[Federal Register Volume 59, Number 118 (Tuesday, June 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15040]


[[Page Unknown]]

[Federal Register: June 21, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34217; File No. SR-NASD-94-31]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by The National Association of Securities Dealers, Inc. to 
Eliminate Access Market Maker Procedures From Schedule D to the NASD 
By-Laws

June 15, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1) (``Act''), notice is hereby given that on May 
25, 1994, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') 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.

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

    Pursuant to Section 19(b)(1) of the Act, the NASD hereby files a 
proposed rule change to delete Part IX of Schedule D to the NASD By-
Laws which contains procedures for market maker access to The Nasdaq 
Stock market (``Nasdaq'') by certain broker-dealers that do not receive 
Level 3 Nasdaq Workstation service (``Level 3 service''). Below is the 
text of the proposed rule change; deleted language is bracketed.

[Part IX]

[Procedures for Access to the NASDAQ System by Non-NASDAQ Market 
Makers]

    [These procedures permit a registered NASDAQ market maker, upon 
approval by the Corporation, to enter quotations into the NASDAQ System 
on behalf of another market maker who does not subscribe to Level 3 
NASDAQ Service.]

[A. Definitions]

    [1. An ``access market maker'' is a member of the Association who 
does not subscribe to Level 3 NASDAQ service, but is or intends to be a 
market maker in a security for which quotations are displayed on the 
NASDAQ System.]
    [2. An ``entering subscriber'' is a registered NASDAQ market maker 
who has entered into an arrangement with an access market maker to 
enter quotations in the NASDAQ System on behalf of such access market 
maker.]
    [B. The entering subscriber may enter quotations in the NASDAQ 
System on behalf of an access market maker only upon submission and 
approval by the Association of the following:]
    [1. A fully executed copy of the access arrangement agreement which 
shall contain all agreements and conditions concerning the access 
arrangement.]
    [2. An application for registration as an access market maker for 
each security.]
    [C. Access market makers and entering subscribers shall be limited 
to one access arrangement in each security.]
    [D. Quotations displayed by the entering subscriber on behalf of 
the access market maker shall be accompanied by the entering 
subscriber's market maker identifier and a special symbol designating 
that an access arrangement exists. The identity of the access market 
maker must be made available by the entering subscriber upon request.]
    [E. All transactions resulting from the display of quotations in 
the NASDAQ System by the entering subscriber shall be executed by the 
entering subscriber and he shall be responsible for the transaction. 
Both the entering subscriber and the access market maker shall be 
subject to and be responsible for compliance with the provisions of 
Schedule D.]
    [F. Access market makers shall pay to the Corporation an access fee 
of $70 per month for the first security and $52.50 per month for each 
additional security which is subject to an approved access 
arrangement.]

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 purpose of the proposed rule change is to eliminate an outmoded 
procedure by which certain NASD member firms could participate as 
market makers in Nasdaq without procuring the necessary computer 
equipment and subscribing to Level 3 service. Currently, Part IX of 
Schedule D permits a member firm that does not receive Level 3 service 
to qualify as an ``access market maker'' by entering into a suitable 
agreement with another firm that is a Level 3 subscriber (``entering 
subscriber''). After the NASD's approval of such an arrangement, the 
entering subscriber can input two-sided quotations reflecting the 
dealer interest of the access market maker. These quotations would be 
displayed with the entering subscriber's market maker identifier; a 
special indicator would also be displayed to inform other dealers that 
an access arrangement existed with respect to the quotations displayed 
in the subject security. In this circumstance, the entering subscriber 
assumed responsibility for executing trades at the displayed bid and 
offer. The entering subscriber and access market maker were jointly 
responsible for compliance with the various market maker obligations 
set forth in Part V of Schedule D to the NASD By-Laws.
    In conjunction with defining the system requirements for Nasdaq's 
technology migration, the Nasdaq Stock Market, Inc. (``NSMI'') staff 
analyzed the cost and feasibility of providing functionality for access 
market makers in the new environment. The staff found that changes in 
market making practices in recent years had dramatically reduced the 
use of the access market maker arrangement. The staff also found that 
no NASD member was currently utilizing this access feature. Given the 
absence of interested firms and the lack of any regulatory purpose in 
preserving the access market maker feature, it was determined that this 
feature did not warrant the expenditure of resources necessary to 
provide this functionality in the new environment. The NASD also 
believes that it is preferable to limit market maker participation to 
Level 3 service subscribers to ensure integrity of its audit trail 
file, including the ability to fix responsibility at the source for 
every quotation entry and reported transaction.
    The NASD believes that this proposed rule is consistent with 
Sections 15A(b)(6) and 15A(b)(11) of the Act. Section 15A(b)(6) 
requires that the Association's rules be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, and processing information 
with respect to, and facilitating transactions in securities. Section 
15A(b)(11) authorizes the Association to adopt rules governing the form 
and content of quotations disseminated by member firms for the purposes 
of providing fair and informative quotations, preventing fictitious or 
misleading quotations, and promoting orderly procedures for collecting 
and distributing quotation information.
    The NASD submits that elimination of the access market maker 
feature is fully consistent with the foregoing statutory provisions. 
Market makers in Nasdaq securities now will be required to subscribe to 
Level III service in order to enter quotations into the Nasdaq system. 
This requirements will eliminate an extra step in the quotation process 
by which an ``entering subscriber'' may act as an intermediary.

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

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

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-94-31 and 
should be submitted by July 12, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\1\
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    \1\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15040 Filed 6-20-94; 8:45 am]
BILLING CODE 8010-01-M