[Federal Register Volume 59, Number 222 (Friday, November 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28497]
[[Page Unknown]]
[Federal Register: November 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34956; International Series Release No. 747; File No.
SR-NASD-92-7]
Self-Regulatory Organizations; Notice of Amendment Nos. 1 and 2
to Proposed Rule Change by National Association of Securities Dealers,
Inc., to Obtain Permanent Approval of the OTC Bulletin Board Service
November 9, 1994
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''), 15 U.S.C. 78s(b)(1), notice is hereby
given that on October 6, 1994, and on November 8, 1994, the National
Association of Securities Dealers (``NASD'' or ``Association'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
Amendment Nos. 1 and 2 to File No. SR-NASD-92-7, respectively,\1\ 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, as amended, from interested
persons.
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\1\The proposed rule change as originally filed was published
for public comment in Release No. 34-30766 (June 1, 1992), 57 FR
24281 (June 8, 1992). Amendment No. 2 clarifies some of the language
used by the NASD in Amendment No. 1 to the proposal.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Purusant to Section 19(b)(1) of the Act, the NASD hereby proposes
to amend its pending rule change (File No. SR-NASD-92-7) regarding
permanent approval of the OTC Bulletin Board Service (``OTCBB'' or
``Service''). The amendment principally modifies Section 3 of the
Service Rules, which defines the universe of securities eligible for
quotation in the OTCBB. Specifically, the amendment would narrow the
subset of foreign equity securities including those represented by
American Depositary Receipts (hereinafter collectively referred to as
``Foreign Equity Securities'') that are OTCBB-eligible to those that
are registered with the Commission pursuant to Section 12 of the Act.
This requirement would be deemed effective as of the opening of
business on July 5, 1994. Any Foreign Equity Security quoted in the
OTCBB as of close of business on July 1, 1994 that is not registered
pursuant to Section 12 of the Act could remain OTCBB-eligible provided
that the issuer is exempt from the Section 12 registration pursuant to
Rule 12g3-2(b) under the Act. Unregistered Foreign Equity Securities
that are not exempt under Rule 12g3-2(b) as of December 30, 1994 would
be deleted from the OTCBB by that date. Foreign Equity Securities that
qualify for grandfathered status must continue to be exempt under Rule
12g3-2(b) and will remain subject to the twice-daily update limitation
currently imposed on all OTCBB market makers in such issues. Finally,
this amendment contains a technical change to Section 4 of the Service
Rules to achieve consistent terminology as a result of the substantive
changes to Section 3.
The amendatory language is set forth below: (New language is in
italics; deleted language is bracketed.).
OTC Bulletin Board Service Rules
* * * * *
OTCBB-Eligible Securities
Section 3. The following categories of securities shall be eligible
for quotation in the Service:
(a) (No Change); [and]
(b) any foreign equity security [or] including those represented by
American Depositary Receipts ([ADR] hereinafter collectively referred
to as ``Foreign Equity Securities'') that is [not listed on Nasdaq or a
registered national securities exchange in the U.S., except that
foreign equity securities or ADRs that are (i) listed on one or more
regional stock exchanges and (ii) do not qualify for dissemination of
transaction reports via the Consolidated Tape shall be considered
eligible.] registered with the Securities and Exchange Commission
(``SEC'') pursuant to Section 12 of the Securities Exchange Act of 1934
(``Exchange Act''), listed on one or more regional stock exchanges in
the U.S., and not qualified for dissemination of transaction reports
via the facilities of the Consolidated Tape;
(c) any Foreign Equity Security that is (i) registered with the SEC
pursuant to Section 12 of the Exchange Act, and (ii) not listed on The
Nasdaq Stock Market or a registered national securities exchange in the
U.S.; and
(d) any Foreign Equity Security that was quoted in the OTCBB as of
July 1, 1994, and that is exempt from the registration requirements of
Section 12 of the Exchange Act pursuant to Rule 12g3-2(b) [17 CFR
240.12g3-2(b)] thereunder, as of December 30, 1994; eligibility under
this subsection (d) is maintained only as long as the affected foreign
private issuer maintains its exemption from such registration
requirements pursuant to Exchange Act Rule 12g3-2(b).
