Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to the Nasdaq Market Center Rules for Trade Reporting of Exchange-Listed Securities, 36220-36221 [E5-3220]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 119 (Wednesday, June 22, 2005)]
[Notices]
[Pages 36220-36221]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3220]



[[Page 36220]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51854; File No. SR-NASD-2005-065]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to the Nasdaq Market Center Rules for Trade Reporting of 
Exchange-Listed Securities

June 15, 2005.
    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 20, 2005, the National Association of Securities Dealers, Inc. 
(``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. Nasdaq has 
designated the proposed rule change as ``non-controversial'' under 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposed rule change effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is filing a proposed rule change to modify NASD Rule 
6420(a)(3)(A) to open the Nasdaq Market Center for exchange-listed 
securities trade reporting at 8 a.m. (eastern time). The text of the 
proposed rule change is set forth below. Proposed new language is in 
italics; proposed deletions are in [brackets].\5\
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    \5\ The proposed rule change is marked to show changes from the 
rule text appearing in the NASD Manual available at https://
www.nasd.com.
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* * * * *

6420. Transaction Reporting

    (a) When and How Transactions are Reported.
    (1) No Change.
    (2) No Change.
    (3)(A) All members shall report transactions in eligible securities 
executed outside the hours of 9:30 a.m. and 6:30 p.m. Eastern Time as 
follows:
    [(i) by transmitting the individual trade reports to the Nasdaq 
Market Center on the next business day (T+1) between 8 a.m. and 6:30 
p.m. Eastern Time;
    (ii) by designating the entries ``as/of'' trades to denote their 
execution on a prior day; and ]
    (i) Last sale reports of transactions in eligible securities 
executed between 8 a.m. and 9:30 a.m. Eastern Time shall be reported 
within 90 seconds after execution and shall be designated as ``.T'' 
trades to denote their execution outside normal market hours. 
Transactions not reported within 90 seconds shall also be designated as 
.T trades. Transactions not reported before 9:30 a.m. shall be reported 
after 4 p.m. and before 6:30 p.m. as .T trades.
    (ii) Last sale reports of transactions executed between midnight 
and 8:00 a.m. Eastern Time shall be reported between 8 a.m. and 9:30 
a.m. Eastern Time on trade date as ``.T'' trades. Transactions not 
reported before 9:30 a.m. shall be reported after 4 p.m. and before 
6:30 p.m. as .T trades.
    (iii) Last sale reports of transactions executed between 6:30 p.m. 
and midnight Eastern Time shall be reported on the next business day 
(T+1) between 8 a.m. and 6:30 p.m. Eastern Time and be designated ``as/
of'' trades.
    ([iii]iv) [by including the time of execution.] The party 
responsible for reporting on T+1, the trade details to be reported, and 
the applicable procedures shall be governed, respectively by paragraphs 
(b), (c), and (d) below.
    (B) No Change.
    (4)-(10) No Change.
    (b)-(f) 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 to modify NASD Rule 6420(a)(3) which governs 
reporting of transactions in exchange-listed securities that occur 
outside the hours of 9:30 a.m. and 6:30 p.m. Eastern Standard Time. 
Rule 6420(a)(3) currently provides that such trades shall be reported 
the next business day (T+1) on an ``as/of'' basis between the hours of 
8 a.m. and 6:30 p.m. This delayed trade reporting deprives investors of 
relevant market information that is useful in making informed 
investment decisions.
    Nasdaq is proposing that:
    (1) Trades executed between 8 a.m. and 9:30 a.m. be reported within 
90 seconds of execution;
    (2) trades executed between midnight and 8 a.m. be reported that 
trade day between 8 a.m. and 9:30 a.m.; and
    (3) trades executed between 6:30 p.m. and midnight be reported the 
next trade day (T+1) between 8 a.m. and 6:30 p.m. on an ``as/of'' 
basis.
    This proposal would be beneficial to investors and market 
participants alike for several reasons. First, requiring that the 
trades be reported closer to the time of execution and that they be 
reported along with the time of execution would further the goals of 
the Act. Specifically, the current proposal would improve transparency 
by reporting trades executed between 8 a.m. and 9:30 a.m. and hastening 
the reporting of trades and thereby increasing the likelihood that 
trades executed pre-market and after-hours will be closer to the 
prevailing market prices at the time they are reported. Such trades 
that are away from the prevailing market due to a delay in their 
reporting would be appropriately modified to alert the public to that 
delay.
    The proposed rule change would eliminate the confusion and burden 
created by having different trade reporting obligations for different 
securities. The proposal would impose the same reporting obligations 
for transactions in exchange-listed securities that currently exist for 
transactions in Nasdaq-listed securities reported to the Nasdaq Stock 
Market and the NASD Alternative Display Facility, and for transactions 
in non-Nasdaq over-the counter securities.\6\ By bringing NASD Rule 
6420(a) into line with other existing obligations, Nasdaq would 
eliminate confusion that currently exists without imposing any 
additional burden on NASD members.
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    \6\ See NASD Rules 5430(a) and 6620(a).
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    In fact, Nasdaq planned to make this precise change to exchange-
listed transaction reporting in 2003 but inadvertently failed to 
include it in a rule proposal.\7\ The 2003 Proposal

