[Federal Register Volume 59, Number 21 (Tuesday, February 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2197]


[[Page Unknown]]

[Federal Register: February 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33522; File No. SR-NASD-94-04]

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Relating to an Interim 
Extension of the OTC Bulletin Board Service Through April 1, 
1994

January 26, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on January 
21, 1994, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the NASD. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and is simultaneously approving the proposal.

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

    On June 1, 1990, the NASD initiated operation of the OTC Bulletin 
Board Service (``OTCBB Service'' or ``Service'') in accord with the 
Commission's approval of File No. SR-NASD-88-19, as amended.\1\ The 
OTCBB Service provides a real-time quotation medium that NASD member 
firms can elect to use to enter, update, and retrieve quotation 
information (including unpriced indications of interest) for securities 
traded over-the-counter that are neither listed on the Nasdaq Stock 
MarketSM nor on a registered national securities exchange 
(collectively referred to as ``unlisted securities'').\2\ Essentially, 
the Service supports NASD members' market making in unlisted securities 
through authorized Nasdaq Workstation units. Real-time access to 
quotation information captured in the Service is available to 
subscribers of Level 2/3 Nasdaq service as well as subscribers of 
vendor-sponsored services that now carry OTCBB Service data. The 
Service is currently operating under interim approval that expires on 
February 1, 1994.\3\
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    \1\Securities Exchange Act Release No. 27975 (May 1, 1990), 55 
FR 19124 (May 8, 1990).
    \2\The Commission notes that, in addition to unlisted 
securities, certain securities listed on a regional exchange may now 
be eligible for OTCBB quotations. Specifically, on January 24, 1994, 
the Commission approved an NASD proposal to expand the universe of 
securities eligible for quotation in the OTC Bulletin Board to 
include securities which: (1) are listed on one or more regional 
stock exchanges; and (2) do not meet the requirements for 
dissemination of transaction reports through the facilities of the 
Consolidated Tape (``non-Tape B securities''). Securities Exchange 
Act Release No. 33507 (January 24, 1994) (order approving File No. 
SR-NASD-93-24).
    \3\Securities Exchange Act Release No. 33290 (December 3, 1993), 
58 FR 64990 (December 10, 1993).
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    The NASD hereby files this proposed rule change, pursuant to 
Section 19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain 
authorization for an interim extension of the Service through April 1, 
1994. During this interval, there will be no material change in the 
OTCBB Service's operational features, absent Commission approval of a 
corresponding Rule 19b-4 filing.\4\
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    \4\On July 16, 1993, the Commission approved an NASD rule change 
to establish real-time trade reporting requirements for members' 
transactions in OTCBB Service-eligible securities. The new 
requirements became effective on December 20, 1993, and supplant the 
price and volume reporting requirements under section 2 of Schedule 
H to the NASD By-Laws. Securities Exchange Act Release No. 32647 
(July 16, 1993), 58 FR 39262 (July 22, 1993).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on 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. The NASD 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
    The purpose of this filing is to ensure continuity in the operation 
of the OTCBB Service while the Commission considers an earlier NASD 
rule filing (File No. SR-NASD-92-7) that requested permanent approval 
of the Service. For the month ending December 31, 1993, the Service 
reflected the market making positions of 368 NASD member firms 
displaying quotations/indications of interest in approximately 4,178 
unlisted securities.
    During the proposed extension, foreign securities and American 
Depositary Receipts (collectively, ``foreign/ADR issues'') will remain 
subject to the twice-daily, update limitation that traces back to the 
Commission's original approval of the OTCBB Service's Operation. As a 
result, all priced bids/offers displayed in the Service for foreign/ADR 
issues will remain indicative.
    In conjunction with the launch of the Service in 1990, the NASD 
implemented a filing requirement (under section 4 of Schedule H to the 
NASD By-Laws) and review procedures to verify member firms' compliance 
with Rule 15c2-11 under the Act. During the proposed extension, this 
review process will continue to be an important component of the NASD's 
self-regulatory oversight of broker-dealers' market making in unlisted 
securities. The NASD also expects to work closely with the Commission 
staff in developing further enhancements to the Service to fulfill the 
market structure requirements mandated by the Securities Enforcement 
Remedies and Penny Stock Reform Act of 1990 (``Reform Act''), 
particularly section 17B of the Act.\5\ The NASD notes that 
implementation of the Reform Act entails Commission rulemaking in 
several areas, including the development of mechanisms for gathering 
and disseminating reliable quotation/transaction information for 
``penny stocks.''
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    \5\On November 24, 1992, the NASD filed an application with the 
Commission for interim designation of the Service as an automated 
quotation system to section 17B(b) of the Act. On December 30, 1992, 
the Commission granted ``Qualifying Electronic Quotation System'' 
status for the Service for purposes of certain penny stock rules 
that became effective on January 1, 1993. The OTCBB will retain its 
QEQS status for the term of the proposed extension.
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2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
sections 11A(a)(1), 15A(b)(6) and (11), and section 17B of the Act. 
Section 11A(a)(1) sets forth the Congressional findings and policy 
goals respecting operational enhancements to the securities markets. 
Basically, the Congress found that new data processing and 
communications techniques should be applied to improve the efficiency 
of market operations, broaden the distribution of market information, 
and foster competition among market participants. Section 15A(b)(6) 
requires, inter alia, that the NASD's rules promote just and equitable 
principles of trade, facilitate securities transactions, and protect 
public investors. Subsection (11) thereunder authorizes the NASD to 
adopt rules governing the form and content of quotations for securities 
traded over-the-counter for the purposes of producing fair and 
informative quotations, preventing misleading quotations, and promoting 
orderly procedures for collecting and disseminating quotations. 
Finally, Section 17B contains Congressional findings and directives 
respecting the collection and distribution of quotation information on 
low-priced equity securities that are neither Nasdaq nor exchange-
listed.
    The NASD believes that extension of the Service through April 1, 
1994 is fully consistent with the foregoing provisions of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD believes that the rule change will not result in any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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.

