[Federal Register Volume 62, Number 170 (Wednesday, September 3, 1997)]
[Notices]
[Pages 46537-46544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23343]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38979; File No. SR-NASD-97-58]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. 
Requesting Permanent Approval of the NASD's Short Sale Rule

August 26, 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 August 11, 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. Sec. 78s(b)(1) (1994).
    \2\ 17 CFR 240.19b-4 (1997).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing to implement its short sale rule (``Rule'') 
on a permanent basis. The text of the proposed rule change is as 
follows. Additions are italicized; deletions are bracketed.
* * * * *

NASD Rule 3350

* * * * *
    (k)(3)[(A) Until February 1, 1996, the term qualified market maker 
shall mean a registered Nasdaq market maker that has maintained, 
without interruption, quotations in the subject security for the 
preceding 20 business days. Notwithstanding the 20-day period specified 
in this subsection, after an offering in a stock has been publicly 
announced, a registration statement has been filed, or a merger or 
acquisition involving two issues has been announced, no market maker 
may register in the stock as a qualified market maker unless it meets 
the requirements set forth below:
    (i) For secondary offerings, the offering has become effective and 
the market maker has been registered in and maintained quotations 
without interruption in the subject security for 40 calendar days;
    (ii) For initial public offerings, the market maker may register in 
the offering and immediately become a qualified market maker; provided 
however, that if the market maker withdraws on an unexcused basis from 
the security within the first 20 days of the offering, it shall not be 
designated as a qualified market maker on any subsequent initial public 
offerings for the next 10 business days;
    (iii) After a merger or acquisition involving an exchange of stock 
has been publicly announced and not yet consummated or terminated, a 
market maker may immediately register in either or both of the two 
affected securities as a qualified market maker pursuant to the same-
day registration procedures in Rule 4611; provided, however, that if 
the market maker withdraws on an unexcused basis from any stock in 
which it has registered pursuant to this subsection within 20 days of 
so registering, it shall not be designated as a qualified market maker 
pursuant to this subparagraph (3) for any subsequent merger or 
acquisition announced within three months subsequent to such unexcused 
withdrawal.
    (B) for purposes of this subparagraph (3), a market maker will be 
deemed to have maintained quotations without interruption if the market 
maker is registered in the security and has continued publication of 
quotations in the security through the Nasdaq on a continuous basis; 
provided however, that if a market maker is granted an excused 
withdrawal pursuant to the requirements of Rule 4619, the 20 business 
day standard will be considered uninterrupted and will be calculated 
without regard to the period of the excused withdrawal. Beginning 
February 1, 1996, t]The term qualified market maker shall mean a 
registered Nasdaq market maker that meets the criteria for a Primary 
Nasdaq Market Maker as set forth in Rule 4612.

[(l) This section shall be in effect until October 1, 1997.]

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 parts of such statements.

[[Page 46538]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Background and Description of the NASD's Short Sale Rule
    On June 29, 1994, the SEC approved the rule applicable to short 
sales \3\ in Nasdaq National Market (``NNM'') securities on an 
eighteen-month pilot basis through March 5, 1996.\4\ The Rule prohibits 
member firms from effecting short sales at or below the current inside 
bid as disseminated by Nasdaq whenever that bid is lower than the 
previous inside bid.\5\ The Rule is in effect during normal domestic 
market hours (9:30 a.m. to 4:00 p.m., Eastern Time).
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    \3\ A short sale is a sale of a security which the seller does 
not own or any sale which is consummated by the delivery of a 
security borrowed by, or for the account of, the seller. To 
determine whether a sale is a short sale members must adhere to the 
definition of a ``short sale'' contained in Rule 3b-3 of the Act, 
which rule is incorporated into Nasdaq's Rule by NASD Rule 
3350(k)(1).
    \4\ Securities Exchange Act Release No. 34277 (June 29, 1994), 
59 FR 34885 (July 7, 1994) [File No. SR-NASD-92-12] (``Short Sale 
Rule Approval Order''). The termination date for the pilot program 
for the Rule was subsequently extended through October 1, 1997. 
Specifically, the termination date was extended twice due to delays 
in the implementation of the NASD's Primary Market Maker Standards. 
Securities Exchange Act Release No. 36532 (November 30, 1995), 60 FR 
62519 (December 6, 1995) [File No. SR-NASD-95-58]; see also 
Securities Exchange Act Release No. 36171 (August 30, 1995), 60 FR 
46651 (September 7, 1995) [File No. SR-NASD-95-35]. The most recent 
extension of the pilot program through October 1, 1997, was approved 
by the SEC to afford the NASD a better opportunity to examine the 
effectiveness of the Rule and the impact of the market maker 
exemption from the Rule. Securities Exchange Act Release No. 37917 
(November 1, 1996), 61 FR 57934 (November 8, 1996) [File No. SR-
NASD-96-41]. In this connection, in order to enhance its ability to 
examine the impacts of the market maker exemption, the NASD received 
SEC approval of its proposal to require market makers to mark their 
ACT reports to denote when they have relied on the market maker 
exemption. Securities Exchange Act Release No. 38240 (February 5, 
1997), 62 FR 6290 (February 11, 1997) [File No. SR-NASD-96-52].
    \5\ Nasdaq calculates the inside bid or best bid from all market 
makers in the security (including bids on behalf of exchanges 
trading Nasdaq securities on an unlisted trading privileges basis) 
and disseminates symbols to denote whether the current inside bid is 
an ``up bid'' or a ``down bid.'' Specifically, an ``up bid'' is 
denoted by a green ``up'' arrow and a ``down bid'' is denoted by a 
red ``down'' arrow. To effect a ``legal'' short sale on a down bid, 
the short sale must be executed at a price at least a \1/16\th of a 
point above the current inside bid. Conversely, if the security's 
symbol has a green up arrow next to it, members can effect short 
sales in the security without any restrictions.
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i. Market Maker Exemption

