[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Proposed Rules]
[Pages 48333-48336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22624]



  Federal Register / Vol. 61, No. 178 / Thursday, September 12, 1996 / 
Proposed Rules  

[[Page 48333]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-37620; File No. S7-22-96]
RIN 3235-AH00


Proposed Quote Rule Amendment

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'') today 
is proposing an amendment to Rule 11Ac1-1 (``Quote Rule'') under the 
Securities Exchange Act of 1934. The proposed amendment reinforces the 
Commission's recent initiatives to foster market liquidity, 
transparency and efficiency. The amendment to the Quote Rule will 
mandate continuous two-sided quotations from over-the-counter (``OTC'') 
market makers and exchange specialists that account for more than 1% of 
the transaction volume in a security included on the Nasdaq Stock 
Market (``Nasdaq security'').

DATES: Comments should be submitted on or before November 12, 1996.

ADDRESSES: Interested persons should submit three copies of their 
written data, views and opinions to Jonathan G. Katz, Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549. Comments also may be submitted electronically at the 
following E-mail address: [email protected]. All comment letters 
should refer to File Number S7-22-96; this file number should be 
included on the subject line if E-mail is used. Comment letters will be 
made available for public inspection at the Commission's Public 
Reference Room, Room 1024, 450 Fifth Street, NW., Washington, DC 20549. 
Electronically submitted comment letters will be posted on the 
Commission's Internet web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT:
 Gail A. Marshall, 202/942-7129, Attorney, Office of Market 
Supervision, Division of Market Regulation, Securities and Exchange 
Commission, 450 Fifth Street, NW., Mailstop 5-1, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The commission is publishing for comment 
proposed amendment to Rule 11Ac1-1\1\ under the Securities Exchange Act 
of 1934 (``Exchange Act'').\2\
---------------------------------------------------------------------------

    \1\ 17 CFR 240.11Ac-1.
    \2\ 15 U.S.C. 78a to 78ll (1988).
---------------------------------------------------------------------------

I. Introduction and Background

    Today in a related release,\3\ the Commission adopted the Display 
Rule and amendments to the Quote Rule under the exchange Act.\4\ The 
new rule and amendments are designed to reduce the effects of hidden 
markets and enhance transparency, further permitting investors to 
evaluate the execution quality of their orders.\5\ The Commission 
received 152 comment letters on the aforementioned proposals \6\ and 
has determined to propose an additional amendment to the Quote Rule in 
response to an issue raised by some commenters.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 37619 (August 29, 
1996) (``Adopting Release'').
    \4\ The Commission proposed the new rule and the amendments to 
the Quote Rule for public comment in October 1995. See Securities 
Exchange Act Release No. 36310 (September 29, 1995), 60 FR 52792 
(October 10, 1995) (``Proposing Release''). The Commission 
subsequently extended the comment period. See also Securities 
Exchange Act Release No. 36718 (January 16, 1996), 61 FR 1545 
(January 22, 1996).
    \5\ See Adopting Release, supra note 3.
    \6\ The comment letters and a summary of comments have been 
placed in Public File No. S7-30-95, which is available for 
inspection in the Commission's Public Reference Room. Commenters 
included 77 individual investors, 10 industry associations, 7 self-
regulatory organizations, 8 academics, 41 market participants, and 
the United States Department of Justice.
---------------------------------------------------------------------------

    Congress, in the Securities Acts Amendments of 1975 (``1975 
Amendments''),\7\ authorized the Commission to facilitate the 
development of a national market system (``NMS'') for U.S. equity 
securities by improving price discovery, liquidity, and competition 
among OTC market makers \8\ and exchange specialists. Moreover, the 
Commission is authorized, under Sections 11A(c)(1)(B) and (F) of the 
Exchange Act,\9\ to assure the prompt, accurate and reliable 
distribution of quotation information and to assure the fairness and 
usefulness of the form and content of such information.
---------------------------------------------------------------------------

    \7\ Pub. L. No. 94-29, 89 Stat. 97 (1975).
    \8\ As used in this release, the term OTC market maker includes 
any dealer who holds itself out as being willing to buy from and 
sell to its customers, or otherwise, a covered security for its own 
account on a regular or continuous basis otherwise than on an 
exchange in amounts of less than block size. See section 240.11Ac1-
1(a)(12).
    \9\ 15 U.S.C. 78k-l.
---------------------------------------------------------------------------

