[Federal Register Volume 60, Number 226 (Friday, November 24, 1995)]
[Notices]
[Pages 58119-58120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28621]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36481; File No. S7-24-89]


Joint Industry Plan; Solicitation of Comments and Order Partially 
Approving Amendment No. 6 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

November 13, 1995.
    On November 13, 1995, the National Association of Securities 
Dealers, Inc., and the Boston, Chicago, and Philadelphia Stock 
Exchanges (collectively, ``Participants'') \1\ submitted to the 
Commission proposed Amendment No. 6 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 insofar as the proposal requests an 
extension of the effectiveness of the Plan. The Commission, however, is 
partially approving the proposal by approving operation of the Plan and 
trading pursuant to the Plan on a temporary basis to expire on December 
12, 1995, and not through the entire period requested which would have 
been through December 29, 1995.

    \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 a 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. Sec. 78l (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 operated 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 order fulfills these Section 12(f) 
requirements.
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I. Background

    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 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. Consequently, the 
pilot period commenced on July 12, 1993. As requested by the 
Participants in Amendment Nos. 1, 2, 3, 4, and 5 to the Plan, the 
Commission has extended the effectiveness of the Plan five times. 
Accordingly, the effectiveness of the Plan was scheduled to expire on 
November 12, 1995.\4\

    \3\ See Securities Exchange Act Release No. 28146 (June 26, 
1990), 55 FR 27917 (``1990 Approval Order''). For a detailed 
discussion of the 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''). See also Securities 
Exchange Act Release No. 35221, (January 11, 1995), 60 FR 3886 
(``January 1995 Extension Order''), Securities Exchange Act Release 
No. 36102 (August 14, 1995), 60 FR 43626 (``August 1995 Extension 
Order''), Securities Exchange Act Release No. 36226 (September 13, 
1995), 60 FR 49029 (``September 1995 Extension Order''), and 
Securities Exchange Act Release No. 36368 (October 13, 1995), 60 FR 
54091 (``October 1995 Extension Order'').
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    As originally approved by the Commission, the Plan required the 

[[Page 58120]]
    Participants to complete their negotiations regarding revenue sharing 
during the one-year pilot period. The January 1995 Extension Order 
approved the effectiveness of the Plan through August 12, 1995, and 
since that time the Commission has expected the Participants to 
conclude their financial negotiations promptly (at that time, before 
January 31, 1995), and to submit a filing to the Commission that 
reflected the results of the negotiations.\5\ To date, the Participants 
have not completed their financial negotiations.

    \5\ See January 1995 Extension Order, id, at n. 6.
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    Proposed Amendment No. 6 to the Plan would have extended the 
effectiveness and the negotiation period through December 29, 1995. In 
light of the lack of progress that has been made by the Participants in 
finalizing their negotiations, as evidenced by their failure to file a 
proposed amendment for revenue sharing under the Plan, the Commission 
believes it is appropriate only to approve the proposal partially by 
extending the effectiveness of the pilot program for an additional 
month. This should serve to continue the pilot program in place while 
the Commission awaits the requisite filing.\6\

    \6\ The NASD, in its letter attached to the present filing, 
states that all Plan Participants have made a good faith effort to 
reach a final agreement on revenue sharing under the Plan, but that 
the Chx has requested a limited amount of time to conclude 
internally its consideration of the most recent draft of the 
financial plan amendment. See letter from Robert E. Aber, NASD, to 
Jonathan Katz, Commission, dated November 9, 1995. The Participants 
are reminded that they currently are in violation of the 
Commission's August 1995 Extension Order that required the 
Participants to submit a filing concerning revenue sharing on or 
before August 31, 1995. The Commission continues to urge the 
Participants to comply with the Commission's request for the filing 
promptly.
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II. Extension of Certain Exemptive Relief

    In conjunction with the Plan, on a temporary basis scheduled to 
expire on November 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. 
While the Participants have requested that these exemptions be extended 
through December 29, 1995, this order extends these exemptions only 
through December 12, 1995. Further, this extension will remain in 
effect only if the Plan continues in effect through that date pursuant 
to a Commission order.\7\ The Commission continues to believe that 
exemptive relief from these provisions is appropriate through December 
12, 1995.

    \7\ In the October 1995 Extension Order, the Commission extended 
these exemptions from October 12, 1995, through November 12, 1995. 
Pursuant to a request made by the NASD, this order further extends 
the effectiveness of the relevant exemptions but only from October 
12, 1995, through November 12, 1995. See letter dated November 9, 
1995, id.
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III. Comments on the Operation of the Plan

    In the January 1995 Extension Order, the August 1995 Extension 
Order, the September 1995 Extension Order, and the October 1995 
Extension Order, the Commission solicited, among other things, comment 
on: (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. The Commission 
continues to solicit comment on these matters.

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, 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. Sec. 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 December 15, 1995.

V. Conclusion

    The Commission finds that proposed Amendment No. 6 to the Plan to 
extend the operation of the Plan and the financial negotiation period, 
but only for an additional month, is appropriate and in furtherance of 
Section 11A of the Act. The Commission finds further that extensions of 
the exemptive relief through December 12, 1995, as 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 with more information to evaluate the effects of and 
proposed course of action for the pilot program. This, in turn, should 
further the objects of the Act in general, and specifically those set 
forth in Sections 12(f) and 11A of the Act and in Rules 11Aa3-1 and 
11Aa3-2 thereunder.
    The Commission currently believes, however, that extension beyond 
December 12, 1995, of the effectiveness of the Plan and the related 
exemptive relief is not necessary or in furtherance of the Act because 
such an extension would not maximize the incentives for the 
Participants to complete their negotiations and file a financial 
amendment to the Plan, as described above. Thus, the Commission 
believes that partial approval of the proposal by limiting the 
effectiveness of the present approval order through December 12, 1995, 
is appropriate.
    It is therefore ordered, pursuant to Sections 12(f) and 11A of the 
Act and (c)(2) of Rule 11Aa3-2 thereunder, that Amendment No. 6 to the 
Joint Transaction Reporting Plan for Nasdaq/National Market securities 
traded on an exchange on an unlisted or listed basis is hereby 
partially approved and trading pursuant to the Plan is hereby approved 
on a temporary basis through December 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. 95-28621 Filed 11-22-95; 8:45 am]
BILLING CODE 8010-01-M