    In order to ensure that market maker activities that provide 
liquidity and continuity to the market are not adversely constrained 
when the Rule is invoked, the Rule provides an exemption to 
``qualified'' Nasdaq market makers. Even if a market maker is able to 
avail itself of the qualified market maker exemption, it can only 
utilize the exemption from the Rule for transactions that are made in 
connection with bona fide market making activity. If a market maker 
does not satisfy the requirements for a qualified market maker, it can 
remain a market maker in the Nasdaq system, although it can not take 
advantage of the exemption from the Rule.
    Since the rule has been in effect, there have been three methods 
used to determine whether a market maker is eligible for the market 
maker exemption. Specifically, from September 4, 1994 through February 
1, 1996, Nasdaq market makers who maintained a quotation in a 
particular NNM security for 20 consecutive business days without 
interruption were exempt from the Rule for short sales in that 
security, provided the short sales were made in connection with bona 
fide market making activity (the ``20-day'' test). From February 1, 
1996 until the February 14, 1997, the ``20-day'' test was replaced with 
a four-part quantitative test known as the Nasdaq Primary Market Maker 
(``PMM'') Standards.\6\ On February 14, 1997, the PMM standards were 
waived for all NNM securities due to the effects of the SEC's Order 
Handling Rules and corresponding NASD rule change and system 
modifications on the operation of the four quantitative standards.\7\ 
For example, among other affects, the requirement that market makers 
display customer limit orders adversely effected the ability of market 
makers to satisfy the ``102% Average Spread Standard.'' Nasdaq is 
presently in the process of formatting revised PMM standards that focus 
principally on whether a market maker is a ``net'' provider of 
liquidity.
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    \6\ Under the PMM Standards, a market maker was required to 
satisfy at least two of the following four criteria each month to be 
eligible for an exemption from the Rule: (1) The market maker must 
be at the best bid or best offer as shown on Nasdaq no less than 35 
percent of the time; (2) the market maker must maintain a spread no 
greater than 102 percent of the average dealer spread; (3) no more 
than 50 percent of the market maker's quotation updates may occur 
without being accompanied by a trade execution of at least one unit 
of trading; or (4) the market maker executes 1\1/2\ times its 
``proportionate'' volume in the stock. If a PMM did not satisfy the 
threshold standards after a particular review period, the market 
maker lost its designation as a PMM (i.e. the ``P'' next to its 
market maker identification was removed). Market makers could 
requalify for designation as a PMM by satisfying the threshold 
standards in the next review period.
    \7\ Securities Exchange Act Release No. 38294 (February 14, 
1997), 62 FR 8289 (February 24, 1997) [File No. SR-NASD-97-07].
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    While all registered market makers are presently eligible for the 
market maker exemption, in the event that Nasdaq implements revised PMM 
standards, the ability of a member firm to achieve and maintain PMM 
status in 80 percent of the NNM issues in which it is registered can 
also have the following corollary effects, as was the case when the PMM 
standards were in effect from February 1, 1996 through February 14, 
1997.
    a. Existing NNM Securities: if a member firm is a PMM in 80 percent 
or more of the securities in which it has registered, the firm may 
immediately become a PMM (i.e., qualified market maker) in a NNM 
security by registering and entering quotations in that issue. If the 
member firm is not a PMM in at least 80 percent of its stocks, it may 
become a PMM in that stock if it registers in the stock as a regular 
Nasdaq market maker and satisfies the PMM qualification standards for 
the next review period.
    b. Initial Public Offerings (``IPOs''): if a member firm has 
obtained PMM status in 80 percent or more of the stocks in which it has 
registered, the firm may immediately become a PMM in an IPO by 
registering and entering quotations in the issue. However, if the firm: 
(1) Withdraws from the IPO on an unexcused basis any time during the 
calendar month in which the IPO commenced trading on Nasdaq or (2) 
fails to meet the PMM standards for the month in which the IPO 
commenced trading on Nasdaq,\8\ then the firm is precluded from 
becoming a PMM in any other IPO for ten business days following the 
unexcused withdrawal or failure to meet the PMM standards (``10-day 
rule'').\9\
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    \8\ On June 20, 1996, the NASD submitted a rule filing to the 
SEC that clarified the applicable PMM review period for IPOs listed 
during the last five business days of a month. Securities Exchange 
Act Release No. 37426 (July 11, 1996), 61 FR 37521 [File SR-NASD-96-
25].
    \9\ The PMM rule also has provisions applicable to secondary 
offerings. Specifically, unless a market maker is registered in a 
security prior to the time a secondary offering in that stock has 
been publicly announced or a registration statement has been filed, 
it cannot become a PMM in the stock unless: (1) The secondary 
offering has become effective and the market maker has satisfied the 
PMM standards between the time the market maker registered in the 
security and the time the offering became effective or (2) the 
market maker has satisfied the PMM standards for 40 calendar days. 
Managers and co-managers of secondary offerings can register and 
immediately become a PMM in an issue prior to the effective date of 
the secondary offering, however.
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    c. Merger and Acquisition Situations: after a merger or acquisition 
is announced, a market maker that is a PMM in one stock may immediately 
become a PMM in the other stock by registering and entering quotations 
in that issue.

