[Federal Register Volume 59, Number 132 (Tuesday, July 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16823]


[[Page Unknown]]

[Federal Register: July 12, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34321; File No. SR-NASD-94-36]

 

Self-Regulatory Organizations; Notice and Immediate Effectiveness 
of Proposed Rule Change by National Association of Securities Dealers, 
Inc., Relating to Small Order Execution System Tier Size 
Classifications

July 6, 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 June 7, 
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

    The NASD is submitting this filing to effectuate The Nasdaq Stock 
Market, Inc.'s (``Nasdaq'') periodic reclassification of Nasdaq 
National Market (``NNM'') securities into appropriate tier sizes for 
purposes of the maximum order size tiers for Nasdaq's Small Order 
Execution System (``SOES'') and the minimum quote size requirements for 
Nasdaq market makers in NNM securities. Since the NASD's proposal is an 
interpretation of existing NASD rules, there are no language changes.

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 rule change is to effectuate Nasdaq's periodic 
reclassification of NNM securities into appropriate tier sizes for 
purposes of the maximum order size tiers for SOES and the minimum quote 
size requirements for Nasdaq market makers in NNM securities. Nasdaq 
reviews the tier level applicable to each security periodically 
(approximately every six months) to determine if the trading 
characteristics of the issue have changed so as to warrant a tier level 
adjustment. Such a review was conducted as of February 28, 1994, using 
the following established criteria:\1\

    \1\The classification criteria is set forth in footnote 1 to 
Section (a)(7) of the SOES Rules and Section 2(a) of Part V of 
Schedule D to the NASD By-Laws.
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    NNM securities with an average daily non-block volume of 3,000 
shares or more a day, a bid price less than or equal to $100, and 
three or more market makers are subject to a minimum quotation size 
requirement of 1,000 shares and a maximum SOES order size of 500 
shares;\2\
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    \2\On December 23, 1993, the Commission approved a reduction in 
the maximum SOES tier size to 500 shares from 1,000 shares. See 
Securities Exchange Act Release No. 33377 (Dec. 23, 1993), 58 FR 
69419 (Dec. 30, 1993). Even though the maximum order size for SOES 
is now 500 shares, Nasdaq has continued to classify NNM securities 
within the 1,000 share tier size because Nasdaq market makers must 
continue to display a size of 1,000 shares in their quotations for 
these securities, and remain firm for a minimum of 1,000 shares at 
their publicized quotations in these securities for orders outside 
of SOES.
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    NNM securities with an average daily non-block volume of 1,000 
shares or more a day, a bid price less than or equal to $150, and 
two or more market makers are subject to a minimum quotation size 
requirement of 500 shares and a maximum SOES order size of 500 
shares; and
    NNM securities with an average daily non-block volume of less 
than 1,000 shares a day, a bid price less than or equal to $250, and 
less than two market makers are subject to a minimum quotation size 
requirement of 200 shares and a maximum SOES order size of 200 
shares.

    Pursuant to the application of this classification criteria, 500 
NNM securities will be reclassified effective July 11, 1994. These 500 
NNM securities are set out in the NASD's Notice To Members 94-48 (June 
1994).
    In ranking NNM securities pursuant to the established 
classification criteria, Nasdaq followed the changes dictated by the 
criteria with two exceptions. First, an issue was not moved more than 
one tier size level. For example, if an issue was previously 
categorized in the 1,000-share tier size, it would not be permitted to 
move to the 200-share tier even if the reclassification criteria showed 
that such a move was warranted. In adopting this policy, Nasdaq was 
attempting to maintain adequate public investor access to the market 
for issues in which the tier size level decreased and minimize market 
maker exposure in issues for which the tier size level increased. 
Second, for eight securities priced below $1 where the reclassification 
called for a reduction in tier size, Nasdaq determined not to recommend 
a decline in tier size given the low price of these securities and the 
negligible effect on market maker exposure. As a result, five 
securities that would have been reduced to a tier size of 200 shares 
from 500 shares remained at 500 shares and three securities that would 
have been reduced to a tier size of 500 shares from 1,000 shares 
remained at 1,000 shares.
    The NASD believes that the proposed rule change is consistent with 
Sections 15A(b)(6) and 15A(b)(11) of the Act. 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. Section 15A(b)(11) 
applies to the form and content of quotations. Section 15A(b)(11) 
requires that rules relating to quotations must be fair and informative 
so as to promote orderly procedures for collecting, distributing and 
publishing quotations. The NASD believes that the reassignment of NNM 
securities within SOES tier size levels and minimum quotation size 
levels will further these ends by providing an efficient mechanism for 
small, retail investors to execute their orders on Nasdaq and providing 
investors with the assurance that they can effect trades up to a 
certain size at the quotations displayed on Nasdaq.

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.

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

    Comments were neither solicited nor received.

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

    The proposed rule change has become effective immediately pursuant 
to section 19(b)(3)(A)(i) of the Act and subparagraph (e) of Securities 
Exchange Act Rule 19b-4 because the reranking of NNM securities into 
appropriate order size tiers and quotation size requirements was done 
pursuant to the NASD's stated policy and practice with respect to the 
administration and enforcement of two existing NASD rules. Further, in 
the SOES Tier Size Order,\3\ the Commission requested that the NASD 
provide this information as an interpretation of an existing NASD rule 
under section 19(b)(3)(A) of the Act. At any time within 60 days of the 
filing of such proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Securities Exchange Act of 1934.
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    \3\See Securities Exchange Act Release No. 25791 (June 9, 1988), 
53 FR 22594 (June 16, 1988).
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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-94-36 and 
should be submitted by August 2, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-16823 Filed 7-11-94; 8:45 am]
BILLING CODE 8010-01-M