I. Introduction
Pursuant to Rule 11Aa3-2 and Rule 11Aa3-1 under the Securities Exchange Act of 1934 (“Act” or “Exchange Act”), notice is hereby given that on April 22, 2004, the Cincinnati Stock Exchange, Inc. (“CSE”) 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 Pacific Exchange, Inc. (“PCX”), and the Philadelphia Stock Exchange, Inc. (“PHLX”) (hereinafter referred to as “Participants”), as members of the operating committee (“Operating Committee” or “Committee”) of the Plan submitted to the Securities and Exchange Commission (“SEC” or “Commission”) a proposal to amend the Plan (“Amendment 13C”). The proposal reflects several changes unanimously adopted by the Committee. The Commission is putting into effect summarily Amendment 13C and publishing this notice to solicit comments from interested persons on Amendment 13C generally.
17 CFR 240.11Aa3-2.
17 CFR 240.11Aa3-1.
The Commission notes that the CSE recently 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).
The Committee is made up of all the Participants.
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). The Operating Committee adopted Amendment 13B, but agreed to hold the amendment pending resolution of the current status of the SIP selection process. 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.
PCX and its subsidiary the Archipelago Exchange were elected co-chairs of the Operating 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.
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”). 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.”
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. For example, section 12(f) of the Act, among other things, permits exchanges to trade certain securities that are traded over-the-counter (“OTC/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 10.
The Plan defines “Eligible Securities” as any NNM or Nasdaq SmallCap listed security, as defined in Nasdaq Rule 4200: (i) as to which UTP have been granted to a national securities exchange pursuant to section 12(f) of the Act; or (ii) which also is listed on a national securities exchange other than Nasdaq. Moreover, the definition states that “Eligible Securities” shall not include any security that is defined as an “Eligible Security” within section VII of the Consolidated Tape Association Plan.
The Commission originally approved the Plan on a pilot basis on June 26, 1990. 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.
See Securities Exchange Act Release No. 28146, 55 FR 27917 (July 6, 1990) (“1990 Plan Approval Order”).
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) (“May 1999 Approval Order”); 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); and 48882 (December 4, 2003), 68 FR 69731 (December 15, 2003).
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. 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 proposed text of Amendment 13C is attached as Exhibit A. The following is a summary of the changes to the Plan proposed in Amendment 13C.
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.
1. Section III.T of the Plan provides for the definition of Regulatory Halt. Proposed Amendment 13C adds to the definition an “Extraordinary Market Regulatory Halt” that is a trading halt due to extraordinary market activity as a result of system misuse or malfunction as further defined in a subsequent section of this Amendment.
The Plan currently defines “Regulatory Halt” as a trade suspension or halt called for the purpose of dissemination of material news, as described in Section X or that is called for where there are regulatory problems relating to an Eligible Security that should be clarified before trading is permitted to continue.
2. Section X of the Plan provides that the Primary Market declares Regulatory Halts. Proposed Amendment 13C replaces 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 will be the Listing Market which 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.
The Plan currently defines “Primary Market” as Nasdaq, provided that if for any 12-month period the number of reported transactions and reported share volume in any other Participant's market exceeds 50% of the aggregated reported transactions and share volume, then that Participant's market shall be the Primary Market for such Eligible Security.
3. Proposed Amendment 13C clarifies that “Participant” for purposes of Section X includes the Nasdaq Stock Market despite the fact that Nasdaq is not currently a signatory to the Plan.
4. Proposed Amendment 13C adds Section X.E, which establishes communication procedures to coordinate communication among Plan Participants in the instance of a trading halt. Specifically, the proposed Plan amendment introduces the use of the “Hoot-n-Holler” for communicating real-time information among Participants. Furthermore, the proposed amendment requires continuous monitoring of the Hoot-n-Holler by all Participants during market hours. The proposed procedures in the instance of a Participant(s) experiencing extraordinary market activity in an Eligible Security include:
a. Immediate notification over the Hoot-n-Holler;
b. Best efforts to determine the source of the extraordinary market activity;
c. An attempt by the Participant(s) to prevent 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. The Plan has been amended 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 clarifies 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. Date of Effectiveness of the Proposed Amendment
The Commission has determined, pursuant to Rule 11Aa3-2(c)(4) under the Act, that the amendments detailed above in Amendment 13C will be effective upon publication of this notice of amendment in the Federal Register on a temporary basis not to exceed 120 days. The Commission finds that this action is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect mechanisms of a national market system in furtherance of the purposes of the Act. The Commission believes that it is necessary and appropriate to put Amendment 13C into effect summarily because it will enhance investor protection by improving the coordination among SROs when instituting and lifting trading halts. The amendment should also further the maintenance of fair and orderly markets.
