SEC Division of Trading and Markets no-action letter: Nasdaq Stock Market, Inc.

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September 21, 2001 Patrick Campbell Chief Operating Officer The Nasdaq Stock Market, Inc. 1735 K Street, N.W. Washington, D.C. 20006-1500 Re: Request for Temporary Exemption from Rule 11Ac1-5 for Nasdaq Securities Dear Mr. Campbell: In your letter dated September 20, 2001 ("Letter") on behalf of The Nasdaq Stock Market, Inc., you requested that the Commission issue a temporary exemption from Rule 11Ac1-5 ("Rule") under the Securities Exchange Act of 1934 ("Exchange Act") for all orders in securities that are qualified for inclusion in the National Market tier of Nasdaq. This letter responds to your request. I. Background

Adopted in November 2000, 1 the Rule generally requires a "market center" (as defined in the Rule) that trades national market system securities to make available to the public monthly electronic reports that include uniform statistical measures of execution quality. On April 12, 2001, the Commission issued a temporary exemption from the reporting requirements of the Rule until July 31, 2001 for Nasdaq securities. 2 Accordingly, the first monthly reports (for August 2001) under the Rule for the 2000 most actively traded Nasdaq securities must be made available to the public by no later than the end of September 2001. 3

In your Letter, you request a temporary exemption from the Rule for orders in Nasdaq securities for all market centers in light of the recent September 11, 2001 attacks in New York City's financial district and the closure of the markets for the remainder of the week. You state that much of the physical damage from the attacks was centered on the many financial institutions that were located in and around the demolished World Trade Center. The terrorist attacks have caused great dislocation of financial firms' personnel and disruption of communications systems. You state that a number of market centers that have reporting obligations with respect to Nasdaq securities will not be prepared to issue the September reports. You believe that given the four-day trading gap in September, reports for September's data, which would be due by the end of October, would not allow investors to make the type of monthly comparisons that Rule 11Ac1-5 was intended to permit. You therefore request that the Commission provide a temporary exemption for all Nasdaq securities until October 1, 2001. II. Exemption

On the basis of your representations and the facts presented, the Commission, by the Division pursuant to delegated authority, 4 is using its exemptive authority under paragraph (c) of the Rule to exempt temporarily, until October 1, 2001, from the reporting requirement of paragraph (b)(1) of the Rule all orders in securities that are qualified for inclusion in the National tier of Nasdaq. 5 Accordingly, market centers will not be required to begin collecting the necessary data on covered orders in Nasdaq securities until October 1, 2001. The first monthly reports (for October) that must include Nasdaq securities must be made available to the public by the end of November 30, 2001. On September 11, 2001, the U.S. equities and options markets determined not to open in light of attacks that morning on the World Trade Center. The U.S. equities and options markets remained closed throughout the remainder of that week. As a result of the attacks, many financial firms' physical facilities were destroyed and their communications systems disrupted. The Commission believes that a useful and accurate comparison of execution quality among different market centers may not be possible, given the unprecedented four-day closure of the markets and the possible inability of a number of market centers to issue reliable reports. A temporary exemption would allow market centers sufficient time to repair their systems and to prepare and issue reliable, accurate reports as intended by the Rule. III. Conclusion

The exemption granted in this letter is subject to modification or revocation at any time if the Commission determines that such action is necessary or appropriate in the public interest or otherwise in furtherance of the purposes of the Exchange Act. If you have questions, please do not hesitate to contact me. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. Annette L. Nazareth Director

Footnotes

1 Securities Exchange Act Release No. 43590 (November 17, 2000), 65 FR 75414 ("Adopting Release"). 2 Letter from Annette L. Nazareth, Director, Division of Market Regulation, SEC, to Stuart J. Kaswell, Senior Vice President and General Counsel, Securities Industry Association, dated April 12, 2001. 3 The final phase-in of all Nasdaq securities subject to the Rule begins on October 1, 2001. Adopting Release, note 2 above, section V, "Effective Dates and Phase-In of Compliance Dates." 4 17 CFR 200.30-3(a)(69). 5 This temporary exemption applies only to orders in Nasdaq National Market securities. It does not apply to orders in other national market system securities ( i.e. , those listed on a national securities exchange). Consequently, any market center, whether it trades on an exchange or in the over-the-counter market, that receives orders for execution in these other national market system securities must post a report for these orders as required by the Rule.

http://www.sec.gov/rules/exorders/nasdaq092101.htm

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Modified: 09/21/2001