[Federal Register: June 17, 2004 (Volume 69, Number 116)]
[Notices]
[Page 33969-33971]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jn04-103]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49833; File No. SR-NASD-2004-056]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by
the National Association of Securities Dealers, Inc. Relating to Short-
Sale ACT Reporting Requirements
June 8, 2004.
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 March 31, 2004, 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. On May 21,
2004, Nasdaq filed Amendment No. 1 on behalf of the NASD.\3\ Nasdaq has
designated this proposal as a stated policy, practice, or
interpretation with respect to the meaning, administration, or
enforcement of an existing rule pursuant to Section 19(b)(3)(A) of the
Act,\4\ and Rule 19b-4(f)(1)\5\ thereunder, which renders the proposal
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change, as
amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Mary M. Dunbar, Vice-President and Deputy
General Counsel, Nasdaq, to Katherine A. England, Assistant
Director, Division of Market Regulation, Commission, dated May 20,
2004 (``Amendment No. 1'').
\4\ 15 U.S.C 78s(b)(3)(A).
\5\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is filing with the Commission a proposed rule change to
clarify that members are required to indicate on their Automated
Confirmation Transaction (``ACT'') Service reports whether a sale is a
short sale or short sale exempt transaction for all securities,
including exchange-listed, SmallCap, OTC Bulletin Board and OTC equity
securities.
The text of the proposed rule change is below. Proposed new
language is underlined.
* * * * *
IM 6130. Trade Reporting of Short Sales
The NASD's short sale rule (Short Sale Rule or Rule 3350) generally
prohibits members from effecting short sales in NNM securities at or
below the inside bid when the current inside bid is below the previous
inside bid. Rule 6130(d)(6) requires that members indicate on ACT
reports whether a transaction is a short sale or a short sale exempt
transaction (``ACT short sale reporting requirements''). Rule 6130
explicitly requires members to file ACT reports not just for NNM
securities transactions, but for other securities transactions,
including transactions in exchange-listed, SmallCap, convertible debt,
OTC Bulletin Board, and OTC equity securities. Thus, all short sale
transactions in these securities reported to ACT must carry a ``short
sale'' indicator (or a ``short sale exempt'' indicator if it is a short
sale transaction in an NNM or exchange-listed security that qualifies
for an exemption from Rule 3350 or SEC Rule 10a-1).
* * * * *
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
[[Page 33970]]
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
In 1992, the NASD, believing that short sale regulation is
important to the orderly operation of securities markets, proposed a
short sale rule for trading of Nasdaq National Market (``NNM'')
securities that incorporates the protections provided by Rule 10a-1 of
the Act.\6\ On June 29, 1994, the Commission approved the NASD's short
sale rule applicable to short sales \7\ in NNM securities on an
eighteen-month pilot basis through March 5, 1996 (the ``Short Sale
Rule'').\8\ The NASD and the Commission have extended NASD Rule 3350
numerous times, most recently, until June 15, 2004.
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\6\ 17 CFR 240.10a-1.
\7\ A short sale is a sale of a security that the seller does
not own or any sale that is consummated by the delivery of a
security borrowed by, or for the account of, the seller. To
determine whether a sale is a short sale, members must adhere to the
definition of a ``short sale'' contained in Rule 3b-3 of the Act,
which is incorporated into NASD's short sale rule by NASD Rule
3350(k)(1).
\8\ See Securities Exchange Act Release No. 34277 (June 29,
1994), 59 FR 34885 (July 7, 1994) (``Short Sale Rule Approval
Order'').
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As part of the Short Sale Rule, the NASD also amended NASD Rule
6130(d)(6) (previously ACT Rule (d)(4)(F)) to require that members
include in ACT information regarding whether a sale is a short sale or
short sale exempt (``short sale ACT reporting requirements''). Nasdaq
believes that, because the Short Sale Rule applies only to NNM
securities, and earlier guidance was issued relating specifically to
short sale ACT reporting requirements for NNM securities,\9\ some
members may have been confused as to the types of securities that are
subject to the short sale ACT reporting requirements. Through this
filing, Nasdaq is clarifying that, as required by the text of the rule,
the short sale ACT reporting requirements apply to transactions in all
securities reported to ACT, including exchange-listed, SmallCap, OTC
Bulletin Board and OTC equity securities. Nasdaq is submitting this
filing to eliminate any ambiguity and make clear that members are
required to annotate whether a sale is a short sale or short sale
exempt, as applicable, pursuant to NASD Rule 6130(d)(4) for all ACT
reports.
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\9\ See ACT Notice 94-1 (August 22, 1994).
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The proposed interpretation will become effective immediately upon
filing, but Nasdaq will allow firms a 60-day period to re-program their
systems to comply with the interpretation. Nasdaq believes that a 60-
day period is necessary and reasonable in light of any confusion that
may have existed to date. Within 10 days after filing this proposal,
Nasdaq will publish a Notice to Members describing firms' obligations
under IM 6130. The publication of that Notice to Members will trigger
the start of the 60-day period.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the Act, including Section 15A(b)(6) \10\ of the Act, which requires,
among other things, that a registered national securities association's
rules be designed to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market and a national market
system, and to protect investors and the public interest. Nasdaq
believes the proposed rule change is consistent with the Act in that it
clarifies short sale reporting requirements and promotes compliance
with and regulation of short sale requirements.
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\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 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(i) \11\ of the Act, and subparagraph (f)(1) of Rule 19b-4
thereunder,\12\ because it is concerned solely with the interpretation
of the meaning, administration or enforcement of an existing NASD rule.
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\11\ 15 U.S.C 78s(b)(3)(A)(i).
\12\ 17 CFR 240.19b-4(f)(1).
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At any time within 60 days of the filing of a rule change pursuant
to Section 19(b)(3)(A) of the Act, the Commission may summarily
abrogate the 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.\13\
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\13\ For purposes of determining the effective date of the
filing and calculating the 60-day abrogation date, the Commission
considers the period to commence on May 21, 2004, the date Nasdaq
filed Amendment No. 1.
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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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2004-056 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-NASD-2004-056. 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 (http://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 Section, 450 Fifth
Street, NW.,
[[Page 33971]]
Washington, DC 20549. 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-2004-056 and should be
submitted on or before July 8, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13636 Filed 6-16-04; 8:45 am]
BILLING CODE 8010-01-P