rule 19b–5 is

mandatory. Information received in

response to Rule 19b–5 shall be

available only for examination by the

Commission, other agencies of the

federal government, state securities

authorities and SROs.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless it displays a currently valid

control number.

Written comments regarding the

above information should be directed to

the following persons: (a) Desk Officer

for the Securities and Exchange

Commission, Office of Information and

Regulatory Affairs, Office of

Management and Budget, Room 10102,

New Executive Office Building,

Washington, DC 20503; and (b) Michael

E. Bartell, Associate Executive Director,

Office of Information Technology,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549. Comments must be submitted to

the Office of Management and Budget

within 30 days of this notice.

Dated: June 4, 2001.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14585 Filed 6–8–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44390; File No. SR–NASD–

00–33]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the National Association of Securities

Dealers, Inc. To Amend NASD Rule

3340 To Prohibit Publication of

Quotations or Indications of Interest in

a Security During a Trading Halt

June 5, 2001.

I. Introduction

On June 7, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly owned subsidiary, NASD

Regulation, Inc. (‘‘NASD Regulation’’),

filed with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b–4 thereunder.2 On August 2, 2000,

NASD Regulation amended the

proposal.3 Notice of the proposed rule

change, as amended, was published for

comment in the Federal Register on

October 3, 2000.4 The Commission

received one comment letter regarding

the proposal.5 This order approves the

proposed rule change.

II. Description of the Proposal

NASD Regulation proposes to amend

NASD Rule 3340 to expressly prohibit

members from publishing quotations in

a security during a trading halt.

According to NASD Regulation, the

purpose of the rule change is to

expressly prohibit members from

publishing quotations or indications of

interest in a security during a trading

halt. Currently, NASD Rule 3340

prohibits members from effecting a

transaction in a security during a

trading halt, but does not expressly state

that members are prohibited from

publishing quotations or indications of

interest.6 However, NASD Rules 3310 7

Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Notices 31263

communication of any kind which purports * * *

to quote the bid price or asked price for any

security, unless such member believes that such

quotation represents a bona fide bid for, or offer of,

such security * * *.

NASD Rule IM–3310 states, among other things,

that: [i]t would be inconsistent with the above

provisions for a member, for itself or for any other

person, to publish or circulate or to cause to be

published or circulated, by any means whatsoever,

any quotation for any security without having

reasonable cause to believe that such quotation is

a bona fide quotation, is not fictitious and is not

published or circulated or caused to be published

or circulated for any fraudulent, deceptive or

manipulative purpose. IM–3310 also provides: [f]or

the purposes of this interpretation, the term

‘‘quotation’’ shall include any bid or offer or any

formula, such as ‘‘bid wanted’’ or ‘‘offer wanted,’’

designed to induce any person to make or submit

any bid or offer. 8NASD Rule 3320 (‘‘Firm Quote Rule’’) states

that: [n]o member shall make an offer to buy from

or sell to any person any security at a stated price

unless such member is prepared to purchase or sell,

as the case may be, at such price and under such

conditions as are stated at the time of such offer to

buy or sell.

9See footnote 5, supra.

10 Island Letter, page 2.

11 Id.

12 Id.

13 Id.

14 Id.

15See May 10, 2001 letter from Jeffrey S. Holik,

Vice President and Acting General Counsel, NASD

Regulation, to Katherine A. England, Assistant

Director, Division, SEC (‘‘NASD Regulation Letter’’).

16 Id. at page 2.

17 Id.

18 Id.

19 Id.

20 Id.

21 15 U.S.C. 78o–3(b)(6).

22 15 U.S.C. 78o–3(b)(11).

23 15 U.S.C. 78k–1(a)(1)(C).

24 15 U.S.C. 78o–3(b)(6).

25 15 U.S.C. 78o–3(b)(11).

and 3320,8 respectively, state that

members are required to enter only bona

fide quotations and honor such

quotations if presented with an order.

Thus, if during a trading halt, a member

that is publishing a quotation for a

security is presented with a liability

order for such security, the member

would be faced with the choice of either

honoring its quote and violating the rule

prohibiting transactions in a security

during a trading halt, or complying with

the trading halt rule but violating the

Firm Quote Rule.

