[Federal Register Volume 60, Number 184 (Friday, September 22, 1995)]
[Notices]
[Pages 49307-49308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23559]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36245; File No. SR-NASD-95-38]


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

September 18, 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 
September 6, 1995,\1\ 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 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 proposed rule change was initially submitted on August 
31, 1995, but was amended prior to publication in the Federal 
Register. The amendment was intended to clarify the requirements 
imposed on NASD members with respect to the annotation requirement. 
The amendment is available for copying in the Commission's Public 
Reference Room.
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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 
NASD's 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.\2\ 
Specifically, the NASD proposes to delay, until February 20, 1996, the 
effectiveness of the portion of the rule change that prohibits NASD 
members from using blanket or standing assurances that securities are 
available for borrowing to satisfy their affirmative determination 
requirements. An affirmative determination as to stock availability and 
annotation of that affirmative determination must still be made for 
each and every transaction, however. Thus, a firm that relies on a fax 
sheet or other standing assurance as to stock availability must 
annotate such reliance for each short sale transaction.

    \2\NASD Manual. Rules of Fair Practice, Article III, Sec. 1, 
(CCH) para.2151.04.
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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 an NASD rule change (SR-
NASD-94-32) that amended the Interpretation.\3\ Specifically, the new 
rule requires members to annotate, on the trade ticket or on some other 
record maintained for that purpose by the member firm, the following 
information:

    \3\See Securities and Exchange Act Release No. 34653 (September 
12, 1994), 59 FR 47965 (September 19, 1994).
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    1. If a customer assures delivery, the member 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 locates the stock, the member must annotate the 
identity of 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 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 (``standing assurance provision''). Thus, by requiring 
firms to annotate each and every affirmative determination, the 
amendment made clear the NASD's policy that firms cannot 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 decided to postpone the 
effective date of the amendments to the Interpretation until January 9, 
1995, 

[[Page 49308]]
to give member firms sufficient time to prepare for the rule change.\4\

    \4\See NASD Special Notice, dated November 29, 1994.
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    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 of NASD members, the NASD decided to postpone the effective 
date of the standing assurance provision until August 1, 1995, to give 
the NASD the opportunity to determine whether to amend or delete the 
rule or let it go into effect as approved by the SEC.\5\ The effective 
date for the standing assurance provision was extended once more, until 
September 5, 1995.\6\ Because the NASD is still in the process of 
evaluating comments raised by market participants concerning the 
provision, the NASD is proposing to further postpone the effective date 
of the standing assurance provision until February 20, 1996.\7\

    \5\See Securities Exchange Act Release No. 35207 (January 10, 
1995), 60 FR 3445 (January 17, 1995).
    \6\See NASD Special Notice, dated July 28, 1995.
    \7\Of course, if the standing assurance provision were to be 
modified or deleted prior to February 20, 1996, pursuant to a rule 
proposal approved by the Commission, the provision would not go into 
effect in its current form on February 20, 1996.
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    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, 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 standing assurance provision until February 20, 1996, will 
assist members in complying with the new rule. Similarly, the NASD 
believes that delaying the effective date of the standing assurance 
provision until February 20, 1996, 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 Competing

    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 paragraph (e) of Rule 19b-4 
promulgated thereunder in that it changes the effective date of a new 
provision 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, NW., 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 file number SR-NASD-95-38 and 
should be submitted by October 13, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\17 CFR 200.30(a0(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-23559 Filed 9-21-95; 8:45 am]
BILLING CODE 8010-01-M