[Federal Register Volume 59, Number 92 (Friday, May 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11700]


[[Page Unknown]]

[Federal Register: May 13, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34021; International Series Release No. 664; File No. 
SR-NASD-94-25]

 

Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice and Order Granting Accelerated Approval to 
Proposed Rule Change Extending the Informational Linkage With the Stock 
Exchange of Singapore Ltd. for Six Months

May 6, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934\1\ (``Act''), notice is hereby given that on April 26, 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.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD hereby files, pursuant to Section 19(b)(1) of the Act and 
Rule 19b-4 thereunder, for Commission authorization to extend the 
operation of its Pilot Program with the Stock Exchange of Singapore 
Limited (``SES'') for six months. The Pilot Program currently consists 
of an interchange of closing price and volume data on up to 35 Nasdaq 
securities that also may be traded through the SES's facilities 
(collectively, ``Pilot Securities''). With the thirteen hour time 
difference (twelve hours during EDT), the trading hours of the SES and 
NASD markets do not overlap. The end-of-day information being exchanged 
under the Pilot Program may assist in the establishment of opening 
prices the following business day. The Pilot Program currently involves 
no automated order routing or execution capabilities, and no such 
capability will be established during the proposed extension.
    The Commission originally authorized operation of the NASD-SES 
Pilot Program for a two-year term\2\ that was extended most recently 
through May 12, 1994.\3\ Commission approval of the instant filing 
would permit continuation of this Pilot Program through November 12, 
1994. During this interval, no more than 35 Nasdaq issues will be 
included in this Pilot Program. That figure corresponds to the number 
originally authorized at the inception of the Pilot Program in 1988. As 
noted in File No. SR-NASD-93-28, the SES information being transmitted 
to the NASD reflects the SES's use of an order-driven trading system 
(known as the ``CLOB'').
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    \2\See Release No. 34-25457 (Mar. 14, 1988), 53 FR 9156 (Mar. 
21, 1988).
    \3\See Release No. 34-33061 (Oct. 15, 1993), 58 FR 54617 (Oct. 
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. 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

    The NASD-SES Pilot Program commenced operation with the 
Commission's approval of File No. SR-NASD-87-40 on March 14, 1988. The 
principal features of this Program were fully described in Section 1 of 
that Form 19b-4, which description is hereby incorporated by 
reference.\4\
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    \4\See also Release No. 34-25065 (Oct. 28, 1987), 52 FR 42167 
(Nov. 3, 1987).
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    The current authorization of the NASD-SES Pilot Program will expire 
on May 12, 1994. The NASD, on its own as well as on the SES's behalf, 
hereby requests that the Commission approve a further extension of the 
Pilot Program for six months, expiring on November 12, 1994.
    During the proposed extension, each market will transmit to the 
other static price/volume information compiled at the end of each 
trading day on approximately 35 Nasdaq securities which are also traded 
on the SES. The NASD will transmit for each Pilot Security the closing 
inside quotes, cumulative volume, last sale price and the closing quote 
of every Nasdaq market maker in each of the Pilot Securities 
(collectively referred to as ``NASD information''). In recognition of 
the SES's use of the order-driven CLOB system, the SES will transmit 
the following data elements for each Pilot security: closing price 
(i.e., the price of the final transaction in the CLOB on that business 
day), the highest and lowest prices at which transactions were 
effected, and the aggregate volume (collectively referred to as ``SES 
information'').\5\ Because all trading of Pilot Securities on the SES 
occurs in the CLOB, the price information sent to the NASD will reflect 
the prices of actual trades consummated by the automated matching of 
buy and sell orders resident in the CLOB system.
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    \5\If no trades are effected in a Pilot security on a given day, 
the SES will transmit no data on that issue even if bids or offers 
had been entered into the CLOB for possible execution.
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    The CLOB is a fully automated trading system that was instituted by 
the SES in 1989. Prior to that time, the SES employed a quote-driven, 
market maker system similar to the Nasdaq Stock Market. Orders to buy 
and sell securities are entered into the CLOB through some 1,800 
trading terminals on the premises of approximately 26 SES member firms. 
The CLOB provides an electronic limit order file with open orders 
ranked by price and time in each security. When the terms of two orders 
match, the CLOB generates an automated execution accompanied by 
confirmations back to the originating brokers.
    As noted in File No. SR-NASD-93-28, the SES intends to incorporate 
the Pilot Securities into ``CLOB International.'' The latter is a 
separate section of the SES market system for the trading of foreign 
issues that are not listed on the SES. These securities trade through 
the CLOB in the same manner as SES-listed securities. CLOB 
International currently includes the stocks of Malaysian, Hong Kong, 
and Philippine issuers. The SES regards inclusion of the Pilot 
Securities in CLOB International as a logical step in the progression 
of the Pilot Program. Further, the SES believes that this step could 
stimulate greater trading interest in Nasdaq securities among Singapore 
investors. Accordingly, both the NASD and the SES desire to continue 
the Pilot Program.
    The incorporation of Pilot Securities into CLOB International will 
not alter the basic operation of the Pilot Program, namely, the 
interchange of static, end-of-day information on the Pilot Securities. 
SES information will continue to be offered only to subscribers of 
Nasdaq Level 2/3 services.\6\ Similarly, NASD information transmitted 
to Singapore will be available only on the terminals used by SES 
members to access the CLOB. The original linkage agreement between the 
NASD and the SES will remain in effect for the term of the extended 
Pilot Program. That agreement, which provides for the sharing of 
regulatory information as needed, is believed adequate given the 
limited nature and limited scope of the Pilot Program.
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    \6\To retrieve this information, a Nasdaq subscriber must enter 
a discrete query through a Nasdaq Workstation device.
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    Finally, the NASD acknowledges that any further enhancement to the 
Pilot Program, including the introduction of automated order routing 
and execution facilities, would require concurrent authorizations from 
the Commission and the Monetary Authority of Singapore. No such 
enhancement is planned for implementation during the requested 
extension.
    The NASD believes that Sections 11A(a)(1) (B) and (C), 15A(b)(6), 
and 17A(a)(1) of the Act provide the statutory basis for this proposed 
rule change. Subsections (B) and (C) of Section 11A(a)(1) set forth the 
Congressional goals of achieving more efficient and effective market 
operations, the availability of information with respect to quotations 
for securities and the execution of investor orders in the best market 
through the application of new data processing and communications 
techniques. Section 15A(b)(6) requires, among other things, that the 
rules of the NASD be designed to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market. Finally, Section 17A(a)(1) reflects the 
Congressional goals of linking all clearance and settlement facilities 
and reducing costs involved in the clearance and settlement process 
through new data processing and communications techniques. The NASD 
submits that extension of the Pilot Program will further these ends by 
providing the cooperative regulatory environment and operating 
experience needed for advancement of these goals in the context of 
internationalization of securities markets.