[[Page 46539]]

ii. Options Market Maker Exemption

    In an effort to not constrain the legitimate hedging needs of 
options market makers, the Rule also contains a limited exception for 
standardized options market makers. Specifically, under the Rule, an 
NASD member may execute a short sale for the account of an equity 
option market maker or an index option market maker that would 
otherwise be in contravention of the Rule as long as: (1) The short 
sale is an ``exempt hedge transaction'';\10\ and (2) the options market 
maker is registered with a ``qualified options exchange'' \11\ as a 
``qualified options market maker'' \12\ in a stock options class 
overlying a NNM security or in an options class overlying a ``qualified 
stock index.'' \13\
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    \10\ For equity option market makers, an ``exempt hedge 
transaction'' is defined to be a short sale in a NNM security that 
was effected to hedge, and in fact serves to hedge, an existing 
offsetting options position or an offsetting options position that 
was created in a transaction(s) contemporaneous with the short sale, 
provided that when establishing the short position the options 
market maker receives, or is eligible to receive, good faith margin 
pursuant to Section 220.12 of Regulation T under the Act. For index 
option market makers, an ``exempt hedge transaction'' is defined to 
be a short sale in a NNM security that was effected to hedge, and in 
fact serves to hedge, an existing offsetting stock index options 
position or an offsetting stock index options position that was 
created in a transaction(s) contemporaneous with the short sale, 
provided that: (1) The security sold short must be a component 
security of the index underlying such index option; (2) the index 
underlying such offsetting index options position is a ``qualified 
stock index''; and (3) the dollar value of all exempt short sales 
effected to hedge the offsetting stock index options position(s) 
does not exceed the aggregate current index value of the offsetting 
options position(s).
    \11\ A ``qualified options exchange'' is defined to be a 
national securities exchange that has received SEC approval of its 
rules and procedures governing: (1) The designation of options 
market makers as qualified options market makers; (2) the 
surveillance of its market makers' utilization of the exemption; and 
(3) authorization of the NASD to withdraw, suspend, or modify the 
designation of a qualified options market maker in the event that 
the options exchange determines that the qualified options market 
maker has failed to comply with the terms of the exemption and the 
exchange believes that such action is warranted in light of the 
substantial, willful, or continuing nature of the violation. All 
national securities exchanges that trade standardized options are 
``qualified options exchanges.''
    \12\ An options market maker is a ``qualified options market 
maker'' if it has been appointed as such by a qualified options 
exchange.
    \13\ A ``qualified stock index'' is defined to be a stock index 
that includes one or more NNM securities, provided that more than 
10% of the weight of the index is accounted for by NNM securities. 
In addition, qualified stock indexes are reviewed as of the end of 
each calendar quarter, and an index would cease to qualify if the 
value of the index represented by one or more NNM securities was 
less than 8 percent at the end of any subsequent calendar quarter.
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iii. Warrant Market Maker Exemption

    The Rule also contains an exemption for warrant market makers 
similar to the one available for options market makers. To be eligible 
for the exemption, a warrant market maker must be registered as a 
market maker in the warrant and the short sale must be an ``exempt 
hedge transaction'' \14\ that results in a fully hedged position. 
However, any short sale by a warrant market maker unrelated to normal 
warrant market maker activity, such as index arbitrage or risk 
arbitrage that in either case is independent of a warrant market 
maker's market making functions, is not considered an ``exempt hedge 
transaction.''
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    \14\ An ``exempt hedge transaction'' is a short sale in a NNM 
security that was effected to hedge, and in fact serves to hedge, an 
existing offsetting warrant position that was created in a 
transaction contemporaneous with the short sale.
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iv. Exemptions Comparable to Those Contained in Rule 10a-1 Under The 
Act

    The Rule also incorporates seven exemptions contained in Rule 10a-1 
under the Act \15\ (``Rule 10a-1'') that are relevant to trading on 
Nasdaq. Specifically the Rule exempts:
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    \15\ 17 CFR 240.10a-1 (1997).
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     Sales by a broker-dealer for an account in which it has no 
interest and that is marked long;
     Any sale by a market maker to offset odd-lot orders of 
customers;
     Any sale by any person, for an account in which he has an 
interest, if such person owns the security sold and intends to deliver 
such securities as soon as possible without undo inconvenience or 
expense;
     Sales by a member to liquidate a long position which is 
less than a round lot, provided the sale does not change the member's 
position by more than one unit of trading (100 shares);
     Short sales effected by a person in a special arbitrage 
account;\16\
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    \16\ In order to fall within this exemption, the person 
effecting the short sale must then own another security by virtue of 
which the person is, or presently will be entitled to acquire an 
equivalent number of securities of the same class of securities sold 
short, provided the short sale, or the purchase which such sale 
offsets is effected for the bona fide purpose of profiting from a 
current difference between the price of the security sold short and 
the security owned, and such right of acquisition was originally 
attached to or represented by another security or was issued to all 
the holders of any such class of securities of the issuer.
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     Short sales effected by a person in a special 
international arbitrage account;\17\ and
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    \17\ In order to fall within this exemption, the short sale must 
be effected for the bona fide purpose of profiting from a current 
difference between the price of such security on a securities market 
not within or subject to the jurisdiction of the United States and a 
securities market subject to the jurisdiction of the United States, 
provided the person at the time of such sale knows or, by virtue of 
information currently received, has reasonable grounds to believe 
that an offering enabling a person to cover such sale is then 
available to the person in such foreign securities market and 
intends to accept such offer immediately.
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     Short sales by an underwriter or any member of the 
distribution syndicate in connection with the over-allotment of 
securities, or any lay-off sale by such a person in connection with a 
distribution of securities rights pursuant to Rule 10b-18 under the Act 
or a standby underwriting commitment.
    The Rules also provides that a member not currently registered as a 
Nasdaq market maker in a security that has acquired the security while 
acting in the capacity of a block positioner shall be deemed to own 
such security for the purposes of the Rule notwithstanding that such 
member may not have a net long position in such security, if and to the 
extent that such member's short position in such security is subject to 
one or more offsetting positions created in the course of bona fide 
arbitrage, risk arbitrage, or bona fide hedge activities. In addition, 
the NASD has recognized that SEC staff interpretations to Rule 10a-1 
dealing with liquidation of index arbitrage positions \18\ and an 
``international equalizing exemption'' \19\ are equally applicable to 
the NASD's Rule.
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    \18\ In 1986, the SEC took a ``no action'' position that allows 
broker-dealers to sell short on a down tick while liquidating index 
arbitrage positions under certain conditions. This no-action 
position was clarified in a later SEC Release and the SEC has 
proposed to amend Rule 10a-1 to incorporate this interpretation. 
Securities Exchange Act Release No. 30772 (June 3, 1992), 57 FR 
24415 (June 9, 1992) [File No. S7-13-92]
    \19\ Specifically, the NASD has interpreted its Rule to provide 
that any person can sell a foreign security, or a depositary share 
or depositary receipt relating to such a security, on a down bid at 
the opening, provided the inside bid is equal to or above the last 
reported sale price (adjusted for current exchange rates and ADR 
multiples) of the security in the principal foreign market for that 
security.
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v. Interpretations of the NASD's Short Sale Rule

