[Federal Register Volume 61, Number 129 (Wednesday, July 3, 1996)]
[Notices]
[Pages 34915-34916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16923]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37370; File No. SR-NASD-96-23]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Small Order Execution System Tier 
Size Classifications

June 26, 1996.
    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 June 17, 
1996, 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is submitting this filing to effectuate The Nasdaq Stock 
Market, Inc.'s (``Nasdaq'') periodic reclassification of Nasdaq 
National Market (``NNM'') securities into appropriate tier sizes for 
purposes of determining the maximum size order for a particular 
security eligible for execution through Nasdaq's Small Order Execution 
System (``SOES'') and the minimum quote size requirements for Nasdaq 
market makers in NNM securities. Specifically, under the proposal, 728 
NNM securities will be reclassified into a different SOES tier size 
effective July 1, 1996. Since the NASD's proposal is an interpretation 
of existing NASD rules, there are no language changes.

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

[[Page 34916]]

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

    The purpose of the rule change is to effectuate Nasdaq's periodic 
reclassification of NNM securities into appropriate tier sizes for 
purposes of determining the maximum size order for a particular 
security eligible for execution through SOES and the minimum quote size 
requirements for Nasdaq market makers in NNM securities. Nasdaq 
periodically reviews the SOES tier size applicable to each NNM security 
to determine if the trading characteristics of the issue have changed 
so as to warrant a tier size adjustment. Such a review was conducted 
using data as of March 31, 1996, pursuant to the following established 
criteria:\1\

    \1\ The classification criteria is set forth in NASD Rule 
4613(a)(2) and the footnote to NASD Rule 4710(g).
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    NNM securities with an average daily non-block volume of 3,000 
shares or more a day, a bid price less than or equal to $100, and 
three or more market makers are subject to a minimum quotation size 
requirement of 1,000 shares and a maximum SOES order size of 1,000 
shares;
    NNM securities with an average daily non-block volume of 1,000 
shares or more a day, a bid price less than or equal to $150, and 
two or more market makers are subject to a minimum quotation size 
requirement of 500 shares and a maximum SOES order size of 500 
shares; and
    NNM securities with an average daily non-block volume of less 
than 1,000 shares a day, a bid price less than or equal to $250, and 
less than two market makers are subject to a minimum quotation size 
requirement of 200 shares and a maximum SOES order size of 200 
shares.

    Pursuant to the application of this classification criteria, 728 
NNM securities will be reclassified effective July 1, 1996. These 728 
NNM securities are set out in the NASD's Notice To Members 96-40 (June 
1996).\2\
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    \2\ Notwithstanding the NASD's announcement in NTM 96-40 that 
Microsoft and U.S. Robotics are scheduled to be moved to the 500-
share SOES tier size level, the NASD has determined that The Nasdaq 
Stock Market will keep these stocks in the 1,000-share tier level. 
Even though these stocks fall within the 500-share tier level, 
pursuant to the criteria for determining tier levels, the NASD has 
determined to keep these stocks at the 1,000-share level because of 
their large market capitalization and high trading volume. See, 
letter to Howard L. Kramer, Associate Director, Office of Market 
Supervision, Division of Market Regulation, SEC, from Thomas R. 
Gira, Associate General Counsel, The Nasdaq Stock Market, Inc., 
dated June 25, 1996.
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    In ranking NNM securities pursuant to the established 
classification criteria, Nasdaq followed the changes dictated by the 
criteria with two exceptions. First, an issue was not moved more than 
one tier size level. For example, if an issue was previously 
categorized in the 1,000-share tier size, it would not be permitted to 
move to the 200-share tier even if the reclassification criteria showed 
that such a move was warranted.
    In adopting this policy, Nasdaq was attempting to maintain adequate 
public investor access to the market for issues in which the tier size 
level decreased and to help ensure the ongoing participation of market 
makers in SOES for issues in which the tier size level increased. 
Second, for securities priced below $1 where the reranking called for a 
reduction in tier size, the tier size was not reduced.
    The NASD believes that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act. Section 15A(b)(6) requires, among other 
things, that the rules of the NASD governing the operation of The 
Nasdaq Stock Market be designed to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, and processing 
information with respect to facilitating transactions in securities, 
and to remove impediments to and perfect the mechanism of a free and 
open market. The NASD believes that the reclassification of NNM 
securities within SOES tier size levels and minimum quotation size 
levels will further these objectives by providing an efficient 
mechanism for small, retail investors to execute their orders on Nasdaq 
and by providing investors with the assurance that they can effect 
trades up to a certain size at the best prices quoted on Nasdaq.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    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 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

    The proposed rule change has become effective immediately pursuant 
to Section 19(b)(3)(A)(i) of the Act and subparagraph (e) of Rule 19b-4 
thereunder in that the reranking of NNM securities into appropriate 
SOES tier sizes was done pursuant to the NASD's stated policy and 
practice with respect to the administration and enforcement of two 
existing NASD rules. Further, in the SOES Tier Size Order, the 
Commission requested that the NASD provide this information as an 
interpretation of an existing NASD rule under Section 19(b)(3)(A) of 
the Act.
    At any time within sixty (60) days of the filing of a proposed 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 the file number in the caption 
above and should be submitted by July 24, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12) (1989).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16923 Filed 7-2-96; 8:45 am]
BILLING CODE 8010-01-M