Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10541

2 17 CFR 240.19b–4.

3The OTCBB is a quotation medium, owned by

the NASD and operated by Nasdaq, for subscribing

NASD members that permits quotations for

securities that generally are not traded on a national

securities exchange or quoted on Nasdaq.

4Securities Exchange Act Release No. 42908

(June 7, 2000), 65 FR 37808.

5See Letter from Edward S. Knight, Executive

Vice President and General Counsel, Nasdaq, to

Nancy Sanow, Assistant Director, Division of

Market Regulation, SEC (December 5, 2000). In

Amendment No. 1, Nasdaq proposed additional

rule text that sets forth a minimum increment by

which an NASD member must trade ahead of a

customer limit order to avoid violation of the

proposed rule (‘‘trading-ahead increment’’). This

minimum increment is the lesser of $0.05 (5 cents)

per share or one-half of the current inside spread.

6See Letter from Jeffrey S. Davis, Assistant

General Counsel, Nasdaq, to Nancy Sanow,

Assistant Director, Division of Market Regulation,

SEC (January 24, 2001). In Amendment No. 2,

Nasdaq provided additional explanation of the new

rule text and why the trading-ahead increment of

the lesser of $0.05 per share or one-half of the

current inside spread was selected.

7See In re E.F. Hutton & Co., Exchange Act

2 17 CFR 240.19b–4. 3The OTCBB is a quotation medium, owned by

the NASD and operated by Nasdaq, for subscribing

NASD members that permits quotations for

securities that generally are not traded on a national

securities exchange or quoted on Nasdaq. 4Securities Exchange Act Release No. 42908

(June 7, 2000), 65 FR 37808. 5See Letter from Edward S. Knight, Executive

Vice President and General Counsel, Nasdaq, to

Nancy Sanow, Assistant Director, Division of

Market Regulation, SEC (December 5, 2000). In

Amendment No. 1, Nasdaq proposed additional

rule text that sets forth a minimum increment by

which an NASD member must trade ahead of a

customer limit order to avoid violation of the

proposed rule (‘‘trading-ahead increment’’). This

minimum increment is the lesser of $0.05 (5 cents)

per share or one-half of the current inside spread.

6See Letter from Jeffrey S. Davis, Assistant

General Counsel, Nasdaq, to Nancy Sanow,

Assistant Director, Division of Market Regulation,

SEC (January 24, 2001). In Amendment No. 2,

Nasdaq provided additional explanation of the new

rule text and why the trading-ahead increment of

the lesser of $0.05 per share or one-half of the

current inside spread was selected.

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43944; File No. SR–NASD–

00–22]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendments

No. 1 and No. 2 by the National

Association of Securities Dealers, Inc.

Relating to Limit Order Protection for

OTC Bulletin Board Securities

February 8, 2001.

I. Introduction

On April 19, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’), through its subsidiary, the

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),

filed with the Securities and Exchange

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

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 2 thereunder, a

proposed rule change that would, for a

12-month pilot period, apply limit order

protection to a select subset of securities

traded on the OTC Bulletin Board

(‘‘OTCBB’’).3 The proposal was

published for comment in the Federal

Register on June 16, 2000.4 On

December 7, 2000, Nasdaq filed

Amendment No. 1 to the proposal.5 On

January 24, 2001, Nasdaq filed

Amendment No. 2 to the proposal.6 The

Commission received twelve comments

on the proposal. This notice and order

approves the proposed rule change,

solicits comment from interested

persons on Amendment Nos. 1 and 2,

and approves Amendment Nos. 1 and 2

on an accelerated basis.

II. Description of the Proposal

Nasdaq has proposed to adopt the

following new rule:

6541. Limit Order Protection

(a) Members shall be prohibited from

‘‘trading ahead’’ of customer limit

orders that a member accepts in

securities quoted on the OTCBB.

Members handling customer limit

orders, whether received from their own

customers or from another member, are

prohibited from trading at prices equal

or superior to that of the customer limit

order without executing the limit order.

Members are under no obligation to

accept limit orders from any customer.

(b) Members may not avoid such

obligation specified in paragraph (a)

through the provision of price

improvement, unless such price

improvement is for a minimum of the

lesser of $.05 or one-half (1⁄2) of the

current inside spread. For purposes of

this rule, the inside spread shall be

defined as the difference between the

best reasonably available bid and offer

in the subject security.