* * * * *
Requirements Applicable to Market Makers
Section 4(a)3. A priced bid and/or offer entered into the Service
for a F[f]oreign E[e]quity S[s]ecurity [or ADR] eligible pursuant to
Section 3(d) above shall be non-firm.\2\
* * * * *
\2\The non-firm or indicative nature of a priced entry in a
F[f]oreign Equity Security [or ADR issue] eligible pursuant to
Section 3(d) above is specifically identified on the montage of
market maker quotations accessible through the Nasdaq Workstation
Service for this subset of OTCBB-eligible securities.
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 NASD is proposing a clarifying amendment to its pending rule
proposal that requests permanent approval of the OTCBB Service. The
amendatory language does not affect the operational characteristics of
the Service. Instead, it restricts the eligibility of unregistered
Foreign Equity Securities for quotation in the Service. Retroactive to
July 5, 1994, no Foreign Equity Security would be classified as OTCBB-
eligible unless the issuer had registered the security with the
Commission under Section 12 of the Act. Any unregistered Foreign Equity
Security that had been admitted to the OTCBB on or after July 5th would
be deleted no later than December 30, 1994. However, an exception will
be provided for unregistered Foreign Equity Securities that were quoted
in the OTCBB as of the close of business on July 1, 1994. These issues
could remain eligible for inclusion in the Service provided that the
issuer is exempt as of December 30, 1994, and continues to be exempt
from the registration requirements under Section 12 of the Act,
pursuant to Rule 12g3-2(b) thereunder. Any issue that does not meet
this requirement for grandfathered status would be deleted from the
OTCBB no later than December 30, 1994.
The inclusion of unregistered Foreign Equity Securities in the
OTCBB has been a point of contention since the OTCBB was initially
approved as a pilot program in the first half of 1990.\2\ Indeed, this
has been the principal factor preventing approval of the Service on a
permanent basis. The substance of this amendment reflects an
intermediate position designed to obtain permanent approval of the
OTCBB in the near term.
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\2\See Securities Exchange Act Release No. 27975-A (May 30,
1990), 55 FR 23161 (June 6, 1990). The Commission notes that the
OTCBB currently is operating on a temporary pilot basis schedule to
expire on December 31, 1994. See Securities Exchange Act Release No.
34766 (September 30, 1994), 59 FR 50947 (October 6, 1994) (order
approving on a temporary basis File No. SR-NASD-94-52).
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2. Statutory Basis
The NASD believes that this proposed rule change, as amended, is
consistent with Sections 11A(a)(1), 15A(b) (6) and (11) 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, among other things, 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. To the extent that certain unregistered Foreign Equity
Securities will remain eligible for the Service on a grandfathered
basis, the non-firm quotation information collected on these issues
will be distributed electronically through commercial vendor channels.
As such, the information will be accessible on desktop terminals and
may assist retail investors and their brokers in entering orders in the
affected securities. Likewise, the electronic capture of non-firm
quotation information on these same issues will assist the NASD staff
responsible for trading surveillance. Finally, if the modified
eligibility criteria for OTCBB inclusion were proposed without a
provision for grandfathered treatment, the NASD believes that investors
and brokers would be disadvantaged by the elimination of many Foreign
Equity Securities from the Service.
B. Self-Regulatory Organizations Statement on Burden on Competition
The NASD believes that the instant proposal will not create any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organizations 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
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.\3\
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\3\The Commission notes that the NASD has submitted to the
Commission a letter extending the period for Commission action on
File No. SR-NASD-92-07 through January 1, 1995. See letter from
Michael J. Kulczak, Associate General Counsel, NASD, to Elizabeth L.
Prout, Esq., Attorney, Commission, dated November 1, 1994. The
Commission believes that this extension logically also would apply
to Commission consideration of the present amendments to File No.
SR-NASD-92-07.
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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, N.W., Washington, D.C. 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 the 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 December 9, 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) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28497 Filed 11-17-94; 8:45 am]
BILLING CODE 8010-01-M