    In conjunction with the adoption of the Rule, the NASD also issued 
three Interpretations by the NASD Board of Governors dealing with the 
Rule. Interpretation A to the Rule clarifies some of the factors that 
will be taken into consideration when reviewing market making activity 
that may not be deemed to be bona fide market making activity and, 
therefore, not exempt from the Rule's application.\20\ Interpretation

[[Page 46540]]

B defines a ``legal'' short sale on a down bid as one that is executed 
at a price of at least a \1/16\ of a point above the current inside 
bid.\21\ Finally, Interpretation C clarifies some of the circumstances 
under which a member would be deemed to be in violation of the 
Rule.\22\
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    \20\ Specifically, Interpretation A provides that bona fide 
market making activity does not include activity that is unrelated 
to market making functions, such as index arbitrage and risk 
arbitrage that is independent from a member's market making 
functions. Similarly, the Interpretation states that bona fide 
market making would exclude activity that is related to speculative 
selling strategies of the member or investment decisions of the firm 
and is disproportionate to the usual market making patterns or 
practices of the member in that security. In addition, the 
Interpretation provides guidance with respect to what constitutes 
bona fide market making in the context of a merger or acquisition 
situation.
    \21\ In light of Nasdaq's move to minimum quote increments of a 
\1/16\ for Nasdaq stocks priced above $10 on June 2, 1997, Nasdaq 
has filed a proposed rule change (SR-NASD-97-59) with the Commission 
to modify the ``legal'' definition of a short sale. In sum, the 
proposed rule change provides that a ``legal'' short sale must be 
effected at the offer side of the market when the inside spread for 
a security is less than a \1/16\. In other words, if the inside 
spread is \1/16\ or greater, there will be no change to the current 
definition of a legal short sale. For stocks with a spread less than 
a \1/16\, however, a legal short sale must be effected at a price at 
or above the inside offer.
    \22\Specifically, the Interpretation contains the following non-
exhaustive list of activities that would be considered to be 
manipulative acts and violations of the rule: (a) In instances where 
the current best bid is below the preceding best bid, if a market 
maker alone at the inside best bid were to lower its bid and then 
raise it to create an ``up bid'' for the purpose of facilitating a 
short sale; (b) if a market maker with a long stock position were to 
raise its bid above the inside bid and then lower it to create a 
``down bid'' for the purpose of precluding market participants from 
selling short; (c) if a market maker agrees to an arrangement 
proposed by a member or a customer whereby the market maker raises 
its bid in the Nasdaq system in order to effect a short sale for the 
other party and is protected against any loss on the trade or on any 
other executions effected at its new bid price; and (d) if a market 
maker entered into an arrangement with a member or a customer 
whereby it used its exemption from the rule to sell short at the bid 
at successively lower prices, accumulating a short position, and 
subsequently offset those sales through a transaction at a 
prearrange price, for the purpose of avoiding compliance with the 
rule, and with the understanding that the market maker would be 
guaranteed by the member of customer against losses on the trades.
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2. Proposal To Adopt the Short Sale Rule on a Permanent Basis
    When the Commission approved the Rule on a temporary basis, it made 
specific findings that the Rule was consistent with Sections 11A, 
15A(b)(6), 15A(b)(9), and 15A(b)(11) of the Act. Specifically, the 
Commission stated that, ``recognizing the potential for problems 
associated with short selling, the changing expectations of Nasdaq 
market participants and the competitive disparity between the exchange 
markets and the OTC market, the Commission believes that regulation of 
short selling of Nasdaq National Market securities is consistent with 
the Act.''\23\ In addition, the Commission stated that it ``believes 
that the NASD's short sale bid-test, including the market maker 
exemption, is a reasonable approach to short sale regulation of Nasdaq 
National Market securities and reflects the realities of its market 
structure.''\24\
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    \23\ Short Sale Rule Approval Order, supra note 4, at 34891.
    \24\ Id. at 34892.
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    Nevertheless, in light of the Commission's concerns with adverse 
comments made about the Rule and the Commission's own concerns with the 
structure and impact of the Rule,\25\ the Commission determined to 
approve the Rule on a temporary basis to afford the NASD and the SEC an 
opportunity to study the effects of the Rule and its exemptions. In 
particular, before considering any NASD proposal to extend, modify, 
permanently implement or terminate the Rule, the Commission requested 
that the NASD examine: (1) The effects of the Rule on the amount of 
short selling; (2) the length of time that the Rule is in effect (i.e., 
the duration of down bid situations); (3) the amount of non-market 
maker short selling permitted under the Rule; (4) the extent of short 
selling by market makers exempt from the Rule; (5) whether there have 
been any incidents of perceived ``abusive short selling''; (6) the 
effects of the Rule on spreads and volatility; (7) whether the behavior 
of bid prices has been significantly altered by the Rule; and (8) the 
effect of permitting short selling based on a minimum increment of \1/
16\.
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    \25\ When the NASD's Rule was first considered by the 
Commission, the SEC received 397 comment letters on the proposal, 
with 275 comments opposed to the Rule and 122 comments in favor of 
the Rule. Those comment letters opposed to the Rule argued that: (1) 
The NASD had failed to provide sufficient evidence of the need for 
the Rule or demonstrate the appropriateness of the Rule based on a 
``bid'' test instead of ``tick'' test; (2) the PMM standards will 
have negative effects on both market makers and the Nasdaq market; 
and (3) the Rule is inconsistent with the requirements of the Act.
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    Accordingly, in response to the Commission's request and concerns, 
the NASD's Economic Research Department has prepared two studies on the 
economic impact of the Rule that addresses these issues.\26\
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    \26\ Both of the studies prepared by the NASD's Economic 
Research Department have been submitted to the SEC under separate 
letter and are part of this filing.
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i. July 1996 Short Sale Study