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

    The extended Pilot Program will permit the continued exchange of 
static market data on a limited group of Nasdaq securities between the 
NASD and the SES on a non-exclusive basis. The costs of supporting the 
Pilot Program are nominal, and the sponsoring markets absorb their 
respective costs. The market information being exchanged by the NASD 
and SES under the Pilot Program is deemed to constitute an exchange of 
equivalent value. Hence, no additional fee is paid by NASD and SES 
member firms for receipt of the static data being provided on Pilot 
Securities.
    The NASD submits that neither the structure no operation of the 
present Pilot Program poses any burden on competition.

C. Self-Regulatory Organization's Statement on Comment on the Proposed 
Rule Change Received From Members, Participants, or Others

    The NASD did not solicit or receive written comments on this rule 
proposal.

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

    The NASD requests that the Commission find, pursuant to Section 
19(b)(2) of the Act, good cause for approving the proposed rule change 
prior to the 30th day after the date of publishing notice of the filing 
and, in any event, by May 12, 1994. The NASD believes that accelerated 
approval is appropriate for the following reasons: (1) The experimental 
character of the Pilot Program and the need to maintain continuity in 
its operation; (2) the commitment not to make any significant 
operational changes during the requested extension absent Commission 
approval; (3) the limited nature of the Pilot Program, both in terms of 
the number of Pilot securities and the amount of market information 
being exchanged; and (4) the limited utility of end-of-day, static 
information to the NASD and SES member firms capable of accessing, 
respectively, SES and NASD information. Moreover, during the period of 
the proposed extension, the sponsoring markets remain committed to 
exchange regulatory information whenever the need arises. Finally, if 
accelerated approval is not granted, the sponsors will be obliged to 
terminate this experimental program before its potential benefits can 
be realized in relation to the globalization of securities markets.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the NASD and, in particular, the requirements 
of Sections 11A(a)(1) (B) and (C), 15A(b)(6), 17A(a)(1) and the rules 
and regulations thereunder.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publishing of notice of 
filing thereof. The Commission believes that accelerated approval is 
appropriate to maintain continuity in the Pilot Program and to allow 
the sponsors to continue to assess the impact of the trading of these 
securities in the international section of the SES's order-driven 
market system. Further, the Pilot Program is of a limited nature and no 
substantive changes will be implemented during the proposed extension. 
Accordingly, the Commission believes that the Pilot Program should not 
be terminated under these circumstances.

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 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 File Number SR-NASD-94-25 and 
should be submitted by June 3, 1994.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change be, and hereby is, approved for a period 
of six months, through November 12, 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. 94-11700 Filed 5-12-94; 8:45 am]
BILLING CODE 8010-01-M