9394 Federal Register / Vol. 66, No. 26 / Wednesday, February 7, 2001 / Notices

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

2 17 CFR 240.19b–4.

3See Letter from Jeffrey S. Davis, Assistant

General Counsel, Nasdaq, to Sapna C. Patel,

Attorney, Division of Market Regulation

(‘‘Division’’), Commission, dated January 19, 2001

(‘‘Amendment No. 1’’). In Amendment No. 1, the

Nasdaq made a minor technical correction to the

rule text.

Washington, DC 20555, telephone (301)

415–8092; electronic mail address:

cxb@nrc.gov.

Electronic Access

Final NUREG–1556, Vol. 12 is

available electronically by visiting the

NRC’s Home Page (http://www.nrc.gov/

nrc/nucmat.html).

Dated at Rockville, Maryland, this 31st day

of January, 2001.

For the Nuclear Regulatory Commission.

Patricia K. Holahan,

Chief, Rulemaking and Guidance Branch,

Division of Industrial and Medical Nuclear

Safety, NMSS.

[FR Doc. 01–3136 Filed 2–6–01; 8:45 am]

BILLING CODE 7590–01–P

NUCLEAR REGULATORY

COMMISSION

Consolidated Guidance About

Materials Licenses: Program-Specific

Guidance About Master Materials

Licenses

AGENCY: Nuclear Regulatory

Commission (NRC).

ACTION: Notice of availability of final

NUREG.

SUMMARY: The NRC is announcing the

availability of the final NUREG–1556,

Volume 10, ‘‘Consolidated Guidance

About Materials Licenses: ProgramSpecific Guidance about Master

Materials Licenses,’’ dated December

2000.

The NRC is using Business Process

Redesign techniques to redesign its

materials licensing process, as described

in NUREG–1539, ‘‘Methodology and

Findings of the NRC’s Materials

Licensing Process Redesign.’’ A critical

element of the new process is

consolidating and updating numerous

guidance documents into a NUREGseries of reports. This final NUREG

report is the 10th program-specific

guidance developed to support an

improved materials licensing process.

This guidance is intended for use by

Federal applicants and licensees, and

NRC staff. This document updates the

guidance for applicants and licensees

previously found in Policy and

Guidance Directive PG 6–02, Revision 1:

‘‘Standard Review Plan (SRP) for

License Application for Master Material

License,’’ dated September 25, 1997.

A free single copy of final NUREG–

1556, Volume 10, may be requested by

writing to the U.S. Nuclear Regulatory

Commission, ATTN: Mrs. Carrie Brown,

Mail Stop TWFN 9–F–31, Washington,

DC 20555–0001. Alternatively, submit

requests through the Internet by

addressing electronic mail to

cxb@nrc.gov. A copy of the final

NUREG–1556, Volume 10, is also

available for inspection and/or copying

for a fee in the NRC Public Document

Room, 11555 Rockville Pike, Room 01–

F21, Rockville, Maryland 20852.

FOR FURTHER INFORMATION, CONTACT:

Mrs. Carrie Brown, TWFN 9–F–31,

Division of Industrial and Medical

Nuclear Safety, Office of Nuclear

Material Safety and Safeguards, U.S.

Nuclear Regulatory Commission,

Washington, DC 20555, telephone (301)

415–8092; electronic mail address:

cxb@nrc.gov.

Electronic Access

Final NUREG–1556, Volume 10, is

available electronically by visiting the

NRC’s Home Page (http://www.nrc.gov/

nrc/nucmat.html).

Dated at Rockville, Maryland, this 31st day

of January, 2001.

For the Nuclear Regulatory Commission.

Patricia K. Holahan,

Chief, Rulemaking and Guidance Branch,

Division of Industrial and Medical Nuclear

Safety, NMSS.

[FR Doc. 01–3137 Filed 2–6–01; 8:45 am]

BILLING CODE 7590–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43913; File No. SR–NASD–

00–76]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

National Association of Securities

Dealers, Inc. Relating to Locked and

Crossed Markets That Occur at or Prior

to the Market’s Open and the Market’s

Close

January 31, 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 January 5,

2001, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), 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. On January 22,

2001, the NASD, through Nasdaq, filed

Amendment No. 1 to the proposed rule

change.3 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

Nasdaq proposes to amend the

provisions of NASD Rule 4613(e)

regarding locked and crossed market

conditions that occur prior to the

market’s opening and to add provisions

relating to locked and crossed markets

that occur prior to the market’s close.