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

    The NASD requests that the Commission find good cause, pursuant to 
section 19(b)(2) of the Act, for approving the proposed rule change 
prior to the 30th day after its publication in the Federal Register to 
avoid any interruption of the Service. Otherwise, the NASD will be 
required to suspend operation of the Service pending Commission action 
on the proposed extension.
    The NASD believes that accelerated approval is appropriate to 
ensure continuity in the Service's operation pending a determination on 
permanent status for the Service, as requested in File No. SR-NASD-92-
7. Continued operation of the Service will ensure the availability of 
an electronic quotation medium to support member firms' market making 
in approximately 4,178 unlisted equity securities and the widespread 
dissemination of quotation information on these securities. The 
Service's operation also expedites price discovery and facilitates the 
execution of customer orders at the best available price. From a 
regulatory standpoint, the NASD's capture of quotation data from 
participating market makers supplements the price and volume data 
reported by member firms pursuant to section 2 of Schedule H to the 
NASD By-Laws.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
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 form 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 the file number in the caption 
above and should be submitted by February 22, 1994.

V. Commission's Findings and Order Granting Accelerated Approval

    The Commission finds that approval of the proposed rule change is 
consistent with the Act and the rules and regulations thereunder, and, 
in particular, with the requirements of section 15A(b)(11) of the Act, 
which provide that the rules of the NASD relating to quotations must be 
designed to produce fair and informative quotations, prevent fictitious 
or misleading quotations, and promote orderly procedures for 
collecting, distributing, and publishing quotations.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publishing notice of the 
filing thereof. Accelerated approval of the NASD's proposal is 
appropriate to ensure continuity in the Service's operation as an 
electronic quotation medium that supports NASD members' market making 
in these securities and that facilitates price discovery and the 
execution of customers orders at best available price. Additionally, 
continued operation of the Service will materially assist the NASD's 
surveillance of its members trading in unlisted securities that are 
eligible and quoted in the Service, and in non-Tape B securities that 
are listed on regional exchanges and quoted in the OTCBB by NASD 
members.
    It is therefore ordered, Pursuant to section 19(b)(2) of the Act, 
that the proposed rule change be, and hereby is, approved for an 
interim period through April 1, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2197 Filed 1-31-94; 8:45 am]
BILLING CODE 8010-01-M