[Federal Register Volume 62, Number 112 (Wednesday, June 11, 1997)]
[Notices]
[Pages 31856-31857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15331]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38720; File No. SR-NASD-97-26]


Self-Regulatory Organizations; Notice of Extension of the Comment 
Period for the Proposed Rule Change by the National Association of 
Securities Dealers, Inc., Relating to an Expansion of the Pilot for the 
NASD's Rule Permitting Market Makers To Display Their Actual Quotation 
Size

June 5, 1997.
    On April 11, 1997, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``Commission'' or ``SEC'') a proposed change to 
NASD Rule 4613(a)(1)(C). The proposal would allow market makers to 
quote their actual size by reducing the minimum quotation size 
requirement for market makers in certain securities listed on The 
Nasdaq Stock Market (``Nasdaq'') to one normal unit of trading 
(``Actual Size Rule''). The Actual Size Rule presently applies to a 
group of fifty Nasdaq securities on a pilot basis.\1\ The NASD has 
proposed to extend this pilot program to December 1997 and to add an 
additional 100 stocks to the pilot program. The Commission has already 
received comments from many individual investors and other market 
participants on the ongoing pilot.
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    \1\ The approval of the pilot program was announced in 
Securities Exchange Act Release No. 38156 (January 10, 1997), 62 FR 
2415 (January 16, 1997). The approval of the extension was announced 
in Securities Exchange Act Release No. 38156 (April 15, 1997), 62 FR 
19373 (April 21, 1997).
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    On June 3, 1997, the NASD filed with the Commission a revised 
report containing its economic analysis of the operation of the Actual 
Size Rule for the group of 50 stocks in the pilot, as requested by the 
Commission.\2\ The study examines the effects of the removal of the 
1,000-Share Quote Size Rule on market quality.
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    \2\ A copy of the executive summary of the report is available 
at Nasdaq's World Wide Web site at ``http://www.nasdaq.com''. 
Members of the public may also download a file containing the entire 
report at this site.
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    The NASD's study compares the market quality of pilot stocks with 
the market quality of peer stocks in the next tranche of stocks that 
became subject to the Order Handling Rules, but remained subject to the 
1,000-Share Quote Size Rule. The study: (1) Summarizes the relevant 
academic literature; (2) empirically assesses market quality for both 
groups pre- and post-rule change by examining spread, volatility, 
depth,

[[Page 31857]]

and liquidity; and (3) examines the use of automatic execution systems 
for the pilot stocks, Nasdaq's Small Order Execution System (``SOES''), 
and some private systems to assess whether investors continue to have 
reasonable access to market maker capital.
    The NASD asserts that the evidence analyzed in the study reveals 
that the pilot stocks and non-pilot stocks have experienced virtually 
the same improvements in market quality since implementation of the 
SEC's Order Handling Rules. Specifically, the NASD says that it found 
no statistically significant basis to conclude that the market quality 
of the pilot stocks has been affected as a result of removal of the 
1,000-Share Quote Size Rule. In addition, the NASD found that investors 
in the pilot stocks continue to have substantial and reasonable access 
to market maker capital through both SOES and market makers' 
proprietary automatic execution systems.
    In order to give the public additional time to comment on this 
analysis, the comment period for the NASD's current proposal has been 
extended at the Commission's request to July 3, 1997. A copy of the 
report is available in the Commission's Public Reference room in File 
No. SR-NASD-97-26.
    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 Jonathan G. Katz, 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 file 
number SR-NASD-97-26 and should be submitted by July 3, 1997.

    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. 97-15331 Filed 6-6-97; 4:08 pm]
BILLING CODE 8010-01-U