Below is the text of the proposed rule

change. Proposed new language is

italicized; proposed deletions are in

brackets.

* * * * *

4613. Character of Quotations

(a)–(d) No Change.

(e) Locked and Crossed Markets

(1) A market maker shall not, except

under extraordinary circumstances,

enter or maintain quotations in Nasdaq

during normal business hours if:

(A) No Change.

(B) No Change.

(C) Obligations Regarding Locked/

Crossed Market Conditions Prior to

Market Opening And Prior to Market

Closing

(i) Locked/Crossed Market Prior to

9:20 a.m.—For locks/crosses that occur

prior to 9:20 a.m. Eastern Time, a

market maker that is a party to a lock/

cross because the market maker either

has entered a bid (ask) quotation that

locks/crosses another market maker’s

quotation(s) or has had its quotation(s)

locked/crossed by another market maker

(‘‘party to a lock/cross’’) may, beginning

at 9:20 a.m. Eastern Time, send through

Nasdaq’s SelectNet system (or its

successor system) a message of any size

that is at the receiving market maker’s

quoted price (‘‘Trade-or-Move

Message’’). [Any market maker that

receives a Trade-or-Move Message at or

after 9:20 a.m. Eastern Time, and that is

a party to a lock/cross, must within 30

seconds of receiving such message

either: fill the incoming Trade-or-Move

Message for the full size of the message;

or move its bid down (offer up) by a

quotation increment that unlocks/

uncrosses the market.]

(ii) Locked/Crossed Market Between

9:20 and 9:29:59 a.m.—[If] Before a

Federal Register / Vol. 66, No. 26 / Wednesday, February 7, 2001 / Notices 9395

4See Securities Exchange Act Release No. 42400

(February 7, 2000), 65 FR 7407 (February 14, 2000)

(order approving File No. SR–NASD–99–23). On

June 2, 2000, the Commission approved changes to

NASD Rule 4613(e) relating to the allegations of

market participants representing agency orders who

enter locking/crossing quotations. See Securities

Exchange Act Release No. 42896 (June 2, 2000), 65

FR 36747 (June 9, 2000) (order approving File No.

SR–NASD–00–18).

5A locked market occurs when the quoted bid

price is the same as the quoted ask price. A crossed

market occurs when the quoted bid price is greater

than the quoted ask price.

6The recipient of a Trade-or-Move Message that

trades in full with the Trade-or-Move Message may

move its quotation, but is not obligated to do so.

market maker enters a quote that would

lock[s] or cross[es] the market between

9:20 and 9:29:59 a.m. Eastern Time, the

market maker must [immediately] first

send through SelectNet to the market

maker whose quote[s] it [is] would

lock[ing] or cross[ing] a Trade-or-Move

Message [a message] that is at the

receiving market maker’s quoted price

and that is for at least [5,000] 10,000

shares ([in instances where there are] if

multiple market makers [to a] would be

locked/crossed, each one must receive a

Trade-or-Move Message [the locking/

crossing market maker must send a

message to each party to the lock/cross]

and the aggregate size of all such

messages must be at least [5,000] 10,000

shares); provided, however, that if a

market participant is representing an

agency order (as defined in

subparagraph (vi) of this rule), the

market participant shall be required to

send a Trade-or-Move Message9s) in an

amount equal to the agency order, even

if that order is less than [5,000] 10,000

shares. A market maker that sends a

Trade-or-Move Message during these

periods must then wait at least 15

seconds before entering a quote that

would lock or cross the market. [A

market maker that receives a Trade-orMove Message during this period and

that is a party to a lock/cross, must

within 30 seconds of receiving such

message either: fill the incoming Tradeor-Move Message for the full size of the

message; or move its bid down (offer up)

by a quotation increment that unlocks/

uncrosses the market.]

