[Federal Register Volume 62, Number 54 (Thursday, March 20, 1997)]
[Notices]
[Pages 13416-13417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7048]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38402; File No. SR-NASD-97-19]


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

March 14, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given that 
on March 7, 1997, 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.
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    \1\ 15 U.S.C. 78s(b)(1)(1988).
    \1\ 17 CFR 240.19b-4 (1991).
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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''). Specifically, under the proposal, 692 NNM securities 
will be reclassified into a different SOES tier size effective April 1, 
1997. 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 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.

[[Page 13417]]

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. 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 December 31, 1996, pursuant to the following established 
criteria: \3\

    \3\ The classification criteria is 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, 692 
NNM securities will be reclassified effective April 1, 1997. These 692 
NNM securities are set out in the NASD's Notice To Members 97-17.\4\
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    \4\ NASD To Members 97-17 (March 1997).
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    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 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.\5\ Section 15A(b)(6) \6\ requires, among 
other things, that the rules of the NASD governing the operation of 
Nasdaq be designed to foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and 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 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.
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    \5\ 15 U.S.C. 78o(b)(6).
    \6\ Id.
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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

    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 on March 
7, 1997, pursuant to Section 19(b)(3)(A)(i) of the Act \7\ and 
subparagraph (e) of Rule 19b-4 \8\ 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 
administrative 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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 17 CFR 240.19b-4(e).
    \9\ 15 U.S.C. 78s(b)(3)(A).
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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 File No. SR-NASD-97-19 and should 
be submitted by April 10, 1997.


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7048 Filed 3-19-97; 8:45 am]
BILLING CODE 8010-01-M