(c) Notwithstanding subparagraph (a)

of this rule, a member may negotiate

specific terms and conditions applicable

to the acceptance of limit orders only

with respect to such orders that are:

(1) for customer accounts that meet

the definition of an ‘‘institutional

account’’ as that term is defined in Rule

3110(c)(4); or

(2) for 10,000 shares or more, and

grater than $20,000 in value.

(d) Contemporaneous trades

A member that trades through a held

limit order must execute such limit

order contemporaneously, or as soon as

practicable, but in no case later than

five minutes after the member has

traded at a price more favorable than

the customer’s price.

(e) Application

(1) This rule shall apply only to

OTCBB securities specifically identified

as such through the Nasdaq

Workstation service.

(2) This rule shall apply, regardless of

whether the subject security is

additionally quoted in a separate

quotation medium.

(3) This rule shall apply from 9:30

a.m. to 4 p.m. Eastern Time.

(4) This rule shall be in effect until [12

months from date of Commission

approval].

NASD IM–2110–2 currently prohibits

NASD member firms from trading ahead

of customer limit orders in Nasdaq

securities. The impetus for this rule

(commonly known as the ‘‘Manning

Rule’’) was a case brought by a customer

of a member firm, William Manning,

who alleged that the firm had accepted

his limit order, failed to execute it, and

violated its fiduciary duty to him by

trading ahead of the order. In the

Manning decision,7 the NASD found,

and the Commission affirmed, that a

member firm, upon acceptance of a

customer’s limit order, undertakes a

fiduciary duty to its customer and

cannot trade for its own account at

prices more favorable than the

customer’s order. Although at one time

the NASD took the position that its

members could trade ahead of customer

limit orders provided they disclosed

such practice to the customer,8 NASD

IM–2110–2 eliminated this disclosure

‘‘safe-harbor’’ for all securities listed on

Nasdaq.

Nasdaq states that it is now

appropriate to extend the principles of

the Manning Rule to the OTCBB and has

proposed to adopt NASD Rule 6541 that

will apply limit order protection to a

select subset of OTCBB securities.9

NASD Rule 6541 will be instituted as a

12-month pilot program. While NASD

members will be under no obligation to

accept limit orders, those willing to do

so will be prohibited from trading the

securities covered by the pilot program

at prices equal or superior to any

customer limit orders held by the firm,

regardless of whether those orders are

from their own customers or from

customers of firms who have routed

those orders to the member for

execution.10 NASD Rule 6541 will apply

even to those members who, in the past,

have fully disclosed to their customers

that they may trade ahead of customer

limit orders.

Nasdaq intends to apply the pilot

program to approximately 325 OTCBB

securities.11 Nasdaq will select

securities for the pilot that will afford it

10542 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

12 ‘‘The value of a limit order is calculated by

multiplying the price per share specified in that

order by the number of shares specified in the

order. Thus, the value of a limit order does not

include any markup, markdown, commission,

commission equivalent, sales credit, or other

internal credit.’’ Securities Exchange Act Release

No. 35751 (May 22, 1995), 60 FR 27997, 27998 n.17

(May 26, 1995) (order approving SR–NASD–94–62,

which amended NASD IM–2110–2 to prohibit a

member firm from trading ahead of limit orders of

other firm’s customers that have been sent to that

member).

13See NASD Notice to Members 95–67 (Question

and Answer No. 5) (establishing a ‘‘general time

parameter’’ of one minute); NASD Notice to

Members 98–78 (clarifying that, outside of normal

market conditions, an NASD member would not be

presumptively deemed in violation of the limit

order protection rule if it failed to execute a

customer limit order within the one-minute period,

provided it did so ‘‘as soon as possible under the

circumstances’’).

14NASD Rule 6541 also provides that, if market

conditions or other circumstances cause the

member to exceed this five-minute requirement, the

member should continue to attempt to execute the

order as quicly as possible while sufficiently

documenting the particular conditions or

circumstances causing this delay.

15Nasdaq has stated that the hours of application

would adjust accordingly on days in which the

OTCBB’s market hours are shortened due to

holidays or other events.

16See NASD IM–2110–2(a).

17See NASD Notice to Members 97–57 (Question

and Answer No. 7). See also Securities Exchange

Act Release No. 39049 (September 10, 1997), 62 FR

48912 (September 17, 1997) (increasing minimum

trading-ahead increment in Nasdaq securities from

1⁄64th to 1⁄16th of $1.00 per share).