(iii) Locked/Crossed Market Between

3:50 and 3:59:59 p.m.—Before a market

maker enters a quote that would lock or

cross the market between 3:50 and

3:59:59 p.m. Eastern Time, the market

maker must first send through SelectNet

to the market maker whose quote it

would lock or cross, a Trade-or-Move

Message that is at the receiving market

maker’s quoted price and that is for at

least 10,000 shares (if multiple market

makers would be locked/crossed, each

one must receive a Trade-or-Move

Message and the aggregate size of all

such messages must be at least 10,000

shares); provided, however, that if a

market participant is representing an

agency order (as defined in

subparagraph (vi) of this rule), the

market participant shall be required to

send a Trade-or-Move Message(s) in an

amount equal to the agency order, even

if that order is less than 10,000 shares.

A market maker that sends a Trade-orMove Message during this period must

then wait at least 15 seconds before

entering a quote that would lock or cross

the market.

(iv) A market maker that receives a

Trade-or-Move Message must, within 15

seconds of receiving such message,

either fill the incoming Trade-or-Move

Message for the full size of the message,

or, consistent with its Firm Quote

obligations, move its bid down (offer up)

by a quotation increment that restores

or maintains an unlocked/uncrossed

market.

[(iii)] (v) A market maker that sends a

Trade-or-Move Message pursuant to

subparagraphs (e)(1)(C)(i), (ii), or (iii) [or

(e)(1)(C)(ii)] of this rule must append to

the message a Nasdaq-provided symbol

indicating that it is a Trade-or-Move

Message.

[(iv)] (vi) For the purposes of this rule

‘‘agency order’’ shall mean an order(s)

that is for the benefit of the account of

a natural person executing securities

transactions with or through or

receiving investment banking services

from a broker/dealer, or for the benefit

of an ‘‘institutional account’’ as defined

in NASD Rule 3110. An agency order

shall not include an order(s) that is for

the benefit of a market maker in the

security at issue, but shall include an

order(s) that is for the benefit of a

broker/dealer that is not a market maker

in the security at issue.

(2)–(3) 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 amendments to

NASD Rule 4613(e) that would alter the

obligations of market makers regarding

locked and crossed markets that occur

prior to the market’s open and also prior

to the market’s close. Specifically, the

proposal would: (1) Extend the

application of NASD Rule 4613(1)(C)(ii)

regarding locked/crossed markets before

the market’s open to the period just

prior to the market’s close as well; (2)

require market makers that send a

Trade-or-Move Message do so at least 15

seconds before entering a locking/

crossing quote rather than after entering

a locking/crossing quote, as the rule

currently requires; (3) increase from

5,000 to 10,000 the minimum number of

shares that accompany a non-agency

Trade-or-Move Message; and (4) reduce

from 30 seconds to 15 seconds the

amount of time within which the

recipient of a Trade-or-Move Message

must properly respond.

a. Background. On February 7, 2000,

the Commission approved changes to

NASD Rule 4613(e) 4 that altered the

obligations of market participants who

enter locking/crossing quotations during

the pre-market opening period.5 Under

the NASD Rule 4613(e), a market

participant that locks/crosses the market

between 9:20 a.m. and 9:29:59 a.m. is

then required to send a message(s),

which has a ‘‘Trade-or-Move’’

designator (‘‘Trade-or-Move Message’’),

to the parties it is locking/crossing. The

Trade-or-Move modifier allows market

participants to distinguish a Trade-orMove Message (to which a receiving

market maker is obligated to respond)

from other pre-opening messages it may

receive.

Currently, under NASD Rule 4613(e),

the aggregate size of the Trade-or-Move

Message must be at least 5,000 shares

(i.e., the market participant must send a

total of 5,000 shares to all parties it is

locking/crossing) in the case of a

proprietary quote, or the actual size of

an agency order if that is the basis for

the locking/crossing quote. NASD Rule

4613(e) further provides that a party that

receives a Trade-or-Move Message must,

within 30 seconds, either: (1) Trade in

full with the incoming Trade-or-Move

Message,6 (2) decline to trade with the

incoming Trade-or-Move Message and

move its quotation to a price level that

unlocks or uncrosses the market; or (3)

trade with a portion of the incoming

Trade-or-Move Message and move its

quotation to a level that unlocks or

uncrosses the market. In essence, NASD

Rule 4613(e) prohibits market

participants from locking/crossing the

9396 Federal Register / Vol. 66, No. 26 / Wednesday, February 7, 2001 / Notices

7However, beginning at 9:20 a.m., any party to a

lock/cross may send a Trade-or-Move Message to

any other party to the lock/cross. See NASD Rule

4613(e)(1)(C)(i).

