[Federal Register: September 22, 2004 (Volume 69, Number 183)]
[Notices]
[Page 56804-56806]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22se04-98]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50375; File No. S7-24-89]
Joint Industry Plan; Order Granting Approval of Amendment No. 13C
to the Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis; Submitted by the
Pacific Exchange, Inc., the National Association of Securities Dealers,
Inc., the American Stock Exchange LLC, the Boston Stock Exchange, Inc.,
the Chicago Stock Exchange, Inc., the Cincinnati Stock Exchange, Inc.,
and the Philadelphia Stock Exchange, Inc.
September 14, 2004.
I. Introduction
On April 22, 2004, the Pacific Exchange, Inc. (``PCX''), on behalf
of itself and the National Association of Securities Dealers, Inc.
(``NASD''), the American Stock Exchange LLC (``Amex''), the Boston
Stock Exchange, Inc. (``BSE''), the Chicago Stock Exchange, Inc.
(``CHX''), the Cincinnati Stock Exchange, Inc. (``CSE''),\1\ and the
Philadelphia Stock Exchange, Inc. (``PHLX'') (hereinafter referred to
as ``Participants''),\2\ as members of the Operating Committee \3\ of
the Plan submitted to the Securities and Exchange Commission
(``Commission'') a proposal to amend the Plan (``Amendment 13C'')
pursuant to Rule 11Aa3-2 \4\ and Rule 11Aa3-1 \5\ under the Securities
Exchange Act of 1934 (``Act''). Amendment 13C \6\ reflects several
changes unanimously adopted by the Committee. On May 7, 2004, the
Commission summarily put into effect Amendment 13C upon publication in
the Federal Register on a temporary basis not to exceed 120 days.\7\
Amendment 13C was published for comment in the Federal Register on May
18, 2004.\8\ The Commission received no comment letters on Amendment
13C. This order approves the changes made in Amendment 13C on a
permanent basis.
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\1\ The Commission notes that the CSE changed its name to the
National Stock Exchange, Inc. See Securities Exchange Act Release
No. 48774 (November 12, 2003), 68 FR 65332 (November 19, 2003) (File
No. SR-CSE-2003-12).
\2\ PCX and its subsidiary the Archipelago Exchange were elected
co-chairs of the operating committee (``Operating Committee'' or
``Committee'') for the Joint Self-Regulatory Organization Plan
Governing the Collection, Consolidation and Dissemination of
Quotation and Transaction Information for Nasdaq-Listed Securities
Traded on Exchanges on an Unlisted Trading Privilege Basis (``Nasdaq
UTP Plan'' or ``Plan'') by the Participants.
\3\ The Operating Committee is made up of all the Participants.
\4\ 17 CFR 240.11Aa3-2.
\5\ 17 CFR 240.11Aa3-1.
\6\ At the time Amendment 13C was approved by the Committee,
Amendment 13A had been published in the Federal Register. See
Securities Exchange Act Release No. 49137 (January 28, 2004), 69 FR
5217 (February 3, 2004). Amendment 13A has since been approved by
the Commission. See Securities Exchange Act Release No. 49711 (May
14, 2004), 69 FR 29339 (May 21, 2004). The Operating Committee
adopted Amendment 13B, but agreed to hold the amendment pending
resolution of the current status of the SIP selection process.
Amendment 13B has not been filed with the Commission. The Operating
Committee had reserved Amendment 14 for significant future
modifications to the Plan that would, among other things, reflect
changes in preparation for implementation of the new SIP.
Accordingly, this Amendment is numbered 13C.
\7\ See Securities Exchange Act Release No. 49669 (May 7, 2004),
69 FR 28182 (May 18, 2004).
\8\ Id.
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II. Plan Background
The Plan governs the collection, consolidation, and dissemination
of quotation and transaction information for The Nasdaq Stock Market,
Inc. (``Nasdaq'') National Market (``NNM'') and Nasdaq SmallCap
securities listed on Nasdaq or traded on an exchange pursuant to
unlisted trading privileges (``UTP'').\9\ The Plan provides for the
collection from Plan Participants and the consolidation and
dissemination to vendors, subscribers, and others of quotation and
transaction information in ``eligible securities.'' \10\
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\9\ Section 12 of the Act generally requires an exchange to
trade only those securities that the exchange lists, except that
Section 12(f) of the Act permits UTP under certain circumstances. 15
U.S.C. 78l(f). For example, Section 12(f) of the Act, among other
things, permits exchanges to trade certain securities that are
traded over-the-counter pursuant to UTP, but only pursuant to a
Commission order or rule. For a more complete discussion of the
Section 12(f) requirement, see November 1995 Extension Order, infra
note 11.
\10\ Section III.B. of the Plan defines ``Eligible Security'' as
any NNM or Nasdaq SmallCap security, as defined in NASD Rule 4200:
(i) As to which UTP have been granted to a national securities
exchange pursuant to Section 12(f) of the Act or which become
eligible for such trading pursuant to order of the Commission; or
(ii) which also is listed on a national securities exchange.