18See NASD Rule 6541(b).

the best opportunity to test the effects of

the proposed rule on a wide range of

OTCBB securities. One set will include

the 200 most actively traded OTCBB

securities, which will be chosen on the

basis of specific price and volume

parameters. An additional 100 securities

will be selected as a representative

cross-section of all remaining OTCBB

securities. The implementation of the

proposed rule upon these 300 securities

will be phased in over a period of

several weeks, beginning with the top

200 actively traded securities, then

proceeding to the 100 representative

cross-section securities. According to

Nasdaq, this phase-in process is

intended to protect against any

unanticipated or deleterious effect that

might occur through an immediate

application to all securities. The

remaining 25 securities will be selected

on a case-by-case basis after the initial

phase-in period has been completed.

Nasdaq anticipates that this remainder

will be securities that are either highly

liquid and widely held by retail

investors or securities or have been

delisted from Nasdaq or an exchange.

Nasdaq advises that it will monitor

the operation of this rule and its effect

on the OTCBB market throughout the

pilot period. Prior to the end of the

pilot, Nasdaq will evaluate the impact of

the proposed rule and report its findings

to the Commission and, thereafter,

determine the appropriate course of

action.

Nasdaq points out that there are

significant differences between Nasdaq

and the OTCBB. While both are

quotation mediums, the OTCBB does

not afford issuers a means to list their

securities on the service and, thus, does

not maintain relationships with quoted

issuers or impose quantitative listing

standards. In addition, OTCBB

securities are quoted by market makers

that enter their quotes through a closed

computer network, which is accessed

through the Nasdaq Workstation II.

Unlike Nasdaq, the OTCBB does not

have an order delivery or execution

system. Therefore, although application

of NASD Rule 6541 is intended to

substantially mirror NASD IM–2110–2,

Nasdaq has made four modifications to

accommodate the differences between

the Nasdaq and the OTCBB.

First, NASD Rule 6541 contains a

lower threshold for order size at which

the prohibition on trading ahead of

customer limit orders would not apply.

NASD IM–2110–2, which sets forth a

general prohibition against trading

ahead of customer limit orders in

Nasdaq securities, permits NASD

members to negotiate exceptions to the

general rule with a customer when the

customer submits an order for a Nasdaq

security of at least 10,000 shares that

has a value greater than $100,000.12 Due

to the relatively lower share prices of

OTCBB securities, Nasdaq has set the

corresponding thresholds at 10,000

shares and $20,000 for the securities

covered by the OTCBB pilot program.

Nasdaq advises that it will study these

thresholds as part of its analysis of the

pilot and may recommend adjustments,

if necessary.

Second, the Manning Rule for Nasdaq

securities and the rule to be applied to

the OTCBB will differ with respect to

the time interval allowed for

‘‘contemporaneous’’ executions. Under

NASD IM–2110–2, an NASD member is

not deemed to have traded ahead of a

customer limit order in a Nasdaq

security if the member provides a

‘‘contemporaneous’’ execution of that

order. ‘‘Contemporaneous’’ has been

interpreted for Nasdaq securities to

require an execution as quickly as

possible, but, absent reasonable and

documented justification, within one

minute.13 Unlike Nasdaq, which has an

automated order delivery and execution

system, the OTCBB currently provides

no means of automated communication.

Market makers in OTCBB securities

generally must contact each other via

telephone, a time consuming process

that can provide especially burdensome

during periods of high trading volume.

Therefore, Nasdaq has proposed that, for

OTCBB securities covered by the pilot,

a ‘‘contemporaneous’’ trade must be

executed as quickly as possible, but in

no case later than five minutes after

becoming marketable.14 Nasdaq advises

that it will study this provision and may

recommend modifications, as

appropriate, in conjunction with the

review of the pilot program.

Third, the pilot program will apply

only from 9:30 a.m. to 4 p.m.,15

although NASD IM–2110–2 applies

from 9:30 a.m. until 6:30 p.m.16 This is

to accommodate the fact that, although

the OTCBB service is available from

7:30 a.m. to 6:30 p.m., prices on the

OTCBB are required to be firmly only

during the normal market hours of 9:30

a.m. to 4 p.m.

The fourth difference between NASD

Rule 6541 and NASD IM–2110–2 is

discussed in the following section.