    The first study prepared in July 1996 examined market activity both 
before and after implementation of the Rule and found that the Rule has 
had its intended effect of diminishing short selling at the bid in 
declining markets, while still allowing short sales to occur at prices 
slightly above the bid in down bid situations.\27\ Specifically, among 
other things, the July 1996 Short Sale Study found that:
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    \27\ The Economic Impact of the Nasdaq Short Sale Rule, NASD 
Economic Research Department (July 23, 1996) (``July 1996 Short Sale 
Study'').
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     The Rule appears to dramatically reduce the amount of the 
short selling on down-bids, without having the undesirable effect of 
driving away all non-exempt short sales on down bids;
     Stocks with large down-bid percentages (i.e., the average 
percentage of time during the trading day that the Rule is invoked) are 
not associated with economically-large reductions in market quality, as 
measured by relative displayed spreads, percent bid range, and trading 
activity;
     For stocks with large monthly increases in short interest, 
implementation of the Rule has been associated with lower bid price 
volatility and narrower dollar spreads;
     The Rule does not appear to have reduced overall sales at 
the bid by non-exempt sellers (long and short sales combined). Thus, 
because short sales at the bid on down bids by non-exempt short sellers 
are prohibited,\28\ the results illustrate that short sales at the bid 
have been replaced by long sales at the bid during down-bids for these 
securities;
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    \28\ Specifically, the July 1996 Short Sale Study found that 
only 2.8 percent of short sales by non-exempt short sellers occur at 
or below the inside bid in down-bid situations. Because the Rule 
prohibits short sales at the bid on down bids, this figure should 
theoretically be zero. Reasons why this figure is 2.8 percent 
include, among others, improper alignment of trades and their 
corresponding inside quotes, potential reporting errors and 
violations of the rule.
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     Apparent ``unnatural'' bid price movement occurred 
extremely infrequently (0.6 percent or fewer of all bid changes 
evaluated in the study), indicating that market makers are not 
attempting to move bids to invoke or deactivate the Rule;
     On a stock-by-stock basis, the percentage of volume 
accounted for by short sales increases as the stock experiences larger 
price declines as opposed to price increases or no price changes, 
suggesting that speculative short selling is more apt to occur when 
stock prices are falling; and
     Exempt short sales generally are executed above the bid, 
indicating that market makers are not abusing the exemption. 
Specifically, in a down-bid environment, 7.5 percent of exempt short 
sales are executed at or below the bid, while the comparable figure 
during an up-bid environment is 8.7 percent.
    Interviews conducted in conjunction with the July 1996 Short Sale 
Study also indicate that the Rule has been effective in promoting the 
integrity of the Nasdaq

[[Page 46541]]

market. Specifically, most market participants interviewed stated that 
the Rule has had the effect of slowing down the ``piling on'' of short 
sales in a declining market, thereby contributing to greater market 
stability. At the same time, market participants indicated that the 
Rule does not unduly constrain them from effecting short sales in a 
declining market, although they say it does take them longer to execute 
short sales in a falling market. Most market participants interviewed 
also stated that the exemptions from the Rule are warranted and have 
not been abused. In particular, most market participants interviewed 
reiterated the importance of retaining the market maker exemption and 
stated that there is no need to change the PMM standards. Similarly, 
the American Stock Exchange and the Chicago Board Options Exchange, the 
two largest standardized options markets in the United States, both 
stated that the options market maker exemption has performed well and 
that the exchanges have not detected any abuses of the exemption by 
their members. In sum, the NASD believes that the market participant 
interviews corroborate and provide further support for the empirical 
findings made in the quantitative portion of the July 1996 Short Sale 
Study. Namely, that the Rule has been effective in accomplishing what 
the NASD intended the Rule to accomplish (i.e., reducing speculative 
short selling at the bid in declining markets) without causing 
unnecessary disruptions elsewhere in the marketplace.

ii. August 1997 Short Sale Study

    In August 1997, the NASD's Economic Research Department prepared 
another study on the economic impact of the Rule that reaffirmed the 
findings of the July 1996 Short Sale Study.\29\ In addition, because 
market makers have been required to denote when they have effected 
exempt short sales or short sales on their ACT reports since April 14, 
1997, the August 1997 Short Sale Study also provides a more detailed 
and precise analysis of the extent to which market makers have utilized 
the market maker exemption and the market impact of such exempt short 
sales. Specifically, with respect to the economic impact of the Rule, 
the August 1997 Short Sale Study utilized a variety of regression 
models to evaluate whether implementation of the rule has had any 
economically significant impact on four measures of market quality--
quoted spreads, effective spreads, volatility, and aggregate quoted 
depth at the inside market. In sum, consistent with the July 1996 Short 
Sale Study, the results of the regressions demonstrate that 
implementation of the Rule has not been associated with any 
economically significant adverse market effects.
---------------------------------------------------------------------------

