[Federal Register Volume 62, Number 124 (Friday, June 27, 1997)]
[Notices]
[Pages 34724-34725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16916]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38757; File No. SR-NASD-97-31]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the National Association of Securities Dealers, Inc., 
Relating to an Amendment to the NASD's Rule Governing Market Maker 
Registration

June 23, 1997.
    On April 24, 1997, the Nasdaq Stock Market, Inc. (``Nasdaq''), a 
wholly owned subsidiary of the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), filed with the Securities 
and Exchange Commission(``Commission'' or ``SEC'') a proposed rule 
change pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act'')\1\ and Rule 19b-4 thereunder.\2\ The rule change amends 
NASD Rule 4611(d) to permit managers and co-managers of an underwriting 
syndicate participating in a secondary offering of a security listed 
and traded on Nasdaq to register as a market maker in such issue on a 
same-day basis on the day of the secondary offering. Notice of the 
proposed rule change, together with the substance of the proposal, was 
provided by issuance of a Commission release and by publication in the 
Federal Register.\3\ No comment letters were received. The Commission 
is approving the proposed rule change.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 38610 (May 12, 1997), 62 
FR 27094 (May 16, 1997).
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I. Description of Rule Change

    The NASD and Nasdaq evaluated the current rules governing members 
registering as Nasdaq market makers by entering a registration request 
``on-line'' via a Nasdaq terminal and determined, as explained below, 
to amend NASD rule 4611(d). As amended, Rule 4611(d) would permit 
managers and co-managers of an underwriting syndicate participating in 
a secondary offering of a security listed and traded on Nasdaq to 
register as a market maker in such issue on a same-day basis on the day 
of the secondary offering.\4\
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    \4\ See SR-NASD-97-30, Securities Exchange Act Release No. 38756 
(June 23, 1997), amending NASD Rule 4612(g) to permit a member who 
is a manager or co-manager of a secondary offering to be eligible to 
become a Primary Nasdaq Market Maker (``PMM'') in that issue prior 
to the effective date of the secondary offering regardless of 
whether the member was a registered market maker in the stock before 
the announcement of the secondary offering.
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    Presently, for issues that have been trading on Nasdaq for more 
than five days, ``on-line'' registrations pursuant to Rule 4611(d) are 
not effective until the day after the registration request is made 
(``One-Day Delay Rule''). This one-day delay for market maker 
registration in non-initial public offerings is designed to minimize 
the potential for ``fair weather'' market making. Specifically, the 
one-day delay helps to assure that members registering as market makers 
are making a legitimate commitment of their capital to the issue for 
the betterment of the market, not just to capture short-term trading 
profits during brief periods of favorable market conditions.
    Nasdaq continues to believe that the one-day delay in market maker 
registration serves to minimize the potential for ``fair weather'' 
market makers. There have been instances, however, where managers and 
co-managers of an underwriting syndicate for a secondary offering have 
been precluded from trading the issue on the day of the secondary 
offering because they did not submit a market maker registration 
request on the day before the offering. The NASD is aware of numerous 
instances in which this has occurred after an issuer has changed its 
investment bankers. When this happens, the issuer's new investment 
banker often erects an informational barrier between its employees who 
are working on the secondary offering and its employees who make 
markets in Nasdaq stocks. This is done to reduce the chances that 
insider trading, or other misuse of the information received from the 
issues, will occur. Consequently, the firm's employees who make markets 
in Nasdaq stocks, and who are responsible for completing the on-line 
registration, normally do not learn of the secondary offering until 
just prior to the announcement or effective date of the secondary 
offering.
    Accordingly, because of the inherent commitment of managers and co-
managers of underwriting syndicates to their issues, the need for these 
members to make a market in the stock to manage their risk, and the 
additional liquidity and pricing efficiency that these market makers 
can provide, Nasdaq believes it would be appropriate to amend NASD Rule 
4611(d) to permit managers and co-managers of a secondary offering to 
register in that issue on a same-day basis on the day of the secondary 
offering.

II. Discussion

    The Commission finds the proposed rule change is consistent with 
Section 15A(b)(6) of the Act.\5\ Section 15A(b)(6) requires that the 
rules of a national securities association be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and in general to 
protect investors and the public interest. Specifically, by permitting 
managers and co-managers of secondary offerings to become registered 
market makers in such issues on the day of the secondary offering, the 
Commission finds the

[[Page 34725]]

proposal will enhance the liquidity and stability of the market, 
facilitate greater market maker competition, and promote the capital 
formation process by enabling managers and co-managers of secondary 
offerings to better manage their risks associated with the offering. At 
the same time, given the inherent commitment of managers and co-
managers to the stocks they underwrite, the Commission finds that 
permitting managers and co-managers of secondary offerings to register 
in such issues on a same-day basis on the day of the offering will not 
compromise the regulatory purposes underlying the ``One-Day Delay 
Rule.''
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    \5\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NASD-97-31) be, and hereby is, 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-16916 Filed 6-26-97; 8:45 am]
BILLING CODE 8010-01-M