8Market participants will continue to utilize

SelectNet to send Trade-or-Move Messages to

market participants that would be locked or crossed

by the entry of the intended quote. The Trade-orMove Message will continue to carry the special

identifier ‘‘trd or mov’’ for ease of recognition and

will also continue to constitute a valid offer to buy

or sell the number of shares contained in the

message that may be accepted by the recipient in

whole or in part, subject to the recipient’s firm

quote obligations.

9 During market hours, the recipient’s ability to

decline to trade with the Trade-or-Move Message

would be subject to the recipient’s firm quote

obligations.

10 If, however, a market maker wishes to enter a

locking/crossing quote at or after 9:30:00, the

market maker would be required to use reasonable

means to avoid locking/crossing the market by, for

example, sending a SelectNet message to the party

(or parties) it will lock/cross. See NASD Notice to

Members 97–49.

11The proposed changes to NASD Rule 4613(e)

are designed to address conditions that exist today

in Nasdaq. Nasdaq hopes that the implementation

of the Nasdaq National Market Execution System

(‘‘NNMS’’), currently scheduled for after the full

implementation of the decimalization for trading of

Nasdaq securities, will further diminish the

occurrence and duration of locked and crossed

markets in Nasdaq and perhaps obviate the need for

this rule. Nasdaq will carefully monitor the

operation of NASD Rule 4613(e) in the NNMS and

propose any changes necessitated by NNMS.

market during the 10 minutes before the

opening, unless the party is willing to

commit a significant number of shares.

Currently, unlike a market participant

that actively locks or crosses the market

after 9:20 a.m., a market participant that

locks or crosses the market prior to 9:20

a.m. is not obligated to send a Trade-orMove Message for a specific number of

shares to all parties to the lock or cross.7

This distinction is necessary because

market participants often do not actively

monitor their quotations prior to 9:20

a.m., and, as a result, it is often difficult

to determine which party actively

locked or crossed the market prior to

9:20 a.m. For this reason, the obligations

and rights of the parties to the lock or

cross do not begin until 9:20 a.m.

b. Rule Changes. The implementation

of the Trade-or-Move Message has

substantially reduced the occurrence of

locked/crossed markets prior to the

open. It has, in addition, reduced the

duration of locks/crosses that do occur.

Although these improvements are

encouraging, Nasdaq members have

indicated that further improvement can

be achieved by further modifying NASD

Rule 4613(e). First and foremost, Nasdaq

believes that the occurrence of locked/

crossed markets prior to the open would

be further reduced if market makers

were required to send a Trade-or-Move

Message before rather than after the lock

or cross is entered. By preventing

individual locks/crosses from occurring,

Nasdaq hopes to further reduce the

aggregate time that any market remains

locked/crossed.

Accordingly, under the current

proposal, market participants would be

obligated to send the Trade-or-Move

Message before entering a locking or

crossing quotation during the applicable

periods.8 Implicit in the sending of a

Trade-or-Move Message is the

representation by the sender of its

determination of the appropriateness of

the price sought to be reflected and the

intention to enter such quote

immediately following the response to

the Trade-or-Move Message. Nasdaq

will monitor the use of the Trade-orMove Message by firms with respect to

the entry of quotes following the

response to the message, to detect any

patterns of failure to enter quotations

that may be indicative of manipulative

conduct.

Specifically, under the proposal,

market participants will be required to

send a Trade-or-Move Message and then

wait 15 seconds before entering a

quotation that would lock or cross

another quote. The market participant

receiving the Trade-or-Move Message

would be required to respond to the

message within 15 seconds, rather than

within 30 seconds as currently allowed.

