[Federal Register Volume 65, Number 249 (Wednesday, December 27, 2000)]
[Notices]
[Pages 81945-81947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32944]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-43749; File No. SR-NASD-00-59]
Self Regulatory Organizations; Order Granting Accelerated
Approval of Proposed Rule Change and Amendment No. 1 to the Proposed
Rule Change by the National Association of Securities Dealers, Inc. to
Permit the Inclusion of Certain Unit Investment Trusts in Nasdaq's
Mutual Fund Quotation Service
December 20, 2000.
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''),\1\ and Rule
19b-4 thereunder,\2\ 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.\3\ No comments
were received on the proposal. On December 13, 2000, Nasdaq filed
Amendment No. 1 to the proposal.\4\ This order approves the proposed
rule change, as amended, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See securities Exchange Act Release No. 43613 (November 22,
2000), 65 FR 75328 (December 1, 2000).
\4\ 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.
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II. Description of the Proposal
Nasdaq proposes to amend NASD Rule 6800 to permit the inclusion of
certain UITs in the MFQS.\5\ Changes made by Amendment No. 1 are
indicated as follows. Proposed new language is in italics; proposed
deletions are in brackets.
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\5\ 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).
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* * * * *
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
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(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.\6\ 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.\7\ 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.\8\
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\6\ See NASD Rule 6800.
\7\ See id.
\8\ See NASD Rule 7090.
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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,
\9\ and in particular, the requirements of Section 15A(b)(6) \10\ 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.
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\9\ 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).
\10\ 15 U.S.C. 78o-3(b)(6).
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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), \11\ 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.
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\11\ 15 U.S.C. 78k-1(a)(1)(C)
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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.\12\ The Commission believes, therefore, that
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granting accelerated approval of the proposed rule change, as amended,
is appropriate and consistent with Section 15A(b)(6) \13\ of the Act.
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\12\ 15 U.S.C. 80b-2(a)(11).
\13\ 15 U.S.C. 78o-3(b)(6).
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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,\14\ that the proposed rule change, SR-NASD-00-59, as amended, be
and hereby is approved on an accelerated basis.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-32944 Filed 12-26-00; 8:45 am]
BILLING CODE 8010-01-M