[Federal Register Volume 60, Number 12 (Thursday, January 19, 1995)]
[Notices]
[Pages 3886-3887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1230]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35221; File No. S7-24-89]


Joint Industry Plan; Order Approving Amendment No. 2 to Reporting 
Plan for Nasdaq/National Market Securities Traded on an Exchange on an 
Unlisted or Listed Basis, Submitted by the National Association of 
Securities Dealers, Inc., and the Boston, Chicago and Philadelphia 
Stock Exchanges

January 11, 1995.
    On January 9, 1995, the National Association of Securities Dealers, 
Inc., and the Boston, Chicago, and Philadelphia Stock Exchanges 
(collectively, ``Participants'')\1\ submitted to the Commission 
Amendment No. 2 to a joint transaction reporting plan (``Plan'') for 
Nasdaq/National Market securities traded on an exchange on an unlisted 
or listed basis.\2\ The Commission is approving the proposed amendment 
to the Plan and trading pursuant to the Plan on a temporary basis to 
expire on August 12, 1995. The Commission also is soliciting comment, 
among other matters, on whether exchanges should be permitted to extend 
UTP to more than 100 OTC securities at any given time.

    \1\The signatories to the Plan, i.e., the National Association 
of Securities Dealers, Inc. (``NASD''), and the Chicago Stock 
Exchange, Inc. (``Chx'') (previously, the Midwest Stock Exchange 
Inc.), Philadelphia Stock Exchange, Inc. (``Phlx''), and the Boston 
Stock Exchange, Inc. (``BSE''), are the ``Participants.'' The BSE, 
however, joined the Plan as a ``Limited Participant,'' and reports 
quotation information and transaction reports only in Nasdaq/
National Market (previously referred to as ``Nasdaq/NMS'') 
securities listed on the BSE. Originally, the American Stock 
Exchange, Inc., was a Participant to the Plan, but did not trade 
securities pursuant to the Plan, and withdrew from participation in 
the Plan in August 1994.
    \2\The Commission notes that Section 12(f) of the Act describes 
the circumstances under which an exchange may trade by security that 
is not listed on the exchange, i.e., by extending unlisted trading 
privileges (``UTP'') to the security. Section 12(f) was amended on 
October 22, 1994, 15 U.S.C. 12(f) (1991) (as amended 1994). Prior to 
the amendment, Section 12(f) required exchanges to apply to the 
Commission before extending UTP to any security. In order to approve 
an exchange UTP application for a registered security not listed on 
any exchange (``OTC/UTP''), Section 12(f) required the Commission to 
determine that various criteria had been met concerning fair and 
orderly markets, the protection of investors, and certain national 
market initiatives. These requirements worked in conjunction with 
the Plan currently under review. The recent amendment to Section 
12(f), among other matters, removes the application requirement and 
permits OTC/UTP only pursuant to a Commission order or rule. The 
order or rule is to be issued or promulgated under essentially the 
same standards that previously applied to Commission review of UTP 
applications. The present orders serves to meet this Section 12(f) 
requirement.
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I. Extension of the Pilot Program

    The Commission originally approved the Plan on June 26, 1990.\3\ 
The Plan governs the collection, consolidation and dissemination of 
quotation and transaction information for Nasdaq/National Market 
securities listed on an exchange or traded on an exchange pursuant to 
UTP. The Commission originally approved trading pursuant to the Plan on 
a one-year pilot basis, with the pilot period to commence when 
transaction reporting pursuant to the Plan commenced. Thereafter, the 
Commission extended the effectiveness of the Plan through January 12, 
1995, as requested by the Participants in Amendment No. 1 to the 
Plan.\4\ Accordingly, the pilot period commenced on July 12, 1993, and 
most recently was scheduled to expire on January 12, 1995.

    \3\See Securities Exchange Act Release No. 28146 (June 26, 
1990), 55 FR 27917 (``1990 Approval Order''). For a detailed 
discussion of history of UTP in OTC securities, and the events that 
led to the present plan and pilot program, see 1994 Extension Order, 
infra note 4.
    \4\See Securities Exchange Act Release No. 34371 (July 13, 
1994), 59 FR 37103 (``1994 Extension Order'').
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    As originally approved by the Commission, the Plan required the 
Participants to complete their negotiations regarding revenue sharing 
during the one-year pilot period. The Participants, however, have not 
yet come to an agreement concerning revenue sharing for transactions 
effected pursuant to the Plan. Proposed Amendment No. 2 to the Plan 
extends this negotiation period for an additional seven months.\5\ The 
Commission believes it is appropriate to extend the effectiveness of 
the pilot program, particularly in light of the reported recent 
progress made by the Participants concerning financial matters. At the 
same time, however, the Commission expects the Participants to conclude 
those negotiations before January 31, 1995, and expects the 
Participants to submit to the Commission a proposed amendment to the 
Plan concerning finances before February 15, 1995.

    \5\In the present filing with the Commission, the NASD states 
that the parties have made substantial progress in their 
negotiations but have not concluded them and that, in order to 
conclude the negotiations and provide sufficient time for approval 
by their governing boards and the Commission, the parties believe 
that an additional seven months will be required. See letter from T. 
Grant Callery, Vice President and General Counsel, NASD, to Jonathan 
G. Katz, Secretary, Commission, dated January 9, 1995.
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II. Extension of Certain Exemptive Relief

    In conjunction with the Plan, on a temporary basis scheduled to 
expire on July 12, 1995, the Commission granted an exemption from Rule 
11Ac1-2 under the Act regarding the calculated best bid and offer 
(``BBO''), and granted the BSE an exemption from the provision of Rule 
11Aa3-1 under the Act that requires transaction reporting plans to 
include market identifiers for transaction reports and last sale data. 
At the request of the Participants, this order extends these exemptions 
through August 12, 1995, provided that the Plan continues in effect 
through that date pursuant to a Commission order.\6\ The Commission 
continues to believe that exemptive relief from these provisions is 
appropriate through August 12, 1995, but at that time, the Commission 
will 

[[Page 3887]]
review the exemptive relief in light of any comments received.