    The Quote Rule requires all national securities exchanges and 
associations \10\ to establish and maintain procedures for collecting 
from their members, bids, offers, and quotation sizes with respect to 
any subject security,\11\ and for making such bids, offers, and sizes 
available to quotation vendors. It also requires every exchange 
specialist and OTC market maker to promptly communicate to its exchange 
or association, pursuant to procedures established by the exchange or 
association, its bids, offers and quotation sizes.\12\ In addition, the 
Quote Rule requires that, subject to certain exceptions, the broker or 
dealer responsible for communicating a quotation for a security shall 
be obligated to execute any order presented to it, other than an odd-
lot order, by another broker or dealer, or any other person belonging 
to a category of persons with whom such responsible broker or dealer 
customarily deals, at a price at least as favorable as its published 
bid or offer in any amount up to its published quotation size.\13\
---------------------------------------------------------------------------

    \10\ Section 15A of the Exchange Act defines the requirements to 
become a national securities association registered with the 
Commission. The National Association of Securities Dealers 
(``NASD'') is the only association of brokers and dealers that is 
registered as a national securities association. 15 U.S.C. 78o-3.
    \11\ Paragraph (a)(25) of the Quote Rule, as amended, defines 
``subject security'' to include exchange-listed securities for which 
an OTC market maker or exchange specialist trades more than 1% of 
the aggregate trading volume, as well as any other security for 
which an OTC market maker or specialist has in effect an election to 
provide quotes.
    \12\ This is referred to as the ``mandatory participation'' 
requirement of the Quote Rule. See Sec. 240.11Ac1-1(c)(1).
    \13\ This is referred to as the ``firmness'' requirement of the 
Quote Rule. See Sec. 240.11Ac1-1(c)(2).
---------------------------------------------------------------------------

    The Commission proposes to amend the Quote Rule to require exchange 
specialists and OTC market makers to publish quotations for any Nasdaq 
security when the exchange specialist or OTC market maker is 
responsible for more than 1% of the aggregate trading volume for that 
security for the most recent calendar quarter.\14\ Upon the effective 
date of the most recent amendment of the Quote Rule, the mandatory 
quotation requirement will apply to exchange specialists and OTC market 
makers that trade more than 1% of the aggregate trading volume for an 
exchange-listed security for the most recent calendar quarter.
---------------------------------------------------------------------------

    \14\ NASD rules already require OTC market makers in Nasdaq 
securities, once they elect to disseminate quotations, to register 
and maintain continuous two-sided quotations. See NASD Rule 4613. 
The Commission believes the proposed amendments are consistent with 
the existing NASD requirements.
---------------------------------------------------------------------------

II. Discussion

    Since the Quote Rule was adopted in 1978,\15\ transaction volume on 
the Nasdaq Stock Market (``Nasdaq'') has grown substantially. In 1985 
there were 20.7 billion shares traded on Nasdaq \16\ compared with the 
more than 100

[[Page 48334]]

billion shares traded in 1995.\17\ Today Nasdaq is home to many 
companies that meet the listing requirements of the primary exchanges, 
whereas in 1978 securities listed on exchanges and those quoted on 
Nasdaq had more disparate trading characteristics and the Quote Rule 
reflected those disparities. The Commission questions whether disparate 
treatment of market makers in OTC and listed securities within the 
Quote Rule is still warranted in light of the considerable growth in 
the Nasdaq market in the last decade.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 14415 (January 26, 
1978), 43 FR 4342 (February 1, 1978).
    \16\ See The Nasdaq Stock Market 1986 Fact Book at 4.
    \17\ See The Nasdaq Stock Market 1996 Fact Book at 35. In 
addition, with unlisted trading privileges extending to Nasdaq 
securities, pursuant to temporary Commission approval of a joint 
industry plan, exchange specialists may ultimately transact 
significant volume in these securities. See Securities Exchange Act 
Release No. 36985 (March 18, 1996), 61 FR 12122 (March 25, 1996).
---------------------------------------------------------------------------

