[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