[[Page 36221]]

amended NASD Rules 5430, 6420, and 6620 to, among other things, change 
the reporting obligations for trades executed outside the hours of 8 
a.m. and 6:30 p.m. The 2003 Proposal specifically amended the after-
hours trade reporting obligations with respect to Nasdaq-listed and 
non-Nasdaq over-the-counter securities and should have similarly 
amended the obligations with respect to exchange-listed securities. The 
2003 Proposal did accomplish part of that goal, amending the 
obligations with respect to trades executed between 4 p.m. and 6:30 
p.m., but inexplicably failed to do so for the period between 6:30 p.m. 
and 9:30 a.m.
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    \7\ See Securities Exchange Act Release No. 49581 (April 19, 
2004); 69 FR 22578 (April 26, 2004) (SR-NASD-2003-159) (``2003 
Proposal'').
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    Implementation of the changes set forth in the 2003 Proposal was 
delayed pending further action by the Operating Committee of the 
Consolidated Tape Association which was recently completed. When Nasdaq 
announced the implementation of those changes set forth in the 2003 
Proposal,\8\ questions arose regarding market participants' obligations 
with respect to trades executed between 6:30 p.m. and 9:30 a.m. of the 
next day. Nasdaq has determined that modifying NASD Rule 6420(a) to 
conform to NASD Rules 5430 and 6620 would address those questions and 
alleviate any confusion that exists.
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    \8\ See Nasdaq Head Trader Alert 2005-042, dated April 
22, 2005.
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    To ensure that market participants have adequate opportunity to 
prepare for this rule change, Nasdaq would make the proposed change 
effective on June 27, 2005. In addition, firms would have until 
September 1, 2005, before compliance with the rule would be mandatory. 
In the interim, firms would be permitted to report trades under the 
current rule or under the rule as modified in this proposal.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\9\ in general, and with 
Section 15A(b)(6) of the Act,\10\ in particular, in that Section 
15A(b)(6) requires that the NASD's rules to be designed, among other 
things, to protect investors and the public interest. Nasdaq believes 
that its current proposal is consistent with the NASD's obligations 
under these provisions of the Act because it would improve transparency 
and price discovery by providing additional, timely last sale 
information. Nasdaq believes that the proposed rule change also would 
enhance competition with other markets that are open for pre-market 
trading at this time.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change would 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \11\ 
and Rule 19b-4(f)(6) thereunder.\12\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). The Commission notes that Nasdaq 
provided written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change at least five business days prior to the date of filing of 
the proposed rule change.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASD-2005-065 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9309.
    All submissions should refer to File Number SR-NASD-2005-065. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 also will be available for inspection and copying at the 
principal office of the NASD. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASD-2005-065 and should be submitted on or before July 
13, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3220 Filed 6-21-05; 8:45 am]
BILLING CODE 8010-01-P