    The Commission adopted today an amendment to the Quote Rule that 
broadens the definition of subject security to include any exchange-
listed security for which an OTC market maker or exchange specialist 
accounts for more than 1% of the aggregate transaction volume for the 
most recent calendar quarter.\18\ An effect of this amendment is to 
require OTC market makers and exchange specialists to provide 
continuous two-sided quotations for any exchange-listed security when 
they are responsible for more than 1% of the aggregate transaction 
volume in that security. Prior to this amendment, mandatory quotations 
were only required from OTC market makers and exchange specialists who 
transacted more than 1% of the volume in a Rule 19c-3 security.\19\ The 
Commission adopted the amendment to the definition to improve 
transparency and provide investors with information about significant 
market participants.
---------------------------------------------------------------------------

    \18\ See Sec. 240.11Ac1-1(a)(25).
    \19\ See Sec. 240.19c-3. Exchange Act Rule 19c-3 prohibits the 
application of off-board trading restrictions to securities that: 
(1) Were not traded on an exchange before April 26, 1979; or (2) 
were traded on an exchange on April 26, 1979, but ceased to be 
traded on an exchange for any period of time thereafter. 
Accordingly, exchange-traded securities not subject to off-board 
trading restrictions are referred to as Rule 19-3 securities, and 
exchange-traded securities subject to off-board trading restrictions 
are referred to as non-Rule 19c-3 securities.
---------------------------------------------------------------------------

    Some commenters, in response to the Proposing Release, suggested 
the Commission further improve transparency by extending the quotation 
requirements of the Quote Rule to Nasdaq securities.\20\ The 
Commission, consistent with the objectives of the 1978 Amendments and 
the amendments adopted today, is proposing to amend the definition of 
``subject security'' further to include any covered security \21\ for 
which the volume executed during the most recent calendar quarter by an 
exchange specialist or an OTC market maker in the security constitutes 
more than 1% of the aggregate trading volume for such security.\22\ The 
effect of this proposed amendment would be to require any OTC market 
maker or exchange specialist in a covered security responsible for more 
than 1% of the transaction volume in that security to disseminate 
continuous two-sided quotations publicly.
---------------------------------------------------------------------------

    \20\ See Letter from Andrew E. Feldman, Director and Associate 
General Counsel, Smith Barney, to Jonathan G. Katz, Secretary, SEC, 
dated January 29, 1996 (``Smith Barney Letter'') and Letter from 
Joseph R. Hardiman, President, The National Association of 
Securities Dealers, Inc., to Jonathan G. Katz, Secretary, SEC, dated 
January 26, 1996 (``NASD Letter'').
    \21\ The term ``covered security'' is defined in the Quote Rule 
to mean any reported security and any other security for which a 
transaction report, last sale data or quotation information is 
disseminated through an automated quotation system as described in 
section 3 (a)(51)(A)(ii) of the Exchange Act (15 U.S.C. 
78c(a)(51)(A)(ii). The term ``reported security'' is defined in the 
Quote Rule to mean any security or class of securities for which 
transaction reports are collected, processed and made available 
pursuant to an effective reporting plan. See Paragraphs (a)(6) and 
(a)(20) of Rule 11Ac1-1.
    \22\ The Commission first proposed amending the Quote Rule to 
require OTC market makers responsible for more than 1% of the 
aggregate trading volume in NMS securities to disseminate continuous 
two-sided quotations over ten years ago. See Securities Exchange Act 
Release No. 17583 (February 27, 1981), 46 FR 15713 (March 9, 1981). 
The Commission did not adopt the proposal because, at that time, it 
believed that there were sufficient economic incentives to mandate 
meaningful quotation dissemination from OTC market makers. Moreover, 
the Commission believed that meaningless quotations would only 
burden already taxed vendor quotation systems. See Securities 
Exchange Act Release No. 18482 (February 11, 1982), 47 FR 7399 
(February 19, 1982).
---------------------------------------------------------------------------

    Presently, the Quote Rule permits, but does not require, an OTC 
market maker or exchange specialist trading Nasdaq securities to quote 
a two-sided market.\23\ Consequently, there could be OTC market makers 
and exchange specialists whose trading constitutes more than a de 
minimis percentage of the volume in a particular Nasdaq security that 
do not provide continuous two-sided quotations. The Commission believes 
this potentially reduces transparency, thereby depriving the public of 
meaningful information about the buying and selling interest of 
significant market participants. The proposed amendment is intended to 
enhance transparency by mandating continuous two-sided quotations from 
OTC market makers and exchange specialists that account for more than 
1% of the transaction volume for a Nasdaq security. The proposed 
amendment also would eliminate artificial regulatory distinctions 
between Nasdaq securities and exchange-listed securities.
---------------------------------------------------------------------------

