Joint industry plan: Pacific Exchange, Inc., et al.,

[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]

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.

1. 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.

   \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.

2. 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\

   \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.

   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\

   \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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3. 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.

   \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.

   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.

      \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.

   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:

      1. Best efforts to provide immediate notification over the Hoot-n- Holler system;

      2. Best efforts to determine the source of the extraordinary market activity;

      3. 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;

      4. If the problem is not rectified, the Participant(s) will cease transmitting quotes to the Processor in the affected security; and

      5. 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.

4. 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\

   \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).

   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)

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   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.

5. 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.

   \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\

   \22\ 17 CFR 200.30-3(a)(27).

   Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2314 Filed 9-21-04; 8:45 am]

   BILLING CODE 8010-01-P