[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33442-33444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15811]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35875; File No. SR-NASD-95-27]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
the Adjustment of Open Orders

June 21, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
[[Page 33443]] (``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given 
that on June 19, 1995,\1\ the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities 
and Exchange Commission (``SEC'' or 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.

    \1\ The NASD originally submitted the proposed rule change on 
May 23, 1995. On June 19, 1995, the NASD submitted Amendment No. 1 
which amendment made technical changes to the proposal.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing to amend Article III, Section 46 of the Rules 
of Fair Practice to provide that where the issuer of a security 
declares a cash dividend or other distribution of less than one cent 
($.01) members will not adjust open orders for such securities. Below 
is the text of the proposed rule change. Proposed new language is 
italics.

Rules of Fair Practice

Article III

Adjustment of Open Orders

Sec. 46.

    (a) A member holding an open order from a customer or another 
broker/dealer shall, prior to executing or permitting the order to be 
executed, reduce, increase or adjust the price and/or number of shares 
of such order by an amount equal to the dividend, payment or 
distribution, on the day that the security is quoted ex-dividend, ex-
rights, ex-distribution or ex-interest, except where a cash dividend or 
distribution is less than one cent ($.01), as follows:
    (i) In the case of a cash dividend or distribution, the price of 
the order shall be reduced by subtracting the dollar amount of the 
dividend or distribution from the price of the order and rounding the 
result to the next lower \1/8\ of a dollar;
    (ii) In the case of a stock dividend or split, the price of the 
order shall be reduced by rounding the dollar value of the stock 
dividend or split to the next higher \1/8\ of a dollar and subtracting 
that amount from the price of the order; provided, further, that the 
size of the order shall be increased by (1) multiplying the size of the 
original order by the numerator of the ratio of the dividend or split, 
(2) dividing the result by the denominator of the ratio of the dividend 
or split, and (3) rounding the result to the next lower round lot; and
    (ii) In the case of a dividend payable in either cash or securities 
at the option of the stockholder, the price of the order shall be 
reduced by the dollar value of the cash or securities, whichever is 
greater, according to the formulas in (a)(i) or (a)(ii), above; 
provided, that if the stockholder opts for securities, the size of the 
order shall be increased pursuant to the formula in (a)(ii), above.

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

    Article III, Section 46 of the Rules of Fair Practice requires 
members holding open orders to proportionally reprice such orders 
according to the value of the dividend or distribution on the date the 
security is quoted ex-dividend, ex-rights, ex-distribution or ex-
interest. Shortly after the rule became effective in September 1994, 
several member firms questioned the necessity of complying with Section 
46 if a dividend or other distribution was less than one cent ($.01).
    The NASD has examined the matter and determined that where 
dividends of less than one cent ($.01) are involved inefficiencies and 
costs associated with complying with Section 46 may exceed any benefit 
to be gained. The impact of such a small dividend on the price of the 
security is probably de minimis in nature and the likelihood that 
unadjusted orders will result in bad executions for customers is low. 
Accordingly, the NASD is proposing to amend Section 46 to state that 
where a dividend or other distribution is less than one cent ($.01) the 
price of the order shall not be adjusted.
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \2\ in that the 
elimination of the costs and inefficiencies associated with mandating 
the repricing of orders where the dividend or distribution is less than 
one cent ($.01) will refine the functioning of Section 46 to the 
benefit of the market and investors.

    \2\ 15 U.S.C. 78o-3
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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, as amended.

(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 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 (iii) 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.

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 [[Page 33444]] submissions should refer to File Number SR-
NASD-95-27 and should be submitted by July 19, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\3\

    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-15811 Filed 6-27-95; 8:45 am]
BILLING CODE 8010-01-M