    \6\The Commission notes that the present filing does not make 
clear that the two exemptions were previously scheduled to expire on 
July 12, 1995. Nevertheless, the filing requests an ``identical 
extension'' of the relevant exemptions along with their request that 
the effectiveness of the Plan be extended through August 12, 1995. 
Accordingly, this order extends the effectiveness of the relevant 
exemptions from July 12, 1995, through August 12, 1995. See id.
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III. Outstanding Issues

    In the 1994 Extension Order, the Commission noted several areas of 
unresolved issues concerning the Plan.\7\ These issues include, among 
other matters, whether the Commission should continue to limit the 
number of OTC securities that may be traded on exchanges pursuant to 
UTP. Currently, exchanges may extend UTP up to a maximum of 100 
securities.\8\ To date, the Commission has solicited comment on this 
and other matters and has not received evidence that expanding the 
number of securities would have a negative effect on the markets or the 
protection of investors. Moreover, the Commission recently received a 
letter from the Chx requesting that the Commission expand the number of 
eligible securities from 100 to 500.\9\

    \7\In the 1994 Extension Order, the Commission requested views 
on numerous issues presented by the pilot program, and requested 
that the Participants submit reports to the Commission on those 
issues by September 30, 1994. See Supra note 4. The Commission 
received a report from the Philadelphia Stock Exchange as an 
attachment to its proposed rule change requesting an extension of 
the Phlx's pilot procedures for OTC/UTP. See letter from William W. 
Uchimoto, General Counsel, Phlx, to Elizabeth Prout, Division of 
Market Regulation, Commission, dated December 21, 1994 (attachment 
to File No. SR-PHLX-94-70). The other Participants have not complied 
with the Commission order, and must respond to the Commission 
request immediately.
    \8\Prior to 1985, the Commission generally did not permit 
exchanges to extend UTP to OTC securities. In 1985, the Commission 
determined that it would be appropriate to permit exchanges, on a 
temporary basis and subject to certain limitations, to extend UTP up 
to a maximum of 25 OTC securities. These limitations included the 
requirement that the NASD and exchanges seeking to extend UTP to OTC 
securities enter into a plan for consolidated transaction and 
quotation dissemination. See Securities Exchange Act Release No. 
22412 (September 16, 1985), 50 FR 38640. In 1986, the Midwest Stock 
Exchange (currently the Chicago Stock Exchange, or ``Chx'') entered 
into an interim plan which subsequently was superseded by the Plan 
currently operating on a pilot basis. In 1990, the Commission 
expanded the maximum number of eligible securities to 100. See 1990 
Approval Order, supra note 3.
    \9\See letter from George T. Simon, Foley & Lardner, to 
Katherine England, Assistant Director, Commission, dated January 9, 
1995. This letter also concludes that, when the Plan is finally 
approved, all NNM stocks would be eligible for trading.
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    Accordingly, the Commission solicits comment specifically on 
whether it is appropriate to permit exchanges to extend UTP to a 
maximum of 500 OTC securities for an interim period, and whether all 
NNM securities should be available for extensions of UTP if the 
Commission determines that permanent approval of the Plan is 
appropriate. The Commission preliminarily believes that, after 
consideration of comments received, it may be appropriate to expand the 
number of eligible securities prior to the Commission's review of other 
matters associated with the Plan in August 1995.
    The Commission also notes other areas for commenters to address: 
(1) Whether the BBO calculation for the relevant securities should be 
based on price and time only (as currently is the case) or if the 
calculation should include size of the quoted bid or offer; and (2) 
whether there is a need for an intermarket linkage for order routing 
and execution and an accompanying trade-through rule.

IV. Solicitation of Comment

    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 plan amendment that are filed 
with the Commission, and all written communications relating to the 
proposed plan amendment 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 at the Commission's Public Reference Room. All submissions 
should refer to File No. S7-24-89 and should be submitted by February 
9, 1995.

VI. Conclusion

    The Commission finds that proposed Amendment No. 2 to the Plan to 
extend the financial negotiation period for an additional seven months 
is appropriate and in furtherance of Section 11A of the Act. The 
Commission also finds that extensions of the exemptive relief requested 
through August 12, 1995, and described above, also is consistent with 
the Act and the rules thereunder. Specifically, the Commission believes 
that these extensions should serve to provide the Participants with 
more time to conclude their financial negotiations and to evaluate the 
effects of the pilot program and report their findings to the 
Commission. This, in turn, should further the objects of the Act in 
general, and specifically those set forth in Section 12(f) and 11A of 
the Act and in Rules 11Aa3-1 and 11Aa3-2 thereunder.
    It is therefore ordered, pursuant to Sections 12(f) and 11A of the 
Act and paragraph (c)(2) of Rule 11Aa3-2 thereunder, that Amendment No. 
2 to the Joint Transaction Reporting Plan for Nasdaq/National Market 
securities traded on an exchange on an unlisted or listed basis is 
hereby approved, and trading pursuant to the Plan is hereby approved on 
a temporary basis through August 12, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(29).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1230 Filed 1-18-95; 8:45 am]
BILLING CODE 8010-01-M