The recipient of a Trade-or-Move

Message can respond by trading in full

and leaving its quote at the same price,

trading in part and moving its quote to

a price that would not lock or cross the

Trade-or-Move price, or decline to trade

and move its quote to a price that would

not lock or cross the Trade-or-Move

price.9 As is the case today, if a market

maker receives a Trade-or-Move

Message just prior to the open (i.e., at or

after 9:29:45 a.m.), the market maker

must trade or move within 15 seconds,

even if the end of that 15 seconds occurs

after the market’s open.10

Nasdaq also believes that increasing

the economic significance of the Tradeor-Move Message would offset, and even

further reduce, any potential for misuse

that might arise by permitting market

participants to send such messages

without having first locked/crossed the

market. Accordingly, Nasdaq proposes

to increase the minimum size of the

Trade-or-Move Message to 10,000 shares

from the current 5,000 shares (subject to

the agency order exception provided by

the current rule). Consequently, when

multiple market participants would be

locked/crossed, each one must receive a

Trade-or-Move Message and the

aggregate size of all such messages must

equal 10,000 shares (also subject to the

agency order exception).

Finally, given the positive effect that

Trade-or-Move has had on resolving

potential locked and crossed markets at

and immediately before the market’s

opening, Nasdaq proposes to expand its

application to include the ten-minute

period preceding the market’s close

(3:50 p.m. to 3:59:59 p.m.). Due to its

volatility, this period is well-suited to

the application of the Trade-or-Move

Message and its related regulatory

requirements to minimize the potential

for locked or crossed markets. Nasdaq

believes that the Trade-or-Move

Message will facilitate the entry of

quotes that more accurately reflect the

current state of the market.

The Trade-or-Move Message used

prior to the close would operate in the

same manner as is currently proposed

for prior to the open, with one

exception. Prior to the market’s open,

the market participant receiving a

Trade-or-Move Message has no liability

under the NASD’s firm quote rule

(NASD Rule 4613(b)), or under the

SEC’s firm quote rule (Rule 11Ac–1

under the Act). Thus, a market maker is

permitted to move its quote without

trading upon the receipt of what, during

market hours, would be a SelectNet

‘‘liability’’ order. Prior to the market’s

close, however, a Trade-or-Move

Message will be considered a liability

order. Therefore, unlike during the

earlier period, a market participant that

receives a Trade-or-Move Message prior

to the close may move its quote or trade

with just a portion of the Trade-or-Move

Message only if doing so is consistent

with its firm quote obligations under the

NASD and SEC rules.11

c. Examples of Rule Operation. The

following are examples of how the

proposed rule would work. At 9:21 a.m.,

MMA plans to lock four market

participants—MMB, MMC, MMD and

MME—each quoting 1,000 shares at 20.

Because the lock occurred after 9:20

a.m., MMA is required to send Trade-orMove Messages in an aggregate amount

of 10,000 shares to these four market

makers at least 15 seconds before

entering the locking quote. Accordingly,

MMA sends a Trade-or-Move Message

for 2,500 shares to MMB, who declines

and moves (MMB must move at least

one increment away from the locking

price). MMC receives a 2,500 share

order, fills it partially (1,000), and, as

required, moves its quote at least one

trading increment away from the

locking price. MMD receives a message

for 2,500 shares, fills the message in

full, and then moves down one trading

increment below the locking price,

although MMD is not obligated to move

its quote. MME receives a 2,500-share

Federal Register / Vol. 66, No. 26 / Wednesday, February 7, 2001 / Notices 9397

12Nasdaq revised the following examples to

eliminate references to the customer limit orders.

Telephone conversation between Jeffrey S. Davis,

Assistant General Counsel, Nasdaq, and Yvonne

Fraticelli, Special Counsel, Division, Commission,

on January 26, 2001.

13MMB’s ability to decline to trade with the

message is subject to MMB’s firm quote obligations.

14 15 U.S.C. 78o–3(b)(6).

15 15 U.S.C. 78k–1(a)(1)(C).

message, and fills it completely. MME is

permitted to remain at her quote, but is

not required to do so; like MMD, MME

may move down one trading increment

below the locking price. If MME

remains at her quote, MMA could send

another Trade-or-Move Message to

MME, who could fill the message in full

and remain at her quote, trade with a

portion of the message and move her

quote, or decline to trade with the

message and move her quote.