    \23\ See Sec. 240.11Ac1-1(b)(5)(ii).
---------------------------------------------------------------------------

III. Request for Comment

    The Commission invites comment on the issues raised in this 
release, specifically, expanding the definition of subject security to 
include a 1% volume threshold for Nasdaq securities. The Commission 
requests comments on the practical implications of the amendment, 
including the anticipated costs and benefits associated therewith.
    The Commission requests comments generally on whether, upon 
implementation of other initiatives adopted today, OTC markets, 
exchange specialists, and investors would benefit from the new 
proposal. The Commission also requests comment concerning whether 
sufficient similarities exist among trading of Nasdaq securities and 
exchange-listed securities to warrant extension of the 1% rule to 
Nasdaq securities when previously applicable only to exchange-listed 
securities. In addition, the Commission requests comment on whether the 
1% threshold is an appropriate threshold with respect to Nasdaq 
securities.
    The Commission also is interested in alternatives to this proposal 
that would better meet the aforementioned objectives.
    Finally, the Commission requests comment on whether the proposed 
amendment, if adopted, would have an adverse effect on competition or 
would impose a burden on competition that is neither necessary nor 
appropriate in furthering the purposes of the Exchange Act. Comments on 
the proposal will be considered by the Commission in complying with its 
responsibilities under section 23(a)(2) of the Exchange Act.

IV. Summary of the Initial Regulatory Flexibility Analysis

    The Commission has prepared an Initial Regulatory Flexibility 
Analysis (``IRFA'') in accordance with 5 U.S.C. 603 regarding the 
proposed amendments to Rule 11Ac1-1 and Rule 11Ac1-4. The following 
summarizes the conclusions of the IRFA.
    The IRFA uses certain definitions of ``small entities'' adopted by 
the Commission for purposes of the Regulatory Flexibility Act. In the 
IRFA, the Commission states that the amendment to the Quote Rule is 
proposed to ensure that exchange specialists and OTC market makers in 
covered securities adhere to the firm quote reporting obligations. The 
IRFA notes that the proposed Quote Rule

[[Page 48335]]

amendment would require OTC market makers and exchange specialists to 
communicate quotes if they trade more than 1% of a security included on 
the Nasdaq Stock Market, thus improving transparency in Nasdaq 
securities.
    A copy of the Initial Regulatory Flexibility Analysis may be 
obtained by contacting Gail Marshall, Division of Market Regulation, 
SEC, 450 Fifth Street, NW., Washington, DC 20549.

V. Paperwork Reduction Act

    Certain provisions of Rule 11Ac1-1, as amended (the ``Quote 
Rule''), contain ``collection of information'' requirements within the 
meaning of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) 
(``PRA''), and the Commission has submitted them to the Office of 
Management and Budget (``OMB'') for review in accordance with 44 U.S.C. 
3507(d) and 5 CFR 1320.11 and 1320.12. The title for the collection of 
information is: ``Rule 11Ac1-1.'' Providing information in response to 
the collections of information, as discussed below, is mandatory, and 
such responses are not kept confidential. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid OMB control number.
    In September 1995, the Commission proposed amendments to the Quote 
Rule as part of its proposal to improve the handling and execution of 
customer orders.\24\ The preamble of that release included a PRA 
section describing, in part, how the proposed amendments would affect 
the number of respondents and the collections of information already 
contained in the Quote Rule. Those proposed amendments, as modified in 
part in response to comments received, have been adopted and are 
published elsewhere in the Federal Register  today.\25\ This release 
provides new estimates of the overall burden in responding to 
collections of information under the Quote Rule as a whole, both as 
amended and in light of the additional amendment proposed today.\26\
---------------------------------------------------------------------------

    \24\ 60 FR at 52809.
    \25\ See supra note 3.
    \26\ When originally promulgated, the collections of information 
contained in the Quote Rule were not required to be submitted for 
OMB review under the version of PRA that was in effect before 
October 1995. See 5 CFR 1320.12(b).
---------------------------------------------------------------------------

