[Federal Register Volume 61, Number 194 (Friday, October 4, 1996)]
[Notices]
[Pages 52072-52073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25504]


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

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37717; File No. SR-NASD-96-33]


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

September 24, 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 
September 11, 1996, 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 NASD has designated this proposal as a 
stated policy practice and procedure with respect to the administration 
and enforcement of NASD rules under section 19(b)(3)(A)(i) of the Act, 
which renders the rule effective upon the Commission's receipt of this 
filing. 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.\1\ Specifically, under the proposal, 
591 NNM securities will be reclassified into a different SOES tier size 
effective October 1, 1996. Because the proposed rule change is an 
interpretation of existing NASD rules, there are no language changes.
---------------------------------------------------------------------------

    \1\ In 1988, the Commission approved a proposed rule change to 
establish maximum SOES order size tiers for all NNM securities, and 
the periodic reexamination and reclassification of NNM securities 
within those tier sizes. See Securities Exchange Act Release No. 
25791 (June 9, 1988), 53 FR 22594 (June 16, 1988) (``SOES Tier Size 
Order'').
---------------------------------------------------------------------------

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

    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 date as of June 28, 1996, pursuant to the following established 
criteria.\2\

    \2\ The classification criteria are set forth in NASD Rule 
4613(a)(2) and the footnote to NASD Rule 4710(g).
---------------------------------------------------------------------------

    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, 591 
NNM securities will be reclassified effective October 1, 1996. These 
591 NNM securities are set out in the NASD's Notice To Members 96-62 
(September 1996).
    In ranking NNM securities pursuant to the established 
classification criteria, Nasdaq followed the changes dictated by the 
criteria with three 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 help ensure the 
ongoing participation of market makers in SOES for issues in which the 
tier size level increased. Second, for securities priced below $1.00 
where the reranking called for a reduction in tier size, the tier size 
was not reduced. Third, for the top 50 Nasdaq securities based on 
market capitalization, the SOES tier sizes were not reduced regardless 
of whether the reranking called for a tier-size reduction.
    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, processing 
information with respect to, and

[[Page 52073]]

facilitating transactions in securities, and to remove impediments to 
and perfect the mechanism of a free and open market. The NASD believes 
that the reassignment of NNM securities within SOES tier size levels 
and minimum quotation size levels will further these ends 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 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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(i) of the Act and Section (e) of Rule 19b-4 
promulgated thereunder because 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 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, 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 submissions should refer to SR-NASD-96-33 and should be 
submitted by October 25, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-25504 Filed 10-3-96; 8:45 am]
BILLING CODE 8010-01-M