I. Introduction
On October 20, 2000, the National Association of Securities Dealers, Inc. (“NASD”) through its wholly owned subsidiary, the Nasdaq Stock Market, Inc. (“Nasdaq”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, a proposed rule change to include certain unit investment trusts (“UITs”) in Nasdaq's Mutual Fund Quotation Service (“MFQS”). Notice of the proposed rule change was published for comment in the Federal Register on December 1, 2000. No comments were received on the proposal. On December 13, 2000, Nasdaq filed Amendment No. 1 to the proposal. This order approves the proposed rule change, as amended, on an accelerated basis.
17 CFR 240.19b-4.
See securities Exchange Act Release No. 43613 (November 22, 2000), 65 FR 75328 (December 1, 2000).
See Letter from Jeffrey S. Davis, Office of General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation, Commission (December 13, 2000). Amendment No. 1 amended the language of proposed NASD Rule 6800 to reflect that UITs have “sponsors” rather than “investment advisors” and that the assets of such trusts are not “managed” as that term is defined in the Investment Company Act of 1940. This is a technical amendment and is not subject to notice and comment.
II. Description of the Proposal
Nasdaq proposes to amend NASD Rule 6800 to permit the inclusion of certain UITs in the MFQS. Changes made by Amendment No. 1 are indicated as follows. Proposed new language is in italics; proposed deletions are in brackets.
Section 4(2) of the Investment Company Act of 1940 defines a Unit Investment Trust as “an investment company which (A) is organized under a trust indenture, contract of custodianship or agency, or similar instrument, (B) does not have a board of directors, and (C) issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities; but does not include a voting trust.” 15 U.S.C. 80a-4(2).
6800. Mutual Fund Quotation Service
(a) Description.
The Mutual Fund Quotation Service collects and disseminates through The Nasdaq Stock Market prices for [both] mutual funds, closed-end funds, [and] money market funds, and unit investment trusts.
(b) Eligibility Requirements.
To be eligible for participation in the Mutual Fund Quotation Service, a fund shall:
(1) be registered with the Commission as an open-end (“open-end fund”) or a closed-end (“closed-end fund”) investment company or a unit investment trust pursuant to the Investment Company Act of 1940,
(2) execute the agreement specified by the Association relating to the fund's obligations under the Program,
(3) pay, and continue to pay, the fees as set forth in Rule 7090, and
(4) submit quotations through an automatic quotation system operated by the Association.
(c) News Media Lists.
(1)(A) An eligible open-end fund shall be authorized for inclusion in the News Media List released by the Association if it has at least 1,000 shareholders or $25 million in net assets.
(B) An eligible closed-end fund or unit investment trust shall be authorized for inclusion in the News Media List released by the Association if it has at least $60 million in net assets.
(C) Compliance with subparagraphs (1)(A) and (B) shall be certified by the fund to the Association at the time of initial application for inclusion in the List.
(2)(A) An authorized open-end fund shall remain included in the New Media List if it has [either] at least 750 shareholders or $15 million in net assets.
(B) An authorized closed-end fund or unit investment trust shall remain included in the News media List if it has at least $30 million in net assets.
(C) Compliance with subparagraphs (2)(A) and (B) shall be certified to the Association upon written request by the Association.
(d) Supplemental List.
An eligible open-end fund, [or] closed-end fund or unit investment trust shall be authorized for inclusion in the Supplemental List released to vendors of Nasdaq Level 1 Service if it meets one of the criteria set out in subparagraph (1), subparagraph (2), or subparagraph (3) below:
(1) the fund or unit investment trust has net assets of $10 million or more, or
(2) the fund or unit investment trust has had two full years of operation, or
(3) the fund's investment adviser or unit investment trust's sponsor:
(A) is the investment adviser or sponsor of at least one other fund or unit investment trust that is listed on the Mutual Fund Quotation Service and that has net assets of $10 million or more; and
(B) [has at least $15 million in total assets of open-end and closed-end funds under management] manages or sponsors open-end funds, closed-end funds, or unit investment trusts that have aggregate assets of at least $15 million.
The MFQS was created to collect and to disseminate data pertaining to the value of open-end and closed-end funds. Currently, the MFQS disseminates the valuation date for over 11,000 funds. The Service facilitates this process by permitting funds included in the Service (or pricing agents designated by such funds) to use browser-based technology to transmit directly to Nasdaq a multitude of pricing information, including information about a fund's net asset value, offer price, and closing market price.
