[Federal Register Volume 62, Number 29 (Wednesday, February 12, 1997)]
[Rules and Regulations]
[Pages 6468-6469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3432]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-38246; File No. S7-30-95]
RIN 3235-AG66


Order Execution Obligations

AGENCY: Securities and Exchange Commission.

ACTION: Revised compliance dates; exemptive order.

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SUMMARY: The Securities and Exchange Commission is revising the 
compliance dates and is providing exemptive relief to responsible 
brokers and dealers, electronic communications networks, exchanges, and 
associations with respect to certain Nasdaq securities to be phased-in 
under Rule 11Ac1-4 (``Limit Order Display Rule'') and amendments to 
Rule 11Ac1-1 (``ECN Amendment'') (cumulatively ``Order Execution 
Rules'').

DATES: Effective: February 5, 1997. Compliance Dates: Compliance with 
the Order Execution Rules shall continue to be required with respect to 
exchange-listed securities and the 50 Nasdaq securities that were 
phased-in on January 20, 1997. The phase-in schedule with respect to 
the next 100 Nasdaq securities shall be as follows: (1) 50 Nasdaq 
securities shall be phased-in on February 10, 1997; (2) an additional 
50 Nasdaq securities shall be phased-in on February 24, 1997.
    Exemptive Relief: The Commission is exempting responsible brokers 
and dealers, electronic communications networks, exchanges, and 
associations, until April 14, 1997, from the requirements of the Order 
Execution Rules with respect to the Nasdaq securities not phased-in 
under such rules as of February 24, 1997.


[[Page 6469]]


FOR FURTHER INFORMATION CONTACT:
Betsy Prout Lefler, Special Counsel, Gail Marshall-Smith, Special 
Counsel, or David Oestreicher, Special Counsel, (202) 942-0158, 
Division of Market Regulation, Securities and Exchange Commission, 450 
Fifth Street, NW., Mail Stop 5-1, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: 

Background

    On August 28, 1996, the Securities and Exchange Commission 
(``Commission'') adopted Rule 11Ac1-4, the ``Limit Order Display 
Rule,'' and amendments to Rule ``Ac1-1, the ``ECN Amendment,'' to 
require OTC market makers and exchange specialists to display certain 
customer limit orders, and to publicly disseminate the best prices that 
the OTC market maker or exchange specialist has placed in certain 
electronic communications networks (``ECNs''), or to comply indirectly 
with the ECN Amendment by using an ECN that furnishes the best market 
maker and specialist prices therein to the public quotation system.
    On January 20, 1997, the Order Execution Rules became effective. As 
of that date, compliance with the rules became mandatory for all 
exchange-traded securities and 50 Nasdaq securities. Compliance with 
the rules for the remaining Nasdaq securities is to be completed in 
accordance with a schedule established by the Commission.\1\ Under the 
previously announced schedule, compliance with the Order Handling Rules 
would have been required with respect to another 100 Nasdaq securities 
on February 7, 1997, and another 850 Nasdaq securities on February 28, 
1997. In addition, on March 28, 1997, compliance would have been 
required with respect to all remaining Nasdaq securities under the ECN 
Rule, and with respect to another 1500 Nasdaq securities under the 
Limit Order Display Rule. Thereafter, compliance under the Limit Order 
Display Rule was to be phased-in over several months.
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    \1\ See Securities Exchange Act Release Nos. 37619A (September 
6, 1997) (``Adopting Release''), 37972 (November 22, 1996), 38110 
(January 2, 1997), and 38139 (January 8, 1997). The Commission notes 
that a broker-dealer's duty of best execution discussed in the 
Adopting Release applies whether or not the security has been 
phased-in under the Order Execution Rules.
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    The Commission has been closely monitoring the implementation of 
the Order Execution Rules, and recently received two letters from 
representatives of numerous industry participants (``Industry 
Letters'') requesting that the Commission adopt a more conservative 
schedule for implementing the Order Execution Rules.\2\ Accordingly, 
the Commission has determined that it is appropriate to modify the 
schedule to provide a more gradual phase-in to allow market 
participants more time to adapt to the Order Execution Rules.\3\ The 
new schedule is as follows: On February 10, 1997, 50 Nasdaq securities, 
and on February 24, 1997, an additional 50 Nasdaq securities, shall be 
phased-in for compliance under the Order Execution Rules.\4\ 
Furthermore, in response to the Industry Letters, the Commission is 
exempting responsible brokers and dealers, electronic communications 
networks, exchanges, and associations, until April 14, 1997, from the 
requirements of the ECN Amendment with respect to all Nasdaq securities 
not phased-in as of February 24, 1997, and from the requirements of the 
Limit Order Display Rule with respect to the 2350 Nasdaq securities 
that will not be phased-in as of February 24, 1997. Under the prior 
schedule, all Nasdaq securities would have been phased-in by March 28, 
1997 for compliance with the requirements of the ECN Amendment. 
Likewise, 850 of these securities would have been phased-in on February 
28, and another 1500 on March 28, 1997, for compliance with the Limit 
Order Display Rule.
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    \2\ See letter from Bernard L. Madoff, Securities Industry 
Association, to Richard R. Lindsey, dated January 30, 1997, and 
letter from John N. Tognino, Securities Traders Association, to 
Richard R. Lindsey, dated January 31, 1997.
    \3\ The Commission also amended subsection (a)(25)(ii) of the 
Quote Rule, thereby expanding the coverage of the Quote Rule to all 
exchange-traded securities. Thereafter, the Commission determined 
that it was appropriate to make this aspect of the amendments 
effective April 10, 1997. See Securities Exchange Act Release No. 
38110, supra note 1. The present order does not change that date 
and, therefore, the effective date of subsection (a)(25)(ii) of the 
Quote Rule remains April 10, 1997.
    \4\ Currently, compliance with the Order Handling Rules is 
required for 50 of the 1000 Nasdaq securities with the highest 
average daily trading volume. These 50 securities have been 
identified by Nasdaq. Similarly, Nasdaq is to identify the next two 
groups of 50 stocks to be phased-in under the Order Handling Rules.
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    The Commission believes it is imperative to continue to phase-in 
implementation of the Order Execution Rules with respect to additional 
Nasdaq securities. The Commission has granted exemptive relief to 
monitor operation of the rules carefully, and will develop a further 
phase-in schedule for the Nasdaq securities not phased-in as of 
February 24, 1997.
    The Commission finds that the modifications of the compliance dates 
described above, and the exemptive relief provided herein to 
responsible brokers and dealers, electronic communications networks, 
exchanges, and associations are consistent with the public interest, 
the protection of investors and the removal of impediments to and 
perfection of the mechanism of a national market system.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30(a)(28), (61), and 
(62).

    Dated: February 5, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3432 Filed 2-11-97; 8:45 am]
BILLING CODE 8010-01-M