As a second example, assume that at

9:18 a.m., MMW and MMX are bidding

20, and MMY and MMZ enter offer

prices of 19, thus crossing the market.

Because it is before 9:20 a.m., no Tradeor-Move Messages may be sent yet. At

9:20 a.m., each of the four market

participants would have the right to

send Trade-or-Move Messages of any

size to either of the two market

participants crossing them. Any party

not filling such an order in full within

15 seconds would have to move its

quote at least one trading increment

beyond the crossing price, 19, to restore

an unlocked/uncrossed market.

Finally, assume that at 3:51 p.m.,

MMA plans to lock two market

participants—MMB and MMC—each

quoting 2,000 shares at 10.12 Because

the lock would occur between 3:50 p.m.

and 3:59:59 p.m., MMA is required to

send a Trade-or-Move Message via

SelectNet for a total of 10,000 shares to

MMB and MMC at least 15 seconds

before entering the locking quote. MMA

sends a Trade-or-Move Message for

5,000 shares to MMB. MMB may either

trade in full and stay at 10, trade in part

and move, or decline move (MMB must

move at least one increment away from

the locking price).13 If MMB chooses to

trade in full and remain at 10, MMA

could send another Trade-or-Move

Message to MMB. MMC receives a

5,000-share order, fills the order

partially (1,000 shares), and, as

required, moves its quote at least one

trading increment away from the

locking price.

d. Conclusion. In sum, the Nasdaq

believes that the proposal provides a

strong impetus to avoiding locked or

crossed markets near the open and the

close, while providing a mechanism for

the prompt adjustment of quotations to

more accurately reflect the state of the

market at that point in time. Moreover,

the Nasdaq believes that the change in

response time to the Trade-or-Move

Message and the increased size the

message will enhance the effectiveness

of the rule both before the open and the

close of the market, while providing the

predictability needed to facilitate the

programming of market participants

systems to comply with the rule.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with the

provisions of section 15A(b)(6) 14 and

section 11A(a)(1)(C) 15 of the Act.

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

of a registered national securities

association are designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principals 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; and

are not designed to permit unfair

discrimination between customers,

issuers, brokers, or dealers. Section

11A(a)(1)(C) provides, in relevant part,

that 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 or information with

respect to quotations for 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.

Nasdaq believes that the amendments

to NASD Rule 4613(e) are consistent

with section 15A(b)(6) and section

11A(a)(1)(C). By attempting to resolve

locks and crosses at the market opening

and closing, Nasadq believes that the

proposal will ensure the fair and orderly

operation of Nasdaq and the protection

of investors, as its purpose is to limit the

disruptions to the Nasdaq market and

the potential for harm to investors.

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.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect to 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 its finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization 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.

VI. 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 submission

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 No.

SR–NASD–00–76 and should be

submitted by February 28, 2001.

9398 Federal Register / Vol. 66, No. 26 / Wednesday, February 7, 2001 / Notices

16 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Future Priced Securities are private financing

instruments which were created as an alternative

means of quickly raising capital for issuers. A

Future Priced Security is generally structured in the

form of a convertible security and is often issued

via a private placement. See IM–4300.

4This provision is designed to address situations

where a company attempts to obtain a ‘‘backdoor

listing’’ on Nasdaq by merging with a Nasdaq issuer

with minimal assets and/or operations.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3112 Filed 2–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43907; File No. SR–NASD–

01–01]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. To Amend NASD Rule

4330(f) To Require a Nasdaq Issuer To

Apply for Initial Inclusion Following a

Reverse Merger With a Non-Nasdaq

Entity

January 30, 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 January 9,

2001, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), 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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Nasdaq has filed with the

Commission a proposed rule change to

amend NASD Rule 4330(f) to require a

Nasdaq issuer to apply for initial

inclusion following a reverse merger

with a non-Nasdaq entity. Nasdaq also

proposes to make conforming changes to

IM–4300, Interpretive Material

Regarding Future Priced Securities.3

Below is the text of the proposed rule

change. Proposed new language is

italicized; proposed deletions are in

brackets.