In addition, the entry of quotations or

indications of interest while there is a

trading halt in a security could be

potentially misleading. To prevent this

from happening, NASD Regulation is

proposing that NASD Rule 3340 be

amended to expressly state that

members are prohibited from publishing

quotations or indications of interest

during a trading halt.

III. Summary of Comments

The Commission received one

comment letter regarding the proposal.9

The commenter expressed concern that

the proposal would cause the market to

abruptly open once a trading halt is

lifted without allowing a time period for

market participants to enter new

quotes.10 The commenter also stated

that the proposal did not provide

instruction on what would happen to

quotes that were in the system before a

trading halt was imposed, and whether

market participants would have a

chance to refresh their quotes when a

trading halt is lifted.11

The commenter suggested an

alternative method of resuming trading

after a trading halt, whereby

participants would be allowed a fiveminute period to open their quotes. If a

quote were refreshed during that period,

the quote would then be considered

open, and subject to the Firm Quote

Rule. Any remaining quotes would

remain closed. If, after the five-minute

period, any market participants failed to

update their quotes, the quotes would

be refreshed at the price established

before the trading halt was imposed. If

the pre-halt price would lock or cross

the market, the quote would be subject

to an excused withdrawal.12

The commenter also suggested that

Nasdaq should be required to make

system changes to prevent the entry of

orders in SelectNet during a trading

halt, rather than requiring each of the

Nasdaq market participants to make the

changes in their own systems.13

Finally, the commenter suggested that

Nasdaq develop official and automated

methodology to alert members about the

imposition of trading halts, citing

examples of two occasions where

incorrect or delayed messages regarding

the status of trading halts were posted

on the Nasdaq News Frame.14

In response to the comment letter,15

NASD Regulation stated that the

proposed rule change would not alter

the method by which trading is resumed

when a trading halt is lifted.16 NASD

Regulation stated that Nasdaq

MarketWatch provides notice of trading

halts to members through the Nasdaq

workstation. Simultaneously, all quotes

for the security at issue are eliminated

from the Nasdaq workstation interactive

area. Nasdaq MarketWatch updates the

status of a trading halt, and notifies

members of the exact time the trading

halt will be lifted. MarketWatch also

notifies members that they may begin

entering quotations in anticipation of

the end of a trading halt (the ‘‘grace

period’’). Quotations during the grace

period are designated as closed by

displaying a ‘‘g’’ symbol next to each

quotation. The quotations remain closed

until the trading halt is lifted, at which

time the ‘‘g’’ symbol is removed, and

quotations become firm.17

Regarding the commenter’s suggestion

that Nasdaq modify SelectNet to prevent

the entry of orders in SelectNet during

a trading halt, NASD Regulation stated

it is a member’s responsibility to ensure

compliance with NASD rules.18 While

modifying SelectNet may be appropriate

as a supplemental measure, NASD

Regulation believes there must be

fundamental prohibition of the conduct

addressed by the proposed rule

change.19 NASD Regulation indicated it

has forwarded the commenter’s

suggestion to Nasdaq, along with the

commenter’s request that Nasdaq

develop official and automated

methodology to alert members to the

imposition of a trading halt.20

IV. Discussion and Commission

Findings

The Commission has reviewed

carefully the proposed rule change, the

comment letter, NASD Regulation’s

response to the comment letter, and the

entire record herein, and finds that the

proposed rule change, as amended, is

consistent with the Act and the rules

and regulations applicable to the

Association. In particular, the

Commission finds that the proposal is

consistent with the requirements of

Sections 15A(b)(6),21 15A(b)(11),22 and

11A(a)(1)(C) 23 of the Act.

Section 15A(b)(6) 24 requires that the

rules of a registered national securities

association be designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, to foster cooperation

and coordination with persons engaged

in regulating, clearing, 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. The

Commission finds the proposal is

consistent with these requirements.

The Commission further finds the

proposed rule is consistent with Section

15A(b)(11),25 which requires that the

rules of a registered national securities

association be designed to produce fair

and informative quotations, prevent

fictitious or misleading quotations, and

to promote orderly procedures for

collecting, distributing, and publishing

quotations.

The Commission also finds the

proposed rule is consistent with the

goals expressed in Section

31264 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Notices

26 15 U.S.C. 78k–1(a)(1)(C).

27See NASD Regulation Letter, page 2.