III. Amendment Nos. 1 and 2

Under NASD IM–2110–2, a member

firm that accepts and holds an

unexecuted limit order from its

customer (whether its own customer or

a customer of another member) in a

Nasdaq security and that continues to

trade the subject security for its own

market-making account at prices that

would satisfy the customer’s limit order,

without executing that limit order, is

deemed to have acted in a manner

inconsistent with just and equitable

principles of trade, in violation of NASD

Rule 2110. However, the NASD issued

guidance stating that an NASD member

would not be deemed to violate NASD

member would not be deemed to violate

NASD IM–2110–2 if it executed its own

trade ahead of the customer limit order

at a price that improved on the

customer’s order by at least the lesser of 1⁄16th of $1.00 per share (6.25 cents) or

one-half the inside spread.17 The fourth

principal difference between NASD

Rule 6541 and NASD IM–2110–2 is that,

for the OTCBB pilot program, an NASD

member will be permitted to trade

ahead of a customer limit order if it

offers price improvement of the lesser of

$0.05 (5 cents) per share or one-half of

the inside spread. This modification

reflects the fact that OTCBB securities

generally trade in decimals while

Nasdaq securities trade in fractions

(with the exception of certain securities

trading in decimals on a pilot basis).

In Amendment No. 1, Nasdaq

proposed additional rule text 18 which

set forth the trading-ahead increment

discussed above. In Amendment No. 2,

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10543

19 153 F.3d 266, 271 (3d Cir. 1998) (duty of best

execution ‘‘requires that a broker-dealer seek to

obtain for its customer orders the most favorable

terms reasonably available under the

circumstances’’).

20See E-mail from Kjrock5649@aol.com to SEC

(June 22, 2000); E-mail from Al Glenn to SEC (June

22, 2000); E-mail from Dan Tramantozzi to SEC

(June 22, 2000); E-mail from Mike Mimbach to SEC

(June 25, 2000); E-mail from R. Richardson to SEC

(June 26, 2000); Letter from William L. Morrow,

Principal, SBX, Inc. to SEC (July 5, 2000); E-mail

from Victor A. Marzarella to SEC (July 13, 2000);

E-mail from Jonathan A. Janssen to SEC (July 13,

2000); E-mail from Kenneth Veneziano, Senior Vice

President and General Counsel, GlobeNet Capital

Corporation, to SEC (July 13, 2000) (‘‘GlobeNet Email’’).

21See E-mail from Erol Denizkurt to SEC (June 22,

2000); E-mail from Jim Mareno to SEC (June 22,

2000); E-mail from T.L. Kimber to SEC (June 26,

2000).

22 In approving this rule, the Commission has

considered its impact on efficiency, competition,

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

23 15 U.S.C. 78o–3(b)(6).

24See Exchange Act Release No. 34279 (June 29,

1994), 59 FR 34883 (July 7, 1994).

Nasdaq indicated that this increment is

based upon, and consistent with,

Nasdaq’s guidance on members’

Manning obligations when trading

Nasdaq National Market and SmallCap

securities. Nasdaq also stated that there

is a balance to be struck, because

requiring too much price improvement

could limit price competition by raising

market makers’ trading costs too high,

while requiring too little price

improvement could potentially isolate

pending limit orders without

meaningfully benefiting the market.

Nasdaq advised that its OTC Bulletin

Board Advisory Committee considered

the matter and concluded that $0.05 per

share is a reasonable, meaningful cost to

impose for stepping ahead of a customer

limit order. Nasdaq believes that, based

upon this analysis and its experience in

applying the Manning Rule to Nasdaq

securities, the aggregate benefit to the

market of narrowing the spread by a

$0.05 appears to outweigh the costs to

a single market participant of not

receiving an execution.

In Amendment No. 2, Nasdaq also

clarified the requirement that, for

purposes of NASD Rule 6541(b), the

inside spread will be defined as the

difference between ‘‘the best reasonably

available bid and offer.’’ Nasdaq states

that this phrase comes from judicial

precedent describing the broker-dealer’s

duty of best execution and cites the case

of Newton v. Merill, Lynch, Pierce,

Fenner and Smith.19 Nasdaq indicates

that, by importing this standard into

NASD Rule 6541, it will signal to NASD

members that they must use the same

reasonable diligence and care to find the

best prices when trading OTCBB

securities that they use when trading

Nasdaq National Market and SmallCap

securities.

