[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8278]


[[Page Unknown]]

[Federal Register: April 7, 1994]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33839; File No. SR-NASD-94-17]

 

Self-Regulatory Organizations; 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 June 1, 
1994

March 31, 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 March 
24, 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, II 
and III 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, through a subsidiary corporation, 
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 primary 
national securities exchange (collectively referred to as ``OTC 
Equities'').\2\ Essentially, the Service supports NASD members' market 
making in OTC Equities 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 April 1, 1994.\3\
---------------------------------------------------------------------------

    \1\Securities Exchange Act Release No. 27975 (May 1, 1990), 55 
FR 19124 (May 8, 1990).
    \2\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. 33522 (January 26, 1994) 
59 FR 4733 (February 1, 1994).
---------------------------------------------------------------------------

    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 June 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.

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. 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 February 28, 1993, the Service 
reflected the market making positions of 384 NASD member firms 
displaying quotations/indications of interest in approximately 4,182 
OTC Equities.
    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 start-up of the Service in 1990, the NASD 
implemented a filing requirement (under Section 4 of the 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 oversight of broker-dealers' market making in 
OTC Equities. 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, particularly section 17B 
of the Act.\4\ 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.''
---------------------------------------------------------------------------

    \4\On November 24, 1992, the NASD filed an application with the 
Commission for interim designation of the Service as an automated 
quotation system pursuant 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.
---------------------------------------------------------------------------

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 June 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 required 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 4,182 OTC Equities 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 withhheld 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 the file number in the caption 
above and should be submitted by April 28, 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 provides 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 OTC Equities 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 June 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. 94-8278 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M