17 CFR 240.11Aa3-2(c)(4).
V. Solicitation of Comments
The Commission seeks general comments on Amendment 13C. Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed plan amendment 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 S7-24-89 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 comment letters should refer to File No. S7-24-89. 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 Room. Amendment 13C is being published as Exhibit A to this proposal. Copies of the proposal will also be available for inspection and copying at the office of the Secretary of the Committee, currently located at Pacific Exchange, Inc. and Archipelago Exchange L.L.C. 100 South Wacker Drive, Suite 2000, Chicago, 60606. 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 No. S7-24-89 and should be submitted on or before June 8, 2004.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
Exhibit A
Additions are italicized, and deletions are in [brackets].
AMENDMENT NO. 13C 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
AGREEMENT made as of the 15th day of December, 2003, by the undersigned registered national securities association and national securities exchanges (collectively referred to as the “Participants”), that are parties to the plan (“UTP Plan” or “Plan”) submitted to the Securities and Exchange Commission (“Commission”).
The parties agree as follows:
1. Section III (Definitions), shall be amended to read as follows (deletions are in brackets and additions are in italics):
III. Definitions
T. “Regulatory Halt” means a trade suspension or halt called for the purpose of dissemination of material news, as described at Section X hereof or that is called for where there are regulatory problems relating to an Eligible Security that should be clarified before trading therein is permitted to continue , including a trading halt for extraordinary market activity due to system misuse or malfunction under Section X.E.1. of the Plan (“Extraordinary Market Regulatory Halt”).
2. Section X (Regulatory Halts), shall be amended to read as follows (deletions are in brackets and additions are in italics):
X. Regulatory Halts
A. For purposes of this Section X, “Participant” shall include the Nasdaq Stock Market. Whenever, in the exercise of its regulatory functions, the [Primary] Listing Market for an Eligible Security determines that a Regulatory Halt is appropriate pursuant to Section III.T, the Listing Market will notify all other Participants pursuant to Section X.E and all other Participants shall also halt or suspend trading in that security until notification that the halt or suspension is no longer in effect. The [Primary] Listing Market shall immediately notify the Processor of such Regulatory Halt as well as notice of the lifting of a Regulatory Halt. The Processor, in turn, shall disseminate to Participants notice of the Regulatory Halt (as well as notice of the lifting of a regulatory halt) through the UTP Quote Data Feed. This notice shall serve as official notice of a regulatory halt for purposes of the Plan only, and shall not substitute or otherwise supplant notice that a Participant may recognize or require under its own rules. Nothing in this provision shall be read so as to supplant or be inconsistent with a Participant's own rules on trade halts, which rules apply to the Participant's own members. The Processor will reject any quotation information and monitor for transaction reports received from any Participant on an Eligible Security that has a Regulatory Halt in effect.
B. Whenever the [Primary] Listing Market determines that an adequate publication or dissemination of information has occurred or the regulatory problem has been addressed so as to permit the termination of the Regulatory Halt then in effect, the [Primary] Listing Market shall promptly notify the Processor and each of the other Participants that conducts trading in such security pursuant to Section X.F. Except in extraordinary circumstances, adequate publication or dissemination shall be presumed by the [Primary] Listing Market to have occurred upon the expiration of one hour after initial publication in a national news dissemination service of the information that gave rise to the Regulatory Halt.
C. Except in the case of a Regulatory Halt, the Processor shall not cease the dissemination of quotation or transaction information regarding any Eligible Security. In particular, it shall not cease dissemination of such information because of a delayed opening, imbalance of orders or other market-related problems involving such security. During a regulatory halt, the Processor shall collect and disseminate Transaction Information but shall cease collection and dissemination of all Quotation Information.
D. For purposes of this Section X, [“Primary Market”] “Listing Market” for an Eligible Security means [Nasdaq; provided, however, that if for any 12-month period the number of reported transactions and the reported share volume in an Eligible Security in any other Participant's Market exceeds 50% of the aggregate reported transactions and reported share volume of all Participants in such security, then that Participant's Market shall be the Primary Market for such Eligible Security.] the Participant's Market on which the Eligible Security is listed. If an Eligible Security is dually listed, Listing Market shall mean the Participant's Market on which the Eligible Security is listed that also has the highest number of the average of the reported transactions and reported share volume for the preceding 12-month period. The Listing Market for dually-listed Eligible Securities shall be determined at the beginning of each calendar quarter.
