Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the National Association of Securities Dealers, Inc., To Extend the Nasdaq International Service Pilot Program

[Federal Register Volume 64, Number 199 (Friday, October 15, 1999)]
[Notices]
[Pages 56002-56004]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26892]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41988; File No. SR-NASD-99-58]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc., To Extend the Nasdaq 
International Service Pilot Program

October 7, 1999.
    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 October 6, 1999, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Nasdaq Stock Market, Inc. (``Nasdaq''). The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons and to grant

[[Page 56003]]

accelerated approval to the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD proposes to extend for one year: (1) The term of the 
Nasdaq International Service (``Service'') pilot program and (2) the 
effectiveness of certain rules (``International Rules'') that are 
unique to the Service. The proposed rule change does not entail any 
modification of the International rules. The present authorization for 
the Service and the International Rules expires on October 9, 1999. 
With this filing, the pilot program for the Service and the 
International Rules would be extended until October 9, 2000.

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 NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The NASD proposes to extend for an additional year, until October 
9, 2000, the pilot operation of the Service and the effectiveness of 
the International Rules governing broker-dealers' access to and use of 
the Service. The existing pilot operation of the Service and the 
International Rules was originally authorized by the Commission in 
October 1991 \3\ and the Service was launched on January 20, 1992. The 
pilot has since been extended and is currently set to expire on October 
9, 1999.\4\
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    \3\ See Securities Exchange Act Release No. 29812 (October 11, 
1991), 56 FR 52082 (October 17, 1991).
    \4\ See Securities Exchange Act Release No. 33037 (October 8, 
1993), 58 FR 53752 (October 18, 1993) (extending the pilot for two 
years through October 11, 1995); Securities Exchange Act Release No. 
36359 (October 11, 1995), 60 FR 53820 (October 17, 1995), (extending 
the pilot for two years through October 11, 1997); Securities 
Exchange Act Release No. 39216 (October 7, 1997), 62 FR 53673 
(October 15, 1997) (extending the pilot for one year through October 
9, 1998); Securities Exchange Act Release No. 40528 (October 7, 
1998), 63 FR 55165 (October 14, 1999) (extending the pilot for one 
year through October 9, 1999).
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    The Service supports an early trading session running from 3:30 
a.m. to 9:00 a.m. Eastern Time on Each U.S. business day (``European 
Session'') that overlaps the business hours of the London financial 
markets. Participation in the Service is voluntary and is open to any 
authorized NASD member firm or its approved broker-dealer affiliate in 
the U.K. A member participates as a Service market maker either by 
staffing its trading facilities in the U.S. or the facilities of its 
approved affiliate during the European Session. The Service also has a 
variable opening feature that permits Service market makers to elect to 
participate starting from 3:30 a.m., 5:30 a.m. or 7:30 a.m. Eastern 
Time. The election is required to be made on a security-by-security 
basis at the time a firm registers with the NASD as a Service market 
maker.\5\ At present, there are no Service market makers participating 
in the Service.
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    \5\ Regardless of the opening time chosen by the Service market 
maker, the Service market maker is required to fulfill all the 
obligations of a Service market maker from that time (i.e., either 
3:30 a.m., 5:30 a.m. or 7:30 a.m.) until the European Session closes 
at 9:00 a.m. Eastern Time. See Securities Exchange Act Release No. 
32471 (June 16, 1993), 58 FR 33965 (June 22, 1993) (approval of File 
No. SR-NASD-92-54).
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    As noted above, the NASD is seeking to extend the pilot term for 
one year. During this period, the NASD will continue to reevaluate the 
Service's operation and consider possible enhancements to the Service 
to broaden market-maker participation. The NASD continues to view the 
Service as a significant experiment in expanding potential 
opportunities for international trading via systems operated by Nasdaq. 
Accordingly, the NASD believes that this pilot operation warrants an 
extension to permit possible enhancement that will increase the 
Service's utility and attractiveness to the investment community.\6\ 
The NASD maintains its belief that it is extremely important to 
preserve this facility and the opportunities it provides, especially in 
light of the increasingly global nature of the securities markets and 
the trend of cross-border transactions generally.
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    \6\ Assuming that the pilot term is extended, the NASD will 
continue to supply the Commission with the statistical reports 
prescribed in the initial approval order for the Service order at 
six month intervals.
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    In addition, the Service still serves an invaluable role as a 
critical early warning mechanism in the context of significant changes 
involving Nasdaq software and hardware systems. Specifically, because 
the Service operates in the early morning hours prior to the opening of 
trading in the domestic session of Nasdaq, the Service has provided for 
the early detection of systems or communications problems when Nasdaq 
implements these systems changes.
2. Statutory Basis
    The NASD believes the proposed rule change is consistent with 
Sections 11A(a)(1)(B) \7\ and (C) \8\ and 15A(b)(6) \9\ of the Act. 
Subsections (B) and (C) of Section 11A(a)(1) \10\ set forth the 
Congressional goals of achieving more efficient and effective market 
operations, broader availability of information with respect to 
quotations for securities, and the execution of investor orders in the 
best market through the use of advanced data processing and 
communications techniques. Section 15A(b)(6) \11\ requires, among other 
things, that the NASD rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities. The NASD believes that the proposed extension of the 
Service and the International Rules is fully consistent with these 
statutory provisions.
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    \7\ 15 U.S.C. 78k-1(a)(1)(B).
    \8\ 15 U.S.C. 78k-1(a)(1)(C).
    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78k-1(a)(1).
    \11\ 15 U.S.C. 780-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD believes that the proposed rule change will not 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. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements

[[Page 56004]]

with respect to the proposed rule change that are filed with the 
Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-NASD-99-58 and 
should be submitted by November 5, 1999.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with Sections 11A(a)(1)(B) and (C) and 15A(b)(6) of the Act.\12\ The 
Commission believes that, in connection with the globalization of 
securities markets, the Service provides an opportunity to advance the 
statutory goals of: (1) Achieving more efficient and effective market 
operations; (2) broader availability of information with respect to 
quotations for securities; (3) the execution of investor orders in the 
best market through the use of advanced data processing and 
communications techniques; and (4) fostering cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities.
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    \12\ In reviewing this proposal, the Commission has considered 
its potential impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
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    The Commission continues to view the Service as a significant 
experiment in expanding potential opportunities for international 
trading via a system operated by Nasdaq. The Service is intended to 
promote additional commitments of member firms' capital to market 
making and to attract commitments from firms based in Europe that 
currently do not function as Nasdaq market makers. Although there are 
no Service market makers participating in the Service, the NASD plans 
to reevaluate the Service's operation and consider possible 
enhancements to the Service to broaden market maker participation. 
Additionally, the Service provides an early warning system when Nasdaq 
implements significant changes involving its hardware and software 
systems. Because the Service operates before the opening of the 
domestic session of Nasdaq, the Service allows for the early detection 
of systems or communication problems. Accordingly, the Commission 
believes that this pilot operation warrants an extension to permit 
possible enhancements that will increase the Service's utility and 
attractiveness to the investment community. Any changes to the 
operation of the Service will be filed pursuant to Section 19(b)(2) of 
the Act.\13\
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    \13\ 15 U.S.C. 78s(b)(2).
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    Pursuant to Section 19(b)(2) of the Act,\14\ the Commission finds 
good cause for approving the proposed rule change prior to the 30th day 
after the date of publication of notice of filing thereof. The 
Commission believes that it is appropriate to approve on an accelerate 
basis the one year extension of the Service, until October 9, 2000, to 
ensure the continuous operation of the Service, which is set to expire 
on October 9, 1999.
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    \14\ Id.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NASD-99-58) is hereby 
approved on an accelerated basis.

    \15\ Id.
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-26892 Filed 10-14-99; 8:45 am]
BILLING CODE 8010-01-M