    The Quote Rule contains two related collections of information 
necessary to disseminate to the public market makers' published 
quotations to buy and sell securities. The first collection of 
information is found in 17 CFR 240.11Ac1-1(c). This reporting 
requirement obligates each ``responsible broker or dealer,'' as defined 
under the rule, to communicate to its exchange or association its best 
bids, best offers, and quotation sizes for any subject security, as 
defined under the rule. The second collection of information is found 
in 17 CFR 240.11Ac1-1(b). This reporting requirement obligates each 
exchange and association to make available to quotation vendors for 
dissemination to the public the best bid, best offer, and aggregate 
quotation size for each subject security.\27\ Brokers, dealers, other 
market participants, and members of the public rely on published 
quotation information to determine the best price and market for 
execution of customer orders.
---------------------------------------------------------------------------

    \27\ A third reporting requirement under the Quote Rule, as 
amended at 17 CFR 240.11Ac1-1(c)(5), will give ECNs the option of 
reporting to an exchange or association for public dissemination, on 
behalf of their OTC market maker or exchange specialist customers, 
the best priced orders and the full size for such orders entered by 
market makers, to satisfy such market makers' reporting obligation 
under Rule 11Ac1-1(c). Because this reporting requirement is an 
alternative method of meeting the market makers' reporting 
obligation, and because it is directed to nine or fewer persons 
(ECNs), this collection of information is not subject to OMB review 
under the PRA.
---------------------------------------------------------------------------

    For the reporting obligation under Rule 11Ac1-1(c), the likely 
respondents are OTC market makers and exchange specialists. The 
Commission estimates that there are approximately 180 exchange 
specialists and 570 OTC market maker respondents to this collection of 
information. Each exchange specialist will respond (i.e., report or 
update bids, offers, and quotation sizes) on average approximately 
806,000 times per year (including customer limit orders reflected in 
the quotes), while each OTC market maker will respond on average 
approximately 124,000 times per year. These figures are based on a 252 
trading day year. The total annual time burden for each exchange 
specialist is estimated to be 672 hours, while the total annual time 
burden for each OTC market maker is estimated to be 103 hours. These 
figures are based on an estimate of three seconds per response (i.e., 
the time it takes to update a quote). The annual aggregate burden for 
all respondents combined is estimated to be 120,960 hours for exchange 
specialists, and 58,710 hours for OTC market makers.\28\ The Commission 
notes that the rules of the various exchanges and the NASD generally 
already require exchange specialists and market makers to publish 
quotations in those securities for which they act as market makers and 
publish two-sided quotations.\29\
---------------------------------------------------------------------------

    \28\ The Commission also estimates that each OTC market maker on 
average will display in its own quotation, or transmit to another 
market participant for display, approximately 42,000 limit orders 
per year. This translates into an additional annual time burden per 
OTC market maker respondent of 35 hours and an additional aggregate 
time burden for all OTC market maker respondents of 19,950 hours. 
The Commission has included these figures in its PRA burden estimate 
for the collection of information udner the Display Rule, 17 CFR 
240.11Ac1-4.
    \29\ In comments submitted in response to the Commission's 
September 1995 release proposing amendments to the Quote Rule, the 
NASD stated its view that the Commission's burden estimates were too 
low. The revised burden estimates provided above are the 
Commission's current burden estimates for the Quote Rule as a whole. 
The NASD also commented that it believes the PRA burden estimate 
should include the time market makers spend analyzing market trends 
and following quotation and last sale information. The Commission 
has determined not to include such activities in its estimate 
because market makers engage in them for reasons apart from the 
collection of information requirement. For example, market makers 
already are required to monitor the markets to ensure that they do 
not trade ahead of customer limit orders.
---------------------------------------------------------------------------

    The new amendment to the Quote Rule proposed by this release, 
specifically the change to the definition of ``subject security'' under 
paragraph (a)(25) of Rule 11Ac1-1, would require an exchange specialist 
or OTC market maker to fulfill the reporting obligation under paragraph 
(c) if such specialist's exchange or market maker accounts for more 
than one percent of the aggregate trading volume for any covered 
security during the most recent calendar quarter. This amendment of the 
collection of information requirement is necessary to expand the 
coverage of existing broker-dealer quotation requirements to include 
all substantial market participants in securities on the Nasdaq Stock 
Market and to improve the public information about the prices at which 
market makers are willing to buy and sell covered securities. The 
Commission estimates that this change will affect approximately 10 OTC 
market makers. These OTC market makers are included in the above 
estimates of the number of respondents and burden hours. The Commission 
also notes that most, if not all, of these respondents already are 
required under NASD rules to report their bids, offers, and quotation 
sizes for dissemination to the public.
    For the reporting obligation under Rule 11Ac1-1 (b), the likely 
respondents are the eight stock exchanges and the NASD.\30\ The 
Commission estimates that each exchange or association on average will 
respond (i.e., disseminate and update