28 Id.

29 In approving this proposal, the Commission has

considered the proposed rule’s impact on

efficiently, competition and capital formation. 15

U.S.C. 78c(f). Additionally, the Commission notes

that the Association’s definition of ‘‘quotation’’

under the proposal differs from the definition of

‘‘quotation’’ under Exchange Act Rule 15c2–11. 17

CFR 240.15c2–11. The Association’s definition of

‘‘quotation’’ will have no impact whatsoever on the

definition of ‘‘quotation’’ under Exchange Act Rule

15c2–11.

30 15 U.S.C. 78o–3(b)(6).

31 15 U.S.C. 78o–3(b)(11).

32 15 U.S.C. 78k–1(a)(1)(C).

33 15 U.S.C. 78s(b)(2).

34 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3PACE is the acronym for the Exchange’s

Automated Communication and Execution System.

It is the Exchange’s order routing, delivery,

execution and reporting system for its equity

trading floor. See Exchange Rule 229.

4Specialists would continue to be subject to the

PACE Specialist Charge of $.20 per specialist trade

against PACE executions (excluding PACE trades on

the opening). Telephone conversation between

Diana Tenenbaum, Counsel, Phlx, and Sonia Patton,

Attorney, Division of Market Regulation,

Commission (May 29, 2001).

5 If the monthly transaction value of a particular

customer is between $0–$25 million, a rate of $0.14

for every $1,000 of value will be charged. The rate

decreases as the amount of the monthly transaction

value increases. PACE users receive trade discounts

based on trade size.

6 15 U.S.C. 78f(b).

7 15 U.S.C. 78f(b)(4).

11A(a)(1)(C),26 which grants the

Commission the authority to require

rules designed to ensure appropriate

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.

The Commission has reviewed

carefully the commenter’s letter, and is

not persuaded by the commenter’s

assertions. NASD Regulation has stated

that the proposed rule change will not

affect the process by which trading

resumes after a trading halt is lifted for

Nasdaq National Market Securities and

Nasdaq SmallCap securities, and has

explained in detail those procedures.27

Additionally, NASD Regulation has

stated it would not consider the entry of

closed quotations into Nasdaq for these

types of securities a violation of NASD

Rule 3340, provided the quotations were

entered in conformity with Nasdaq’s

resumption process.28 The Commission

also agrees that the responsibility to

ensure compliance with NASD rules

rests with the NASD’s members, and

that the proposal is important because it

delineates the prohibition of specific

conduct during trading halts.29

V. Conclusion

For the reasons stated above, the

Commission finds that the proposed

rule change, as amended, is consistent

with the Act, in general, and in

particular with Sections 15A(b)(6),30

15A(b)(11),31 and 11A(a)(1)(c)32 of the

Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,33 that the

proposed rule change (SR–NASD–00–

33), as amended, be and hereby is

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.34

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14587 Filed 6–8–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44381; File No. SR–Phlx–

2001–57]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Waiving Equity Transaction Value

Charges for PACE Orders

June 1, 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 May 21,

2001, the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 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 the Phlx. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Phlx proposes to waive equity

transaction value charges for orders that

are electronically routed to the

Exchange through PACE.3 The proposed

waiver of fees will be implemented on

June 1, 2001.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Phlx 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. The Phlx 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

The purpose of the proposed rule

change is to waive equity transaction

value charges for orders that are

electronically routed to the Exchange

through PACE.4 Presently, orders routed

to the Exchange through PACE are

charged an equity transaction value

charge, which is subject to a discount

schedule based on the total value of

monthly transactions.5 Accordingly, all

related PACE trade discounts and

credits would no longer apply.

The proposed amendment is designed

to promote the Exchange’s reputation as

a cost-effective trading forum for PACE

customers and traders transacting equity

business. Furthermore, the Exchange

believes that the proposed amendment

should encourage electronic order flow

to the Exchange, which in turn should

promote a more liquid equities market.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) of the Act,6 in general, and

with Section 6(b)(4),7 in particular, by

providing for the equitable allocation of

reasonable dues, fees and other charges

among participants. Eliminating certain

charges for PACE transactions (1)

alleviates a financial burden on PACE

users and thus encourages the

transaction of equities by the investing

public, and (2) promotes competition

among the various exchanges.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition.