[Federal Register Volume 60, Number 10 (Tuesday, January 17, 1995)]
[Notices]
[Pages 3445-3446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1037]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35207; File No. SR-NASD-95-2]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc., Relating to the Effective Date of an 
Amendment to the Prompt Receipt and Delivery of Securities 
Interpretation Concerning Affirmative Determinations Made in Connection 
With Short Sales

January 10, 1995.
    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 January 
9, 1995, 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 
Item I, II, and III below, which Items have been prepared by the NASD. 
The Commission is publishing this notice of solicit comments on the 
proposed rule change from interested persons.

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

    The NASD is proposing to change the effective date of a rule change 
previously approved by the Commission regarding an amendment to the 
Interpretation of the Board of Governors--Prompt Receipt and Delivery 
of Securities (``Interpretation'') issued by the NASD Board of 
Governors under Article III, Section 1 of the NASD Rules of Fair 
Practice that deals with affirmative determinations made by members in 
connection with short sales. Specifically, the NASD proposes to change 
the effective date of the amendment to the Interpretation to January 9, 
1995, with the exception that one provision of the rule change will not 
go into effect until August 1, 1995. In particular, the provision of 
the rule change that states that annotations of affirmative 
determinations ``must be made for each and every transaction since a 
`banklet' or standing assurance that securities are available for 
borrowing is not acceptable to satisfy the affirmative determination 
requirement'' will not go into effect until August 1, 1995.

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

    On September 12, 1994, the SEC approved and NASD rule change (SR-
NASD-94-32) that amended the Interpretation.\1\ Specifically, the 
amended Interpretation requires members to annotate, on the trade 
ticket or on some other record maintained for that purpose by the 
member firm, the following information:

    \1\Securities Exchange Act Release No. 34653 (September 12, 
1994), 59 FR 47965 (September 19, 1994).
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    1. if a customer assuers delivery, the member or associated person 
must annotate that conversation noting the present location of the 
securities; whether the securities are in good deliverable form; and 
whether they will be delivered to the firm within time for settlement; 
or
    2. if the member or associated person locates the stock, an 
annotation must be made that identifies the individual and firm 
contacted who offered assurance that the shares would be delivered or 
were available for borrowing by settlement date; and the number of 
shares needed to cover the short sale.
    The amendment also provided that the manner by which a member or 
person associated with a member annotates compliance with this 
``affirmative determination'' requirement (e.g., marking the order 
ticket, recording inquiries in a log, etc.) is left for each individual 
firm to decide. In addition, the amendment also clarified that an 
affirmative determination and annotation of that affirmative 
determination must be made for each and every transaction since a 
``blanket'' or standing assurance that securities are available for 
borrowing is not acceptable to satisfy the affirmative determination 
requirement. Thus, by requiring firms to annotate each and every 
affirmative determination, the amendment made clear the NASD's policy 
that firms can not rely on daily fax sheets of ``borrowable stocks'' to 
satisfy their affirmative determination requirements under the 
Interpretation.
    In NASD Notice to Members 94-80, the NASD announced that the 
effective date of the amendments to the Interpretation would be 
November 30, 1994. Based upon feedback from a broad spectrum of NASD 
members that compliance with the amended Interpretation would not be 
possible by November 30, 1994, due to a variety of operational 
adjustments that needed to be made, the NASD has decided to postpone 
the effective date of the rule change until January 9, 1995, to give 
member firms sufficient time to prepare for the rule change.
    In addition, in light of the NASD's concern that the prohibition 
against the use of daily fax sheets and other ``blanket'' or standing 
assurances may have created an unnecessarily burdensome regulatory 
requirement on NASD members, the NASD has decided to postpone the 
effective date of this provision of the amended Interpretation until 
August 1, 1995. The NASD's concerns arise because of its understanding 
of the manner in which [[Page 3446]] the New York Stock Exchange 
(``NYSE'') is applying and interpreting NYSE Information Memorandum 91-
41, which was promulgated pursuant to NYSE Rule 440C and is much like 
the NASD's Interpretation, but has never been filed with the Commission 
for approval. Prior to submitting the amendments to the Interpretation, 
it was the NASD's understanding, based on conversations with NYSE 
officials, that NYSE Information Memorandum 91-41 requires NYSE members 
to make affirmative determinations by contacting stock loaners (and, 
thus, not relying on daily fax sheets) prior to effecting short sales 
and to annotate such determinations. During the time that the 
effectiveness of this provision of the Interpretation is held in 
abeyance, the NASD will review the provision with its appropriate 
committees to determine whether to proceed with implementation of the 
provision or to modify the provision.
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act, which requires that the 
rules of the NASD, among other things, to remove impediments to and 
perfect the mechanism of a free and open market and to protect 
investors and the public interest, in that delaying the effective date 
of the changes to the Interpretation until January 9, 1995 will assist 
members in complying with the new rule. Similarly, the NASD believes 
that delaying the effective date of the provision of the amended 
Interpretation dealing with the use of daily fax sheets until August 1, 
1995, will give the NASD and its members ample time to consider whether 
to retain this provision or modify it to better reflect industry 
practice, thereby avoiding member firm confusion and ensuring that NASD 
rules are crafted to achieve their regulatory goals in a manner that is 
the least burdensome for the membership.

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 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 foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(i) of the Act and Section (e) of Rule 19b-4 
promulgated thereunder in that it changes the effective dates of new 
provisions of the NASD's rules and is therefore a policy relating to 
the administration or enforcement (i.e., the effective date) of a new 
rule of the Association.
    At any time within 60 days of the filing of a rule change pursuant 
to Section 19(b)(3)(A) of the Act, the Commission may summarily 
abrogate the 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 Act.

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 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-95-2 and 
should be submitted by February 7, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\

    \2\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1037 Filed 1-13-95; 8:45 am]
BILLING CODE 8010-01-M