Nasdaq believes, however, that the

determination of what is ‘‘reasonably

available’’ is largely factual and best

performed on a case-by-case basis.

Nasdaq expects that broker-dealers

seeking the best inter-dealer market for

a customer order would, at a minimum,

monitor not only the OTCBB quotations

distributed as part of the Nasdaq Level

1 service, but also quotations for those

same securities in the Pink Sheets or

any other system of general circulation

to broker-dealers that regularly

disseminates quotations of identified

broker-dealers.

Finally, Nasdaq states in Amendment

No. 2 that, to assist members in

fulfilling their obligations under NASD

Rule 6541, it will issue a Notice to

Members describing the new rule’s

operation within 30 days following

Commission approval of the proposal.

Nasdaq has stated that it will then wait

an additional 30 days following

publication of this Notice to Members

before making NASD Rule 6541

operational.

IV. Summary of Comments on Original

Proposal

The Commission received twelve

comments on the proposal. Nine of the

commenters strongly supported

Nasdaq’s proposal.20 The three other

commenters, while also supporting the

application of Manning Rule principles

to the OTCBB, expressed

disappointment that the proposal did

not go further by establishing limit order

protection for all OTCBB securities on a

permanent basis, rather than for just a

selector group of OTCBB securities on a

pilot basis.21

V. Discussion

A. Approval of Proposal

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act and the regulations thereunder

applicable to the NASD.22 In particular,

the Commission believes that the

proposal is consistent with Section

15A(b)(6) of the Act.23 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 equivalent principals

of trade; to remove impediments to the

perfect the mechanism of a free and

open market and a national market

system; in general, to protect investors

and the public interest.

When the Commission approved the

original proposal that instituted limit

order protection for Nasdaq securities, it

stated:

The Commission believes that the rule

change [which instituted NASD IM–

2110–2] will enhance investor

confidence by improving the quality of

executions for customers. By giving a

customer’s limit order priority over the

marker’s proprietary trading, more trade

volume will be available to be matched

with the customer’s order, resulting in

quicker and more frequent executions

for customers.

The NASD’s proposal will also

improve the price discovery process in

NASDAQ securities. Limit order aid

price discovery by adding liquidity to

the market and by tightening the spread

between the bid and ask price of a

security. In the past, customers may

have refrained from placing limit orders

because of the uncertainty of the

difficulty in obtaining an execution at a

price between the spread. The new rule

will encourage dealers to executive

customer limit orders in a timely

fashion so that they may resume their

proprietary trading activities. The

practice of delaying executions until the

inside price reaches the customer’s limit

order also impedes price discovery by

shielding those orders from the rest of

the investing public. More expeditious

handling of customer limit orders * * *

will provide investors with a more

accurate indication of the buy and sell

interest at a given moment.24

The Commission finds that the

reasons for providing limit order

protection for customer limit orders in

Nasdaq securities, set forth above, also

apply in the context of OTCBB

securities. In the Commission’s view,

the proposed rule change is an

appropriate first step in bringing limit

order protection to the OTCBB, and the

pilot program will also Nasdaq the

opportunity to study the application of

the new rule for OTCBB securities and

to consider further refinements.

Moreover, the Commission finds that

Nasdaq’s proposal for selecting the

number and types of securities to

participate in the pilot program to be

reasonable and consistent with the Act.

The Commission also believes that the

four accommodations made from NASD

IM–2110–2 to recognize the structure of

the OTCBB are reasonable and

consistent with the Act. In particular,

the minimum size threshold that

qualifies larger orders for an exception

to NASD Rule 6541 and the hours of

effectiveness appropriately recognize

the OTCBB environment. In addition,

the Commission believes that the

increment by which OTCBB market

makers will be required to step ahead of

10544 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

25See Securities Exchange Act Release No. 43084

(July 28, 2000), 65 FR 48406, 48420 (August 8,

2000) (proposing release for rules relating to

disclosure of order execution and routing practices).

26 15 U.S.C. 78s(b)(2).

27Id.

2817 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 43814

(January 8, 2001), 66 FR 3630.)

4Nasdaq previously filed under section

19(b)(3)(A)(ii) a proposed rule change to increase

the fees beginning December 13, 2000, which was

immediately effective upon filing. Securities

Exchange Act Release No. 43769 (December 22,

2000) (SR–NASD–00–73), 66 FR 826 (January 4,

2001). Nasdaq also filed a parallel rule filing to

effect amendments to the EWN II fee structure to

apply to non-NASD members. Securities Exchange

Act Release No. 43768 (December 22, 2000) (SR–

NASD–00–74), 66 FR 824 (January 4, 2001).