    \29\ The Nasdaq Stock Market Short Sale Rule: Analysis of Market 
Quality Effects and The Market Maker Exemption, NASD Economic 
Research Department (August 7, 1997)(``August 1997 Short Sale 
Study''). As noted above, this Study and the July 1996 Short Sale 
Study were provided to the SEC under separate letter and are part of 
this rule filing.
---------------------------------------------------------------------------

    The August 1997 Short Sale Study also sets forth a variety of 
statistics that clearly illustrate that market makers are providers of 
immediate liquidity that has a stabilizing effect on the market and 
that market makers, in general, have used the exemption in a manner 
that is consistent with and in furtherance of providing immediate 
liquidity to the marketplace. For example, to show that market makers 
are net providers of liquidity, the August 1997 Short Sale Study found 
that 52% of market maker volume was accounted for by purchases at the 
bid and sales at the offer; whereas only 16.7% of market maker volume 
was accounted for by sales at the bid and purchases at the offer. In 
contrast, the August 1997 Short Sale Study found that 49.4% of share 
volume by non-market makers was accounted for by sales at the bid and 
purchases at the offer, whereas only 18.2% of non-market maker volume 
was accounted for by purchases at the bid or sales at the offer. 
Moreover, the August 1997 Short Sale Study found that a wide majority 
of market maker volume was executed in a market stabilizing manner 
(i.e., purchases during declining markets and sales during rising 
markets).
    Given that these statistics sufficiently demonstrate that market 
makers are net providers of immediate and stabilizing liquidity to the 
marketplace, the August 1997 Short Sale Study then examined whether the 
market maker exemption was being used in a manner consistent with such 
stabilizing trading activity. In this connection, the August 1997 Short 
Sale Study found that:
     Only 1.27% of market maker share volume was effected in 
reliance on the market maker exemption;
     In those instances where market makers were selling short 
at prices less than a \1/16\ above the inside bid during down markets, 
the market makers were also engaging in contemporaneous purchase 
transactions. In fact, during those periods when the market maker 
exemption was being heavily utilized, the August 1997 Short Sale Study 
found that the percentage of market maker volume accounted for by 
exempt short sales was less than the percentage of market maker volume 
accounted for by stabilizing purchases prior, during, and after peak 
utilization of the exemption. Thus, as was postulated by the NASD when 
it proposed the market maker exemption, the August 1997 Short Sale 
Study shows that market makers have exhibited trading behavior 
consistent with the notion that the exemption is used as a risk 
management vehicle to liquidate their long positions amassed during 
declining markets because of market makers' liquidity enhancing 
purchases a the bid, not a means to engage in abusive short selling 
practices that exacerbate downward price movements; and
     Because the exemption was predominantly used during 
periods when market makers were also engaging in stabilizing purchase 
transactions, the regression analysis also found that the use of the 
exemption was in fact associated with slight, positive price movements.
    In sum, the August 1997 Short Sale Study found that market makers 
have used the exemption in a manner consistent with the notion that the 
exemption serves to enhance their ability to supply immediate, 
stabilizing liquidity during declining market conditions.
    Thus, the NASD believes experience with the Rule since its 
implementation in September 1994, warrants permanent approval of the 
Rule and reaffirms the statutory findings made by the Commission when 
it approved the Rule on a temporary basis. Specifically, the NASD 
believes experience with the Rule illustrates and substantiates the 
benefits to investors and to the integrity of Nasdaq that the NASD 
believed would result from the rule. Namely, that, with the Rule in 
place, purchasers of NNM securities have greater assurance that they 
can liquidate their positions in a declining market without predatory 
short sellers exacerbating downward pressure on stocks and reducing 
overall liquidity. In sum, the NASD continues to believe that the Rule 
strikes a reasonable balance between the needs to prevent abusive short 
selling and reduce the exposure of the Nasdaq market to manipulative 
and excessive intra-day volatility, on the one hand, and the need to 
not distort the pricing efficiency and liquidity provided by 
appropriate short selling activity on the other.
    Based on experience with the Rule, the NASD also believes the Rule 
should be permanently approved in its present form. Specifically, given 
the geographically dispersed nature of Nasdaq's competing dealer market 
structure, the NASD continues to believe that it is appropriate for the 
Rule

[[Page 46542]]

to be based on a ``bid'' test \30\ instead of a ``tick'' test,\31\ as 
is the case with Rule 10a-1. When the Rule was first considered by the 
Commission in 1994, the SEC and commentators expressed concern that 
structuring the Rule as a ``bid'' test instead of a ``tick'' test could 
result in the Rule being in effect for longer periods of time in 
comparison to a ``tick'' test. The SEC also expressed concern that 
market makers could control the amount of short selling by simply 
adjusting their bids. Based on the findings of the July 1996 Short Sale 
Study, however, the NASD believes these concerns are not valid. First, 
while the July 1996 Short Sale Study clearly found that the Rule is 
having its intended effect of inhibiting the execution of non-exempt 
short sales at the bid in a declining market, the July 1996 Short Sale 
Study also found that market participants are nevertheless readily able 
to effect short sales at prices slightly above ``down'' bids.\32\ 
Similarly, several market participants interviewed in conjunction with 
the preparation of the July 1996 Short Sale Study stated that the Rule 
has not adversely affected their ability to effect short sales, just 
that it takes them longer to effect such short sales. Second, the July 
1996 Short Sale Study's finding that apparent ``unnatural'' quote 
movements have occurred very infrequently indicates that market makers 
are not adjusting their quotes to facilitate or constrain short selling 
activity.\33\ Accordingly, the NASD continues to believe that 
structuring the Rule as a ``bid'' test rather than a ``tick'' test is 
appropriate given Nasdaq's competing dealer market structure. Moreover, 
the NASD notes that the SEC's Limit Order Display Rule has 
substantially increased the ability of non-exempt short sellers to 
receive executions at prices at least \1/16\ of a point above the 
inside bid in down bid situations, thereby minimizing the impact of the 
Rule on legitimate short selling activity.\34\
---------------------------------------------------------------------------