* * * * *

IM–4300. Interpretive Material

Regarding Future Priced Securities

* * * * *

[Change of Control and Change in

Financial Structure] Reverse Merger

NASD Rule 4330(f) provides:

[Nasdaq shall require a Nasdaq

SmallCap Market issuer to comply with

all applicable requirements for initial

inclusion under this Rule 4300 Series

and shall require a Nasdaq National

Market issuer to comply with all

applicable requirements for initial

inclusion under the Rule 4300 Series

and Rule 4400 Series in the event that

such issuer enters into a merger,

consolidation, or other type of

acquisition with a non-Nasdaq entity

(including domestic and foreign

corporations and limited partnerships),

which results in a change of control and

either a change in business or change in

the financial structure of the Nasdaq

SmallCap Market or Nasdaq National

Market issuer.]

An issuer must apply for initial

inclusion following a transaction

whereby the issuer combines with a

non-Nasdaq entity, resulting in a change

of control of the issuer and potentially

allowing the non-Nasdaq entity to

obtain a Nasdaq Listing (for purposes of

this rule, such a transaction is referred

to as a ‘‘Reverse Merger’’). In

determining whether a Reverse Merger

has occurred, Nasdaq will consider all

relevant factors including, but not

limited to, changes in the management,

board of directors, voting power,

ownership, and financial structure of

the issuer. Nasdaq will also consider the

nature of the businesses and the relative

size of the Nasdaq issuer and nonNasdaq entity.

This provision, which applies

regardless of whether the issuer obtains

shareholder approval for the

transaction, requires issuers to qualify

under the initial inclusion standards

following a Reverse M[m]erger [or

consolidation that results in a change of

control if there is also a change in either

the business or the financial structure of

the issuer].4 It is important for issuers to

realize that in certain instances, the

conversion of a Future Priced Security

may implicate this provision. For

example, if there is no limit on the

number of common shares issuable

upon conversion, or if the limit is set

high enough, the exercise of conversion

rights under a Future Priced Security

could result in a [change of control in

a deemed] Reverse M[m]erger [or

consolidation] with the holders of the

Future Priced Securities. [In addition,

the issuance of the Future Priced

Security and the large increase in the

number of common shares outstanding

after conversion of the Future Priced

Security may be viewed as a change in

financial structure.] In such event, an

issuer may be required to re-apply for

initial inclusion and satisfy all initial

inclusion requirements.

* * * * *

Rule 4330. Suspension or Termination

of Inclusion of a Security and

Exceptions to Inclusion Criteria

(a)–(e) No change.

(f) [Securities issued in connection

with the merger, consolidation, or other

type of acquisition of at least one issuer

of qualifying securities shall be

promptly included in Nasdaq, provided

that the conditions of Rule 4310(c) or

rule 4320(e) for securities that have

already been included are satisfied.

Nasdaq shall require a Nasdaq SmallCap

Market issuer to comply with all

applicable requirements for initial

inclusion under this Rule 4300 Series

and shall require a Nasdaq National

Market issuer to comply with all

applicable requirements for initial

inclusion under the Rule 4300 Series

and Rule 4400 Series in the event that

such issuer enters into a merger,

consolidation, or other type of

acquisition with a non-Nasdaq entity

(including domestic and foreign

corporations and limited partnerships),

which results in a change of control and

either a change in business or change in

the financial structure of the Nasdaq

SmallCap Market or Nasdaq National

Market issuer.]

An issuer must apply for initial

inclusion following a transaction

whereby the issuer combines with a

non-Nasdaq entity, resulting in a change

of control of the issuer and potentially

allowing the non-Nasdaq entity to

obtain a Nasdaq Listing (for purposes of

this rule, such a transaction is referred

to as a ‘‘Reverse Merger’’). In

determining whether a Reverse Merger

has occurred, Nasdaq will consider all

relevant factors including, but not

limited to, changes in the management,

board of directors, voting power,

ownership, and financial structure of

the issuer. Nasdaq will also consider the

nature of the businesses and the relative

size of the Nasdaq issuer and nonNasdaq entity.

* * * * *