5Subscriber Bulletins are mailed to Nasdaq

Workstation II subscribers and also may be found

at www.nasdaqtrader.com/trader/news/

subscriberbulletins.

customer limit orders—the lesser of

$0.05 per share or one-half of the

current inside spread—is appropriate

for the pilot program. As the

Commission has previously noted,

market makers electing to trade ahead of

customer limit orders must be required

to do so by a sufficiently large

increment, otherwise the benefits of

limit orders on price competition are

lost.25 The Commission believes that the

proposed increment for the pilot

program satisfactorily balances the

interests of providing limit order

protection against the benefits of

offering price improvement. However,

the Commission expects that, during the

pilot period, Nasdaq will study all

aspects of new NASD Rule 6541. After

reviewing the pilot’s operation, Nasdaq

will have the opportunity to propose

further refinements to the rule, if

necessary.

In addition, one commenter

recommended that NASD Rule 6541

include a two-minute standard for

contemporaneous executions, rather

than five minutes proposed by Nasdaq.

The Commission believes that the fiveminute standard is a reasonable first

step, and that Nasdaq will have the

opportunity to propose any appropriate

refinements to NASD Rule 6541 at the

conclusion of the pilot program.

B. Pilot Program

The Commission is approving this

proposal on a 12-month pilot basis

ending as of February 8, 2002. As noted

above, Nasdaq has stated that NASD

Rule 6541 will not become operational

until 30 days after issuance of a Notice

to Members discussing the operation of

the new rule and that the pilot securities

will be subject to a phase-in period.

C. Accelerated Approval of Amendment

Nos. 1 and 2

The Commission finds good cause for

approving Amendment Nos. 1 and 2 to

the proposal prior to the thirtieth day

after the date of public of notice in the

Federal Register, pursuant to Section

19(b)(2) of the Act.26 The original

proposal has been published in the

Federal Register, and public comment

on the proposal was favorable. The

Commission believes that Amendment

Nos. 1 and 2 do not materially alter the

original filing, but merely clarify the

obligations imposed by NASD Rule

6541 in a manner consistent with the

obligations that already exist with

respect to Nasdaq National Market and

SmallCap securities. The Commission

believes, moreover, that approving

Amendment Nos. 1 and 2—which set

forth and describe the trading-ahead

increment—at the same time as the

original proposal furthers the investor

protection goals of the Act.

VI. Solicitation of Comments on

Amendments Nos. 1 and 2

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment Nos.

1 and 2, including whether the

amendments are 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 File No.

SR–NASD–00–22 and should be

submitted by March 8, 2001.

VII. Conclusion

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,27 that the

proposed rule change (SR–NASD–00–

22) is approved on a pilot basis and that

Amendment Nos. 1 and 2 thereto are

approved on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.28

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3800 Filed 2–14–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43943; File No. SR–NASD–

00–79]

Self-Regulatory Organizations; Order

Granting Accelerated Approval of

Proposed Rule Change by the National

Association of Securities Dealers, Inc.,

Relating to EWN II Fees for NASD

Members

February 8, 2001.

Introduction

On December 21, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’), through its subsidiary, The

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),

submitted to the Securities and

Exchange Commission (‘‘Commission’’),

pursuant to section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a

proposed rule change relating to

Enterprise Wide Network II (‘‘EWN II’’)

Fees for NASD Members.

The proposed rule change was

published for comment in the Federal

Register on January 16, 2001.3 No

comments were received on the

proposal. This order approves the

proposal.

II. Description of the Proposal

In its proposed rule change, Nasdaq

proposed to pass on costs associated

with increased bandwidth demands of

the EWN II to NASD members for the

period December 1–12, 2000.4 In the

September/October 200 issue of

Nasdaq’s Subscriber Bulletin,5 Nasdaq

announced that it had increased the

bandwidth of its Enterprise Wide

Network II from 128 kilobits (‘‘kb’’) to

192 kb. This increased bandwidth

provides Nasdaq with the ability to

support increased share volume and

new products and trading applications

that will be introduced. A description of

the history of EWN II and the recent

bandwith increase may be found in SR–