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The Commission originally approved the Plan on a pilot basis on
June 26, 1990.\11\ The parties did not begin trading until July 12,
1993, accordingly, the pilot period commenced on July 12, 1993. The
Plan has since been in operation on an extended pilot basis.\12\
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\11\ See Securities Exchange Act Release No. 28146, 55 FR 27917
(July 6, 1990).
\12\ See Securities Exchange Act Release Nos. 34371 (July 13,
1994), 59 FR 37103 (July 20, 1994); 35221 (January 11, 1995), 60 FR
3886 (January 19, 1995); 36102 (August 14, 1995), 60 FR 43626
(August 22, 1995); 36226 (September 13, 1995), 60 FR 49029
(September 21, 1995); 36368 (October 13, 1995), 60 FR 54091 (October
19, 1995); 36481 (November 13, 1995), 60 FR 58119 (November 24,
1995) (``November 1995 Extension Order''); 36589 (December 13,
1995), 60 FR 65696 (December 20, 1995); 36650 (December 28, 1995),
61 FR 358 (January 4, 1996); 36934 (March 6, 1996), 61 FR 10408
(March 13, 1996); 36985 (March 18, 1996), 61 FR 12122 (March 25,
1996); 37689 (September 16, 1996), 61 FR 50058 (September 24, 1996);
37772 (October 1, 1996), 61 FR 52980 (October 9, 1996); 38457 (March
31, 1997), 62 FR 16880 (April 8, 1997); 38794 (June 30, 1997) 62 FR
36586 (July 8, 1997); 39505 (December 31, 1997) 63 FR 1515 (January
9, 1998); 40151 (July 1, 1998) 63 FR 36979 (July 8, 1998); 40896
(December 31, 1998), 64 FR 1834 (January 12, 1999); 41392 (May 12,
1999), 64 FR 27839 (May 21, 1999); 42268 (December 23, 1999), 65 FR
1202 (January 6, 2000); 43005 (June 30, 2000), 65 FR 42411 (July 10,
2000); 44099 (March 23, 2001), 66 FR 17457 (March 30, 2001); 44348
(May 24, 2001), 66 FR 29610 (May 31, 2001); 44552 (July 13, 2001),
66 FR 37712 (July 19, 2001); 44694 (August 14, 2001), 66 FR 43598
(August 20, 2001); 44804 (September 17, 2001), 66 FR 48299
(September 19, 2001); 45081 (November 19, 2001), 66 FR 59273
(November 27, 2001); 44937 (October 15, 2001), 66 FR 53271 (October
19, 2001); 46139 (June 28, 2001), 67 FR 44888 (July 5, 2002); 46381
(August 19, 2002), 67 FR 54687 (August 23, 2002); 46729 (October 25,
2002), 67 FR 66685 (November 1, 2002); 48318 (August 12, 2003), 68
FR 49534 (August 18, 2003); 48882 (December 4, 2003), 68 FR 69731
(December 15, 2003); 49669 (May 7, 2004), 69 FR 28182 (May 18,
2004); and 49711 (May 14, 2004), 69 FR 29339 (May 21, 2004).
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[[Page 56805]]
III. Description and Purpose of the Amendment
As a result of aberrant pricing in trading of shares on December 5,
2003, the Division of Market Regulation (``Division'') requested the
Participants to provide better coordination among the self-regulatory
organization (``SRO'') trading markets concerning SRO trading
halts.\13\ The NASD, acting through its subsidiary, Nasdaq, proposed
Amendment 13C to address changes to the Plan related to the
coordination of instituting and lifting SRO trading halts. Amendment
13C to the Plan reflects changes to the regulatory halt section that
were unanimously approved by the Operating Committee. The following is
a summary of the changes to the Plan made in Amendment 13C.
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\13\ See letter from Annette L. Nazareth, Director, Division,
Commission, to Bridget Farrell and Michael Roundtree, Co-
Chairpersons, Nasdaq UTP Operating Committee, dated December 9,
2003.
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1. Section III.T. of the Plan provides for the definition of
Regulatory Halt. Amendment 13C added to the definition of Regulatory
Halt an ``Extraordinary Market Regulatory Halt,'' which is a trading
halt due to extraordinary market activity as a result of system misuse
or malfunction as further described in a Section X.E.1. of the Plan.
2. Section X of the Plan previously provided that the Primary
Market \14\ declared Regulatory Halts. Amendment 13C replaced Primary
Market with ``Listing Market,'' which is defined as the Participant's
Market on which a security is listed. In the case of dual listings, the
Listing Market is the Participant's Market on which the Eligible
Security is listed, which also has the highest number of the average of
reported transactions and reported share volume for the preceding 12-
month period as determined at the beginning of each calendar quarter.
