Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by National Association of Securities Dealers, Inc. on Use of the .T Modifier for Extended Hours Trades in Listed Securities

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on September 1, 2000, the National Association of Securities Dealers, Inc. (“NASD” or “Association”), through its wholly owned subsidiary the Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. On September 19, 2000, Nasdaq submitted Amendment No. 1 to the proposed rule change. Nasdaq has filed the proposed pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(b) thereunder, which renders the rule effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Nasdaq proposes to amend NASD Rule 6420, the transaction reporting rule for over-the-counter (“OTC”) trades in listed securities. The purpose of this amendment is to require members to append a “.T” modifier to Nasdaq InterMarket transactions in listed securities executed between 4:00 p.m. and 6:30 p.m. Eastern Time (“ET”). The text of the proposed rule change follows. Proposed new language is underlined; deleted language is bracketed.

6400. REPORTING TRANSACTIONS IN LISTED SECURITIES

6420. Transaction Reporting

(a) When and How Transactions are Reported.

(1) Registered Reporting Members shall transmit through ACT, within 90 seconds after execution, last sale reports of transactions in eligible securities executed during the trading hours of the Consolidated Tape otherwise than on a national securities exchange. Transactions not reported within 90 seconds after execution shall be designated as late and such trade reports must include the time of execution. Registered Reporting Members shall also transmit through ACT, within 90 seconds after execution, last sale reports of transactions in eligible securities executed in the United States otherwise than on a national securities exchange between 4:00 p.m. and 6:30 p.m. Eastern Time [.]; trades executed and reported after 4:00 p.m. Eastern Time shall be designated as “.T” trades to denote their execution outside normal market hours. Transactions not reported within 90 seconds after execution [shall be designated as late and such trade reports] must include the time of execution on the trade report.

(2)

(A) Non-Registered Reporting Members shall, within 90 seconds after execution, transmit through ACT or the ACT Service Desk (if qualified pursuant to Rule 7010(i)), or if ACT is unavailable due to system or transmission failure by telephone to the Nasdaq Market Operations Department, last sale reports of transactions in eligible securities executed during the trading hours of the Consolidated Tape otherwise than on a national securities exchange.

(B) Non-registered Reporting Members shall, within 90 seconds after execution, transmit through ACT or the ACT Service Desk (if qualified pursuant to Rule 7010(i)), of if ACT is unavailable due to system or transmission failure, by telephone to the Nasdaq Market Operations Department, last sale reports of transactions in eligible securities exeucted in the United States otherwise than on a national securities exchange between the hours of 4:00 p.m. and 6:30 p.m. Eastern Time[.]; trades executed and reported after 4:00 p.m. Eastern Time shall be designated as “.T” trades to denote their execution outside normal market hours. Transactions not reported within 90 seconds after execution [shall be designated as late and such trade reports] must include the time of execution on the trade report.

(3) to (6) No Change.

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 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 Statutory Basis for, the Proposed Rule Change

1. Purpose

In its June 2000 Special Study: Electronic Communication Networks and After-Hours Trading, the SEC's Division of Market Regulation stated that U.S. equity markets should take the necessary steps to preserve regular trading session closing prices that are distinct from prices at which equity securities trade in the after-hours trading session. For Nasdaq securities and non-Nasdaq OTC equity securities, this is accomplished by requiring firms to use a special “.T” modifier on trade reports transmitted through Nasdaq's Automated Confirmation Transaction Service (“ACT”) outside normal market hours. Trades in Nasdaq and non-Nasdaq OTC securities that occur outside normal market hours are counted into the current day's trading volume, but do not affect the security's daily high, low, or last sale price, and do not affect Index calculations or mutual fund net asset values.

NASD members trading securities listed on the New York Stock Exchange (“NYSE”), the American Stock Exchange (“Amex”), or the regional exchanges in the Nasdaq InterMarket are not currently required to use a “.T” modifier for trades that occur outside normal market hours. As a result, extended trading hour session InterMarket trades are treated the same as regular session trades and are used to calculate NYSE and Amex closing prices. This has resulted in corporate and investor confusion over stock pricing.

In order to address this issue, and provide for consistency in the use of the “.T” modifier, Nasdaq proposes to require NASD members to follow the same “.T” reporting rules for listed equities as they use for Nasdaq and OTC equity securities during the extended hour trading session. This will be accomplished by amending the Transaction Report Rules for trades in listed securities to require members to designate as “.T” transactions executed and reported to ACT after 4:00 p.m. ET to denote their execution outside normal market hours. As with Nasdaq and non-Nasdaq OTC securities, firms must report late trades during this time period with the “.T” modifier and the execution time because ACT does not allow firms to enter two modifiers (i.e., a firm cannot include both “.T” and “.SLD” on a trade report to denote both an extended hour trading session trade and a late trade). Inclusion of the time of execution on the “.T” trade report indicates a late trade occurring outside normal market hours.

2. Basis

Nasdaq believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act because it will result in more accurate and reliable information regarding last sale transaction reports. Section 15A(b)(6) of the Act requires that the rules of a registered securities association be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, settling, processing information with respect to, and facilitating transactions in 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, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

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, as amended.

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.

II. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest; impose any significant burden on competition; and become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. 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.

A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative prior to 30 days after the date of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. Nasdaq seeks to have the proposed rule change become operative on or before September 21, 2000.

The Commission, consistent with the protection of investors and the public interest, has determined to make the proposed rule change operative on September 21, 2000. The Commission notes that the use of the “.T” modifier proposed by Nasdaq is intended to help clarify those trades in listed securities that are executed after normal trading hours similar to that which is used in Nasdaq issues and OTC equity issues. The Commission believes that extending the use of “.T” to trades executed in listed securities during extended hours trading should provide consistency of after hours trade reporting, which should help to quell corporate and investor confusion over the closing prices of listed securities as determined at the close of normal market hours.

Based on these reasons, the Commission believes that it is consistent with the protection of investors and the public interest that the proposed rule change be operative on September 21, 2000. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such 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.

IV. Solicitation of Comments

Interested person are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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. Copies of such filing will also be available for inspection and copying at the principal office of the NASD. All submissions should refer to File No. SR-NASD-00-54 and should be submitted by October 20, 2000.