[Federal Register Volume 60, Number 106 (Friday, June 2, 1995)]
[Notices]
[Pages 28813-28814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13532]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35774; File No. SR-NASD-95-24]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Regarding 
Depository Eligibility Requirements

May 26, 1995.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 19, 1995, 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 primarily by the NASD. The Commission is publishing this 
notice to solicit comments from interested persons.

    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD proposes to amend Part II, Section 1(c) of Schedule D to 
the NASD By-laws (``By-laws'') to establish depository eligibility 
requirements for issuers that desire to have their securities included 
in the Nasdaq Stock Market (``Nasdaq'').

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 self-regulatory organization has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.\2\

    \2\The Commission has modified the language in these sections.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Under the proposed rule change, the NASD will adopt a uniform 
depository eligibility rule for issuers that desire to have their 
securities eligible for inclusion in Nasdaq. The uniform rule has been 
developed by the Legal and Regulatory Subgroup of the U.S. Working 
Committee of the Group of Thirty in coordination with each of the 
national securities exchanges and the NASD. It is anticipated that each 
national securities exchange in addition to the NASD will file rule 
changes proposing adoption of depository eligibility standards 
substantially similar to the NASD's proposed rule\3\ and will seek to 
make such changes effective contemporaneously with the effective date 
of the transition from a five-day (``T+5'') to a three-day (``T+3'') 
settlement cycle. The transition is set to occur June 7, 1995.\4\

    \3\In addition to the listing requirement contained in Schedule 
D to the By-laws, the NASD is proposing to amend the definition of 
``depository eligibility'' contained in its book-entry settlement 
rule contained in Section 11 of the NASD Uniform Practice Code 
consistent with the amendment to Schedule D. Section 11 must be 
amended because the NASD's depository settlement rule applies to all 
NASD members regardless of where the securities are listed. In 
comparison, the depository settlement rule of the exchanges only 
applies to transactions in the securities listed on the exchange.
    \4\Securities Exchange Act Release Nos. 33023 (October 6, 1993), 
58 FR 52891 (adoption of Rule 15c6-1) and 34952 (November 9, 1994), 
59 FR 59137 (change of effective date of Rule 15c6-1 from June 1, 
1995 to June 7, 1995).
    The proposed rule change will require that before any issue of 
securities of a domestic issuer (excluding securities of a Canadian 
issuer) is eligible for inclusion in Nasdaq, such issue of securities 
must have a CUSIP number that is included in the file of eligible 
issues maintained by a securities depository registered as a clearing 
agency under Section 17A of the Securities Exchange Act of 1934.\5\

    \5\U.S.C 78q-1 (1988).
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    While the NASD believes that depository eligibility should be 
universal and that few exemptions be granted, the proposed rule change 
will not apply to a security if the terms of such security cannot be 
reasonably modified to meet the criteria for depository eligibility at 
all securities depositories. The exemption authority is intended to 
address the situation where a Nasdaq company issues short-term warrants 
and other similar short-term securities that are not generally 
depository eligible. The NASD does not believe that the issuers of such 
securities should be required to obtain individual exceptions from the 
proposed new listing requirement in order to permit those securities to 
be listed during their short life span. However, an exemption is not 
intended to be available in instances where the issuer could meet the 
depository eligibility requirements but chooses not to do so or has not 
left enough time prior to the offering to do so.
    The proposed rule change sets forth additional requirements that 
must be met before a security will be deemed to be ``depository 
eligible,'' as such term is used in Part II, Section 1(c) of Schedule D 
to the By-laws and Section 11 of the NASD Uniform Practice Code 
(``UPC'').\6\ The proposed rule specifies different requirements for 
depository eligibility depending upon whether a new issue is 
distributed by an underwriting syndicate before or after the date a 
securities depository system is available for monitoring repurchases of 
the [[Page 28814]] distributed shares by syndicate members (``flipping 
tracking system'').

    \6\Pursuant to section 11 of the UPC, trades by a member in 
depository eligible securities generally must be settled by book-
entry through a securities depository.
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    Currently, a flipping tracking system is being developed that will 
include a securities depository service that (i) can be activated upon 
the request of the managing underwriter for a period of time that the 
managing underwriter specifies, (ii) in certain circumstances, will 
require the delivering participant to provide to the depository 
information sufficient to identify the seller of such shares as a 
precondition to the processing of book-entry delivery instructions for 
distributed shares, and (iii) will report to the managing underwriter 
the identity of any other syndicate member or selling group member 
whose customer(s) sold distributed shares (but will not report to the 
managing underwriter the identity of such customer[s]), and in certain 
circumstances, will report to such syndicate member or selling group 
member the identity of such customer(s). Prior to the availability of a 
flipping tracking system, the managing underwriter may delay the date a 
security is deemed ``depository eligible'' for up to three months after 
trading has commenced in the security. After the availability of a 
flipping tracking system, a new issue will be deemed to be depository 
eligible upon commencement of trading on Nasdaq.
    The NASD believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(6) of the Act\7\ in that the proposed 
rule change is designed to encourage book-entry settlement of 
transactions by requiring that securities included in Nasdaq and listed 
on the national securities exchanges be depository eligible thereby 
reducing the risks to the financial markets and investors associated 
with physical delivery, clearance, and settlement of securities 
transactions.

    \7\15 U.S.C. 78f(b)(5) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change will 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

    Within thirty-five 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 ninety 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 NASD 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.
    The NASD has requested accelerated approval of the proposed rule 
change in order that the rule can become effective on June 7, 1995.\8\

    \8\Supra note 4 and accompanying text.
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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 submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submissions, 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, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of such filings will also be available for inspection 
and copying at the principal office of the NASD. All submissions should 
refer to the file number SR-NASD-95-24 and should be submitted by June 
23, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-13532 Filed 6-1-95; 8:45 am]
BILLING CODE 8010-01-M