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\14\ The Plan defined ``Primary Market'' as Nasdaq, provided
that if for any 12-month period the number of reported transactions
and amount of reported share volume in any other Participant's
market exceeded 50% of the aggregated reported transactions and
share volume, then that Participant's market would have been the
Primary Market for such Eligible Security.
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3. Amendment 13C clarified that ``Participant'' for purposes of
Section X includes Nasdaq despite the fact that Nasdaq is not currently
a signatory to the Plan.
4. Amendment 13C added Section X.E., which established
communication procedures to coordinate communication among Plan
Participants in the instance of a trading halt. Specifically, Amendment
13C introduced the use of the ``Hoot-n-Holler'' for communicating real-
time information among Participants. Furthermore, the Amendment
requires continuous monitoring of the Hoot-n-Holler by all Participants
during market hours. The procedures in the instance of a Participant(s)
experiencing extraordinary market activity in an Eligible Security
include:
a. Best efforts to provide immediate notification over the Hoot-n-
Holler system;
b. Best efforts to determine the source of the extraordinary market
activity;
c. Best efforts by the Participant(s) in determining whether to
prevent, and actually preventing, quotes from a direct or indirect
market participant from being transmitted to the Processor;
d. If the problem is not rectified, the Participant(s) will cease
transmitting quotes to the Processor in the affected security; and
e. If within five minutes the problem is not rectified from the
initial notification over the Hoot-n-Holler, or if decided earlier
through unanimous approval from all Participants actively trading the
affected security, the Listing Market based on facts and circumstances
may declare over the Hoot-n-Holler an Extraordinary Market Regulatory
Halt.
5. Amendment 13C amended the Plan to add Section X.F. to clarify
procedures for the resumption of trading after a Regulatory Halt. This
includes a requirement that all Participants will use best efforts to
indicate their intentions with respect to canceling or modifying trades
within fifteen minutes of the declaration of the halt. Furthermore, the
Amendment clarified that Participants will disseminate information
regarding canceled or modified trades as soon as possible before the
resumption of trading. Lastly, the Listing Market will notify
Participants over the Hoot-n-Holler when trading may resume.
IV. Discussion and Commission Findings
The Commission previously determined, pursuant to Rule 11Aa3-
2(c)(4) under the Act,\15\ to summarily put into effect the amendments
detailed above in Amendment 13C on a temporary basis not to exceed 120
days beyond May 18, 2004. After careful consideration of Amendment 13C
to the Plan, the Commission finds that approving Amendment 13C on a
permanent basis is consistent with the requirements of the Act and the
rules and regulations thereunder, and, in particular, Section 11A(a)(1)
\16\ of the Act and Rules 11Aa3-1 and 11Aa3-2(c)(2) thereunder.\17\
Section 11A of the Act directs the Commission to facilitate the
development of a national market system for securities, ``having due
regard for the public interest, the protection of investors, and the
maintenance of fair and orderly markets,'' and cites as an objective of
that system the ``fair competition * * * between exchange markets and
markets other than exchange markets.'' \18\ Rule 11Aa3-2(c)(2) requires
the Commission to approve a plan or amendment ``if it finds that such
plan or amendment is necessary or appropriate in the public interest,
for the protection of investors, and the maintenance of fair and
orderly markets, to remove impediments to, and perfect the mechanisms
of, a national market system, or otherwise in furtherance of the
purposes of the Act.'' \19\
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\15\ 17 CFR 240.11Aa3-2(c)(4).
\16\ 15 U.S.C. 78k-1(a)(1).
\17\ 17 CFR 240.11Aa3-1 and 17 CFR 240.11Aa3-2(c)(2).
\18\ 15 U.S.C. 78k-1(a).
\19\ 17 CFR 240.11Aa3-2(c)(2).
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The Commission finds that approving Amendment 13C is appropriate in
the public interest and otherwise in furtherance of the purposes of the
Act. The Commission believes that the changes made in Amendment 13C
enhance investor protection, further the maintenance of fair and
orderly markets, and remove impediments to, and perfect the mechanisms
of, a national market system by: (1) Improving the coordination among
SROs when instituting and lifting trading halts; (2) making necessary
changes to the terms and definitions contained within the Plan related
to trading halts; (3)
[[Page 56806]]
establishing clear procedures to coordinate communication among Plan
Participants before and during the instance of a trading halt; and (4)
clarifying procedures for the resumption of trading after a trading
halt.
V. Conclusion
It is therefore ordered, pursuant to Section 11A of the Act \20\
and paragraph (c)(2) of Rule 11Aa3-2 \21\ thereunder, that Amendment
13C to the Plan be, and hereby is, approved.
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\20\ 15 U.S.C. 78k-1.
\21\ 17 CFR 240.11Aa3-2(c)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(27).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-2314 Filed 9-21-04; 8:45 am]
BILLING CODE 8010-01-P