[[Page 48336]]

bids, offers, and quotation sizes to quotation vendors) approximately 
24,226,000 times per year (including customer limit orders reflected in 
the quotes). These figures are based on a 252 trading day year. Because 
the reporting and dissemination of quotation information is 
computerized, automatic, and continuous, and because the systems that 
accomplish the reporting obligation function have long been in place, 
the Commission believes that it is not feasible or realistic to provide 
a burden estimate in terms of either person hours or costs for this 
collection of information.
---------------------------------------------------------------------------

    \30\ Technically, under the PRA the Commission is not required 
to submit a collection of information to OMB for review unless it 
applies to ten or more persons. Because the collection of 
information under Rule 11Ac1-1(b) applies to the entire securities 
market industry, the Commission has determined to solicit comments 
on the requirement from the public and to include the collection of 
information in its submission to OMB.
---------------------------------------------------------------------------

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments to--
    (i) Evaluate whether the proposed collections of information are 
necessary for the proper performance of the functions of the agency, 
including whether the information shall have practical utility;
    (ii) Evaluate the accuracy of the agency's estimate of the burden 
of the proposed collections of information;
    (iii) Enhance the quality, utility, and clarity of the information 
to be collected; and
    (iv) Minimize the burden of collections of information on those who 
are to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons desiring to submit comments on the collection of 
information requirements should direct them to the Office of Management 
and Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and should also send a copy of their comments directly to the 
Commission. OMB is required to make a decision concerning the 
collections of information between 30 and 60 days after publication, so 
a comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication.

VI. Statutory Basis

    The amendments to Rule 11Ac1-1 are being proposed pursuant to 15 
U.S.C. 78 et seq., particularly sections 11A, 6, 10(b), 11(a)(2), 
11(b), 15A, 15(c) and 23(a)(1); 15 U.S.C. 78k-1, 78f, 78j(b), 
78k(a)(2), 78k(b), 78o-3, 78o(c), and 78w(a)(1) (1988).

List of Subjects in 17 CFR Part 240

    Brokers, Confidential business information, Reporting and 
recordkeeping requirements, Securities.

Texts of the Proposed Rule Amendments

    For the reasons set out in the preamble, the Commission proposes to 
amend Part 240 of Chapter II of Title 17 of the Code of Federal 
Regulation as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITY EXCHANGE ACT OF 
1934

    1. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 
77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78k-1, 78l, 78m, 
78n, 78o, 78p, 78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-
23, 80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
    2. Amending Sec. 240.11Ac1-1 by revising paragraph (a)(25) to read 
as follows:


Sec. 240.11Ac1-1  Dissemination of quotations.

    (a) Definitions. * * *
    (25) The term subject security shall mean:
    (i) With respect to an exchange:
    (A) Any covered security other than a security for which the 
executed volume of such exchange, during the most recent calendar 
quarter, comprised one percent or less of the aggregate trading volume 
for such security as reported in the consolidated system or by a 
national security association; and
    (B) Any other covered security for which such exchange has in 
effect an election, pursuant to paragraph (b)(5)(i) of this section, to 
collect, process, and make available to quotation vendors, bids, 
offers, quotation sizes, and aggregate quotation sizes communicated on 
such exchange; and
    (ii) With respect to a member of an association:
    (A) Any other covered security for which such member acts in the 
capacity of an OTC market maker unless the executive volume of such 
member, during the most recent calendar quarter, comprised one percent 
or less of the aggregate trading volume for such security as reported 
in the consolidated system or by a national securities association; and
    (B) Any other covered security for which such member acts in the 
capacity of an OTC market maker and has in effect an election, pursuant 
to paragraph (b)(5)(ii) of this section, to communicate to its 
association bids, offers and quotation sizes for the purpose of making 
such bids, offers and quotation sizes available to quotation vendors.
* * * * *
    By the Commission.

    Dated: August 29, 1996.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22624 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-M