Regulation of Alternative Trading Systems; Extension of Temporary Stay of Effectiveness

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-43651; File No. S7-12-98]

RIN 3235-AH41

Regulation of Alternative Trading Systems; Extension of Temporary Stay of Effectiveness

AGENCY: Securities and Exchange Commission

ACTION: Extension of Temporary Stay of Effectiveness

SUMMARY: The Securities and Exchange Commission extends the stay of effectiveness of Rules 301(b)(5)(i)(D) and (E) and 301(b)(6)(i)(D) and (E) until December 1, 2001. These provisions relate to alternative trading systems that trade certain categories of debt securities. This stay is necessary to provide sufficient time for a reporting system to be developed that would compile and publish data for investment grade and non-investment grade corporate debt instruments. The other alternative trading system rules, which were published in 63 FR 70844 on December 22, 1998, remain effective as previously stated.

DATES: 17 CFR 242.301(b)(5)(i)(D) and (E) and 242.301(b)(6)(i)(D) and (E) are stayed until December 1, 2001.

FOR FURTHER INFORMATION CONTACT: John Polise, Senior Special Counsel, at (202) 942-0068, Gordon Fuller, Special Counsel, at (202) 942-0792, or Steven Johnston, Special Counsel at (202) 942-0795, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-1001.

SUPPLEMENTAL INFORMATION:

I. Background

On December 8, 1998, the Securities and Exchange Commission ("Commission") adopted new rules and rule amendments to allow alternative trading systems to choose whether to register as national securities exchanges, or to register as broker-dealers and comply with additional requirements under Regulation ATS, depending on their activities and trading volume.1 The effective date for most of these new rules and rule amendments was April 21, 1999. The Commission stated in the adopting release that Rules 301(b)(5)(i)(D) and (E) and 301(b)(6)(i)(D) and (E) would become effective on April 1, 2000. Specifically, for alternative trading systems trading 20 percent or more of the average daily trading volume in either investment grade or non-investment grade corporate debt securities over at least four of the preceding six months, the fair access and systems capacity, security, and integrity requirements were to take effect on April 1, 2000. On March 31, 2000, the Commission issued a temporary stay of effectiveness for Rules 301(b)(5)(i)(D) and (E) until December 1, 2000.2

II. Extension of Temporary Stay of Effectiveness of Rules 301(b)(5)(i)(D) and (E) and 301(b)(6)(i)(D) and (E)

In the Adopting Release and the Stay of Effectiveness Release, we noted that volume data for investment grade and non-investment grade corporate debt was not yet being compiled or published. Accordingly, market participants and regulators had no mechanism to determine the aggregate daily trading volume for either investment grade corporate bonds or non-investment grade corporate bonds for purposes of complying with or enforcing the rules. While efforts are ongoing to complete such a system, no comprehensive reporting system is currently in place. The Commission believes that extending the stay of effectiveness of Rules 301(b)(5)(i)(D) and (E) and 301(b)(6)(i)(D) and (E) until December 1, 2001 should provide sufficient time for a system to be developed and implemented that would compile and publish data for both market segments.3

By the Commission.

Jonathan G. Katz
Secretary

Dated: December 1, 2000

Footnotes

1 Securities Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 70844 (December 22, 1998) ("Adopting Release").2 Securities Exchange Act Release No. 42603A (March 31, 2000), 65 FR 18888 (April 10, 2000) ("Stay of Effectiveness Release").3 The Commission, however, believes that good business practice dictates that alternative trading systems adopt the standards of systems capacity, security, and integrity, regardless of their trading volume.