Funds must meet minimum eligibility criteria in order to be included in the MFQS. The MFQS has two “lists” in which a fund may be included—the News Media List and the Supplemental List—and each list has its own initial inclusion requirements. In addition, there are maintenance/continued inclusion requirements for the News Media list only. If a fund qualifies for the News Media List, pricing information about the fund is eligible for inclusion in the fund tables of newspapers and is also eligible for dissemination over Nasdaq's Level 1 Service, which is distributed by market data vendors. If a fund qualifies for the Supplemental List, the pricing information about that fund generally is not included in newspaper fund tables, but is disseminated over Nasdaq's Level 1 Service. Therefore, the Supplemental List provides significant visibility for funds that do not otherwise qualify for inclusion in the News Media List. Each fund incurs an annual fee for inclusion in the Service.
See NASD Rule 6800.
See id.
See NASD Rule 7090.
MFQS provides valuable pricing information for a large portion of funds for which there is significant investor interest, but it currently covers no UITs. According to data compiled by the Investment Company Institute, as of the end of 1999, there were a total of 10,418 trusts with a market value of $94.60 billion, including 8,924 tax-free bond trusts, with a market value of $25.56 billion; 409 taxable bond trusts, with a market value of $4.28 billion; and 1,085 equity trusts, with a market value of $64.76 billion.
Due to the similarity in pricing characteristics, Nasdaq proposes to apply to UITs the same MFQS listing standards that will apply to closed-end mutual funds. To qualify for initial inclusion in the News Media Lists, a closed-end fund must have at least $60 million in net assets, and to remain in the News Media List, a closed-end fund would have to maintain at least $30 million in net assets. These listing standards are designed to identify securities in which there is significant investor interest. Likewise, Nasdaq would apply to UITs the same criteria for inclusion in the Supplemental List as it applies to open and closed-end funds. An open-end or closed-end fund qualifies for inclusion in the Supplemental List if the fund has at least $10 million in net assets, or the fund has had two full years of operation or if the investment advisor to the fund has at least one other fund listed on MFQS that has $10 million in assets. In addition, the investment advisor must have under management at least $15 million from open-end, closed-end, or money-market funds. Managed assets from other sources—such as pension funds—would not be included for purposes of determining whether the investment firm meets the requirement that it manage at least $15 million in fund-related assets. Nasdaq proposes to apply the same three alternative criteria to UITs, requiring that they have $10 million in assets, be in operation for two full years, or have a sponsor with sufficient fund- or UIT-related assets.
III. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change as Amended
The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association, and in particular, the requirements of Section 15A(b)(6) of the Act, because it is designed to foster cooperation and coordination with persons engaged in processing information with respect to securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.
In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
15 U.S.C. 78 o-3(b)(6).
The Commission believes that the proposal, as amended, will protect investors and the public interest by promoting better processing of fund pricing information. Specifically, the Commission notes that in Section 11A(a)(1)(C), Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations and transactions in securities. The Commission believes that the proposed rule change will help to protect investors and the public interest by promoting better processing of price information in UITs. Accordingly, the Commission believes that the new listing criteria will provide greater transparency to the markets by providing greater pricing information for a broader base of investments for which there is significant investor interest. Nasdaq estimates that nearly all of the equity-based UITs that exist today would be eligible for inclusion in the MFQS under the proposed new standards. The Commission also believes the proposed listing standards serve as a means for the marketplace to screen issuers and to provide listed status only to bona fide investment companies with sufficient investor base and trading interest to maintain fair and orderly markets.15 U.S.C. 78k-1(a)(1)(C)
The Commission finds good cause for approving the proposed rule change, as amended, prior to the thirtieth day after the date of publication of notice thereof in the Federal Register. The Commission notes that Nasdaq hopes to begin including UITs in the MFQS beginning on January 1, 2001 to enable investors to more easily monitor the performance of covered securities on a year-to-date basis, which is consistent with common practice. Accelerated approval of the proposed rule change, as amended, would therefore provided this improvement in service to investors more quickly. Further, proposed Amendment No. 1 provides clarity to the rule. It amended the language of proposed NASD Rule 6800 to reflect that UITs have “sponsors” rather than “investment advisors” and that the assets of such trusts are not “managed” as that term is defined in the Investment Company Act of 1940. The Commission believes, therefore, that granting accelerated approval of the proposed rule change, as amended, is appropriate and consistent with Section 15A(b)(6) of the Act.
15 U.S.C. 78o-3(b)(6).
IV. Conclusion
For the reasons discussed above, the Commission finds that the proposal, as amended, is consistent with the Act and the rules and regulations thereunder.
It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change, SR-NASD-00-59, as amended, be and hereby is approved on an accelerated basis.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 17 CFR 200.30-3(a)(12)
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-32944 Filed 12-26-00; 8:45 am]
BILLING CODE 8010-01-M