    \30\ The NASD's Rule is commonly referred to as a ``bid'' test 
because it is activated based upon movements in the inside bid on 
Nasdaq.
    \31\ Rule 10a-1 is commonly referred to as a ``tick'' test 
because it is activated based on movements in the last sale prices 
of securities.
    \32\ See July 1996 Short Sale Study, supra note 27, at 15-20.
    \33\ See id. at 20-21.
    \34\ See Securities Exchange Act Release No. 37619A (September 
6, 1996), 61 FR 48290 (September 12, 1996) [File No. S7-30-95].
---------------------------------------------------------------------------

    In addition, based on the findings contained in the August 1997 
Short Sale Study that use of the market maker exemption has been 
associated with slight, positive price movements and that market makers 
are most often relying on the exemption during declining markets when 
they are engaging in stabilizing purchase transactions, the NASD 
believes that the market maker exemption should be retained. Without 
the exemption, the NASD believes market makers will be less able to 
manage their risk and provide immediate liquidity to the marketplace 
during declining markets, the very time when liquidity is perhaps most 
needed to preserve the integrity of the Nasdaq market. The NASD also 
notes that the July 1996 Short Sale Study found that the amount of 
exempt short selling occurring at or below the bid is virtually the 
same in both down-bid and up-bid situations and that market makers do 
not appear to be adjusting their quotes to constrain or facilitate 
short selling. Accordingly, the NASD continues to believe that an 
exemption from the rule for bona fide market making activity by market 
makers who provide liquidity and continuity to the market is essential 
for the maintenance of fair and orderly markets on Nasdaq.\35\
---------------------------------------------------------------------------

    \35\ The NASD also continues to believe that it is appropriate 
and consistent with the Act for the Rule to exempt certain qualified 
market makers while Rule 10a-1 does not provide an exemption for 
exchange specialists other than the limited exemption continued in 
Rule 10a-1(e)(6) for specialists on regional exchanges. 
Specifically, the NASD believes the following differences between 
the dealer and auction markets warrant the retention of the market 
maker exemption in the Rule: (1) Exchange specialists have a 
monopoly over the securities in which they trade; (2)) dealers 
generally do not have an informational advantage over other dealers; 
and (3) dealers do not have the ability to close their markets 
because of sudden volatility or an order imbalance.
---------------------------------------------------------------------------

    The NASD also notes that retention of the Rule has significant 
competitive implications. Indeed, in the Short Sale Rule Approval 
Order, the Commission stated that it ``recognizes that without a short 
sale rule for Nasdaq, the NASD is competitively disadvantaged. The 
exchange markets can and do attract issuers and investors with the 
claim that their markets protect against potential short selling 
abuse.'' \36\ Given that experience with the Rule over the past two 
years illustrates that the Rule provides investors and the marketplace 
with protections against predatory short selling comparable to Rule 
10a-1, the NASD believes the competitive disadvantages highlighted by 
the Commission would become severe if the Rule were not permanently 
approved. In particular, without permanent approval of the Rule, Nasdaq 
could potentially lose issuers to other marketplaces simply because 
those markets have a short sale rule in place, which is very similar to 
the NASD's Rule. Moreover, aside from these serious competitive 
concerns, the NASD believes it should be allowed to continue to 
implement its Rule that affords investors the same protections against 
abusive short selling activity when trading NNM securities that 
investors receive when trading exchange-listed securities by virtue of 
Rule 10a-1.
---------------------------------------------------------------------------

    \36\ Short Sale Rule Approval Order, supra note 4, at 34891.
---------------------------------------------------------------------------

    In this connection, even if the Commission were to conclude that 
the Rule has had no impact on market quality, the NASD believes the 
Commission's approval of New York Stock Exchange (``NYSE'') Rule 80A 
\37\ illustrates that the Commission would still have a sufficient 
basis to approve the Rule on a permanent basis. When NYSE Rule 80A was 
proposed, the Commission received considerable adverse comment to the 
effect that there was no causal relationship between index arbitrage 
and market volatility and that activation of the Rule during turbulent 
market conditions could have disastrous effects on related options and 
futures markets and actually exacerbate market volatility. Despite 
these comments, the Commission approved the proposal on a one-year 
pilot basis noting that ``the NYSE proposal represents a modest step, 
proposed on a pilot basis, to attempt to address the issue of market 
volatility.'' \38\ After the one year pilot, the NYSE prepared a report 
that, in the SEC's words, found that ``the standard measures of NYSE 
market quality appear largely unaffected by Rule 80A.'' Specifically, 
the NYSE Report indicated that: (1) Quotes on the NYSE did not widen 
after the 50 DJIA point trigger was reached; and (2) the imposition of 
Rule 80A did not have any negative effect on price continuity and depth 
in the market.\39\ In addition, in approving Rule 80A on a permanent 
basis, the SEC noted that the rule ``represents a modest but useful 
step by the NYSE to attempt to address the issues of market 
volatility,'' \40\ that the rule `` has not been disruptive to the 
marketplace'',\41\ and that there was a ``lack of evidence of any 
harmful effects of Rule 80A.'' \42\ In sum, the SEC discussion of the 
statutory basis for

[[Page 46543]]

approval of NYSE Rule 80A focused in large part on the fact that Rule 
80A did not have any adverse effects on market quality on the NYSE and 
that, as a result, the NYSE should be given the latitude to take 
reasonable steps to address excessive volatility in its marketplace. 
Accordingly, the NASD believes the SEC should afford the NASD the same 
regulatory flexibility that it afforded the NYSE and permit the NASD to 
permanently implement a short sale rule reasonably designed to enhance 
the quality of Nasdaq and minimize the effects of abusive short selling 
practices.
---------------------------------------------------------------------------

