[Federal Register Volume 60, Number 3 (Thursday, January 5, 1995)]
[Notices]
[Pages 1820-1822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-231]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35172; File No. SR-NASD-94-79]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc., Relating to an Interim 
Extension of the OTC Bulletin Board Service Through January 
31, 1995

December 28, 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 December 
23, 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, 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 and is simultaneously 
approving the proposal.

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

    On June 1, 1990, the NASD, through a subsidiary corporation, 
initiated operation of the OTC Bulletin Board Service (``OTCBB 
Service'' or ``Service'') in accord with the Commission's approval of 
File No. SR-NASD-88-19, as amended.\1\ The OTCBB Service provides a 
real-time quotation medium that NASD member firms can elect to use to 
enter, update, and retrieve quotation information (including unpriced 
indications of interest) for securities traded over-the-counter that 
are neither listed on The Nasdaq Stock MarketSM nor on a primary 
national securities exchange (collectively referred to as ``OTC'' 
Equities'').\2\ Essentially, the Service supports NASD members' market 
making in OTC Equities through authorized Nasdaq Workstation units. 
Real-time access to quotation information captured in the Service is 
available to subscribers of Level 2/3 Nasdaq service as well as 
subscribers of vendor-sponsored services that now carry OTCBB Service 
data. The Service is currently operating under interim approval that 
expires on December 31, 1994.\3\

    \1\Securities Exchange Act Release No. 27975 (May 1, 1990), 55 
FR 19124 (May 8, 1990).
    \2\With the Commission's January 1994 approval of File No. SR-
NASD-93-24, the universe of securities eligible for quotation in the 
OTCBB now includes certain equities listed on regional stock 
exchanges that do not qualify for dissemination of transaction 
reports via the facilities of the Consolidated Tape Association. 
Securities Exchange Act Release No. 33507 (January 24, 1994), 59 FR 
4300 (order approving File No. SR-NASD-93-24).
    \3\Securities Exchange Act Release No. 34613 (August 30, 1994), 
59 FR 46278.
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    The NASD hereby files this proposed rule change, pursuant to 
Section 19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain 
authorization for an interim extension of the Service through January 
31, 1995. During this interval, there will be no material change in the 
OTCBB Service's operational features, absent Commission approval of a 
corresponding Rule 19b-4 filing.

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 purpose of this filing is to ensure continuity in the operation 
of the OTCBB Service while the Commission considers an earlier NASD 
rule filing (File No. SR-NASD-92-7) that requested permanent approval 
of the Service.\4\ For the month ending November 30, 1994, the Service 
reflected the market making positions of 378 NASD member firms 
displaying quotations/indications of interest in approximately 5,223 
OTC Equities.

    \4\The Commission notes that the NASD has filed with the 
Commission Amendment Nos. 1 and 2 to File No. SR-NASD-92-07, 
concerning the eligibility of unregistered foreign securities and 
American Depositary Receipts for inclusion in the OTCBB. The 
amendments were published in the Federal Register for comment on 
November 18, 1994. See Securities Exchange Act Release No. 34956 
(November 9, 1994), 59 FR 59808.
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    During the proposed extension, foreign securities and American 
Depositary Receipts (collectively, ``foreign/ADR issues'') will remain 
subject to the twice-daily, update limitation that traces back to the 
Commission's original approval of the OTCBB Service's operation. As a 
result, all priced bids/offers displayed in the Service for foreign/ADR 
issues will remain indicative.
[[Page 1821]]

    In conjunction with the start-up of the Service in 1990, the NASD 
implemented a filing requirement (under Section 4 of Schedule H to the 
NASD By-Laws) and review procedures to verify member firms' compliance 
with Rule 15c2-11 under the Act. During the proposed extensions, this 
review process will continue to be an important component of the NASD's 
oversight of broker-dealers' market making in OTC Equities. The NASD 
also expects to work closely with the Commission staff in developing 
further enhancements to the Service to fulfill the market structure 
requirements mandated by the Securities Enforcement Remedies and Penny 
Stock Reform Act of 1990, particularly Section 17B of the Act.\5\ The 
NASD notes that implementation of the Reform Act entails Commission 
rulemaking in several areas, including the development of mechanisms 
for gathering and disseminating reliable quotation/transaction 
information for ``penny stocks.''

    \5\On November 24, 1992, the NASD filed an application with the 
Commission for interim designation of the Service as an automated 
quotation system pursuant to Section 17B(b) of the Act. On December 
30, 1992, the Commission granted Qualifying Electronic Quotation 
System (``QEQS'') status for the Service for purposes of certain 
penny stock rules that became effective on January 1, 1993. On 
August 26, 1993, the Commission granted the NASD's request for an 
extension of QEQS status until such time as the OTCBB meets the 
statutory requirements of Section 17B(b)(2). Finally, on May 13, 
1994, the NASD filed an application with the Commission for 
permanent designation of the Service as an automated quotations 
system for penny stocks pursuant to Section 17B(b).
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2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
Sections 11A(a)(1), 15A(b) (6) and (11), and Section 17B 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. Finally, Section 17B contains Congressional findings and 
directives respecting the collection and distribution of quotation 
information on low-priced equity securities that are neither Nasdaq nor 
exchange-listed.
    The NASD believes that extension of the Service through January 31, 
1995, is fully consistent with the foregoing provisions of the Act.

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

    The NASD believes that the 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

    Written comments were neither solicited nor received.

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

    The NASD requests that the Commission find good cause, pursuant to 
Section 19(b)(2) of the Act, for approving the proposed rule change 
prior to the 30th day after its publication in the Federal Register to 
avoid any interruption of the Service. The current authorization for 
the Service extends through December 31, 1994. Hence it is imperative 
that the Commission approve the instant filing on or before that date. 
Otherwise, the NASD will be required to suspend operation of the 
Service pending Commission action on the proposed extension.
    The NASD believes that accelerated approval is appropriate to 
ensure continuity in the Service's operation pending a determination on 
permanent status for the Service, as requested in File No. SR-NASD-92-
7. Continued operation of the Service will ensure the availability of 
an electronic quotation medium to support member firms' market making 
in approximately 5,223 OTC Equities and the widespread dissemination of 
quotation information on these securities. The Service's operation also 
expedites price discovery and facilitates the execution of customer 
orders at the best available price. From a regulatory standpoint, the 
NASD's capture of quotation data from participating market makers 
supplements the price and volume data reported by member firms pursuant 
to Part XII of Schedule D to the NASD By-Laws.

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, 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 the file number in the caption 
above and should be submitted by [insert date 21 days from the date of 
publication].

V. Commission's Findings and Order Granting Accelerated Approval

    The Commission finds that approval of the proposed rule change is 
consistent with the Act and the rules and regulations thereunder and, 
in particular, with the requirements of Section 15A(b)(11) of the Act, 
which provides that the rules of the NASD relating to quotations must 
be designed to produce fair and informative quotations, prevent 
fictitious or misleading quotations, and promote orderly quotations, 
and promote orderly procedures for collecting, distributing, and 
publishing quotations.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publishing notice of the 
filing thereof. Accelerated approval of the NASD's proposal is 
appropriate to ensure continuity in the Service's operation as an 
electronic quotation medium that supports NASD members' market making 
in these securities and that facilitates price discovery and the 
execution of customers' orders at the best available price. 
Additionally, continued operation of the Service will materially assist 
the NASD's surveillance of its members trading in OTC Equities that are 
eligible and quoted in the Service, and in non-Tape B securities that 
are listed on regional [[Page 1822]] exchanges and quoted in the OTCBB 
by NASD members.
    it is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change be, and hereby is, approved for an 
interim period through January 31, 1995.

    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. 95-231 Filed 1-4-95; 8:45 am]
BILLING CODE 8010-01-M