E. For purposes of coordinating trading halts in Eligible Securities, all Participants are required to utilize the national market system communication media (“Hoot-n-Holler”) to verbally provide real-time information to all Participants. Each Participant shall be required to continuously monitor the Hoot-n-Holler system during market hours, and the failure of a Participant to do so at any time shall not prevent the Listing Market from initiating a Regulatory Halt in accordance with the procedures specified herein.
1. The following procedures shall be followed when one or more Participants experiences extraordinary market activity in an Eligible Security that is believed to be caused by the misuse or malfunction of systems operated by or linked to one or more Participants.
a. The Participant(s) experiencing the extraordinary market activity or any Participant that becomes aware of extraordinary market activity will immediately use best efforts to notify all Participants of the extraordinary market activity utilizing the Hoot-n-Holler system.
b. The Listing Market will use best efforts to determine whether there is material news regarding the Eligible Security. If the Listing Market determines that there is non-disclosed material news, it will immediately call a Regulatory Halt pursuant to Section X.E.2.
c. Each Participant(s) will use best efforts to determine whether one of its systems, or the system of a direct or indirect participant in its market, is responsible for the extraordinary market activity.
d. If a Participant determines the potential source of extraordinary market activity pursuant to Section X.1.c., the Participant will use best efforts to determine whether removing the quotations of one or more direct or indirect market participants or barring one or more direct or indirect market participants from entering orders will resolve the extraordinary market activity. Accordingly, the Participant will prevent the quotations from one or more direct or indirect market participants in the affected Eligible Securities from being transmitted to the Processor.
e. If the procedures described in Section X.E.1.a.-d. do not rectify the situation, the Participant(s) experiencing extraordinary market activity will cease transmitting all quotations in the affected Eligible Securities to the Processor.
f. If the procedures described in Section X.E.1.a-e do not rectify the situation within five minutes of the first notification through the Hoot-n-Holler system, or if Participants agree to call a halt sooner through unanimous approval among those Participants actively trading impacted Eligible Securities, the Listing Market may determine based on the facts and circumstances, including available input from Participants, to declare an Extraordinary Market Regulatory Halt in the affected Eligible Securities. Simultaneously with the notification of the Processor to suspend the dissemination of quotations across all Participants, the Listing Market must verbally notify all Participants of the trading halt utilizing the Hoot-n-Holler system.
g. Absent any evidence of system misuse or malfunction, best efforts will be used to ensure that trading is not halted across all Participants.
2. If the Listing Market declares a Regulatory Halt in circumstances other than pursuant to Section X.E.1.f., the Listing Market must, simultaneously with the notification of the Processor to suspend the dissemination of quotations across all Participants, verbally notify all Participants of the trading halt utilizing the Hoot-n-Holler system.
F. If the Listing Market declares a Regulatory Halt, trading will resume according to the following procedures:
1. Within 15 minutes of the declaration of the halt, all Participants will make best efforts to indicate via the Hoot-n-Holler their intentions with respect to canceling or modifying transactions.
2. All Participants will disseminate to their members information regarding the canceled or modified transactions as promptly as possible, and in any event prior to the resumption of trading.
3. After all Participants have met the requirements of Section X.F.1-2, the Listing Market will notify the Participants utilizing the Hoot-n-Holler and the Processor when trading may resume. Upon receiving this information, Participants may commence trading pursuant to Section X.A.
This amendment to the UTP Plan will be effective when approved by the Commission.
The parties may execute this Agreement in counterparts, no one of which need contain all signatures of all executing parties. As many of the counterparts as shall together contain all such signatures will constitute one and the same instrument.
Except for the amendment contained herein, the UTP Plan is unchanged and remains in full force and effect.
IN WITNESS WHEREOF, this Plan has been executed as of the _ day of December, 2003, by each of the Signatories hereto.
AMERICAN STOCK EXCHANGE, LLC
BY:
BOSTON STOCK EXCHANGE, INC.
BY:
CHICAGO STOCK EXCHANGE, INC.
BY:
THE CINCINNATI STOCK EXCHANGE
BY:
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
BY:
PACIFIC EXCHANGE, INC.
BY:
PHILADELPHIA STOCK EXCHANGE, INC
BY:
[FR Doc. 04-11177 Filed 5-17-04; 8:45 am]
BILLING CODE 8010-01-P