    \37\ Rule 80A provides that, when the Dow Jones Industrial 
Average declines or advances by 50 points or more, all index 
arbitrage orders to sell or buy must be executed in market 
stabilizing manner.
    \38\ Securities Exchange Act Release No. 28282 (July 30, 1990), 
55 FR 31468, 31472 (August 2, 1990)(order approving File Nos. SR-
NYSE-90-5 and 90-11).
    \39\ Securities Exchange Act Release No. 29854 (October 24, 
1991), 56 FR 55963 (October 30, 19991)(order approving file SR-NYSE-
91-21)(``Rule 80A Approval Order'').
    \40\ Id. at 55967.
    \41\ Id.
    \42\ Id. at 55967-68.
---------------------------------------------------------------------------

    The NASD believes the proposed rule change is consistent with 
sections 15A(b)(6),\43\ 15A(b)(9),\44\ 15A(b)(11),\45\ and 11A of the 
Act.\46\ 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, and to remove impediments to and perfect the mechanism of a 
free and open market. Specifically, the NASD believes the proposal is 
consistent with Section 15A(b)(6) of the Act because the proposal is 
premised on the same anti-manipulation and investor protection concerns 
that underlie the SEC's own short sale rule, Rule 10a-1. In particular, 
as with Rule 10a-1, the proposal promotes just and equitable principles 
of trade by permitting long sellers access to market prices at any 
time, while constraining the execution of potentially abusive and 
manipulative short sales at or below the bid in a declining market. In 
addition, as with Rule 10a-1, the proposal removes impediments to a 
free and open market for long sellers and helps to assure liquidity at 
bid prices that might otherwise be usurped by short sellers. Lastly, 
because the immediate beneficiaries of the proposal are shareholders of 
NNM companies, the proposal is designed to protect investors and the 
public interest. At the same time, given that the proposal does not 
constrain short sales in a raising market or prohibit the execution of 
short sales in a declining market above bid prices, the NASD believes 
the proposal does not diminish the important pricing efficiency and 
liquidity benefits that legitimate short selling activity provides.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. Sec. 78o-3(b)(6) (1994).
    \44\ 15 U.S.C. Sec. 78o-3(b)(9) (1994).
    \45\ 15 U.S.C. Sec. 78o-3(b)(11) (1994).
    \46\ 15 U.S.C. Sec. 78k-1 (1994).
---------------------------------------------------------------------------

    Section 15A(b)(9) provides that the Association's rules may not 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. While the proposal does 
impose compliance burdens on market participants and conditions on the 
execution of short sales in a declining market, the NASD believes these 
burdens and restrictions are necessary in furtherance of the protection 
of investors and the integrity of the Nasdaq market. The NASD believes 
its proposal is consistent with the Act and that any burdens or 
competition resulting from the proposal do not outweigh the overall 
benefits to investors that the proposal provides by implementing a 
short sale rule that is designed; (1) To protect investors and issuers 
from predatory short selling practices; (2) to reduce the exposure of 
Nasdaq to manipulation and extreme intra-day volatility; and (3) to 
afford investors in Nasdaq securities the same protections against 
abusive short selling that investors in exchange-listed securities 
presently receive.
    Section 15A(b)(11) empowers the NASD to adopt rules governing the 
form and content of quotations relating to securities in the Nasdaq 
market. Such rules must be designed to produce fair and informative 
quotations, prevent fictitious and misleading quotations and promote 
orderly procedures for collecting and distributing quotations. The NASD 
believes the proposal prevents misleading quotations and promotes more 
orderly quotation movements, particularly in a declining market by 
minimizing the extreme intra-day price volatility associated with 
abusive short selling activity.
    The NASD also believes that the proposal is consistent with the 
significant national market system objectives contained in Section 11A 
of the Act. Specifically, Section 11A(a)(1)(C) \47\ provides that it is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets to assure, among other 
things, (i) the economically efficient execution of securities 
transactions; (ii) fair competition among brokers and dealers; and 
(iii) the practicality of brokers executing investors orders in the 
best market. The NASD believes all of these objectives will be advanced 
by minimizing the destabilizing influences of abusive short selling 
activity. Similarly, Section 11A(c)(1)(F) \48\ assures the equal 
regulation of all markets for qualified securities and all exchange 
members, brokers, and dealers effecting transactions in such 
securities. The NASD believes its proposal is consistent with Section 
11A(c)(1)(F) because approval of the proposal would result in 
equivalent short sale regulation in the exchange and Nasdaq markets.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. Sec. 78k-1(a)(1)(C) (1994).
    \48\ 15 U.S.C. Sec. 78k-1(c)(1)(F) (1994).
---------------------------------------------------------------------------

    In addition, when the SEC proposed new Rule 105 of Regulation M 
(``Rule 105''), a rule that liberalizes regulatory requirements 
formerly contained in Rule 10b-21 under the Act (``Rule 10b-21'') 
governing short sales in connection with a secondary offering, the 
Commission specifically cited the NASD's adoption of a short sale rule 
as a factor contributing to the Commission's reassessment of whether 
Rule 10b-21 should be liberalized. Specifically, the SEC stated:

    Since the adoption of Rule 10b-21, several additional regulatory 
measures have been implemented that may lessen the effects of short 
selling in connection with an offering. These initiatives, which 
include permitting passive market making during offerings of Nasdaq 
securities and implementing a short sale rule for the Nasdaq market, 
may reduce the need for Rule 105.'' (Footnote omitted).\49\

    \49\ Securities Exchange Act Release No. 37094 (April 11, 1996), 
International Series Release No. 965, 61 FR 17108, 17126 (April 18, 
1996) [File No. S7-11-96].
---------------------------------------------------------------------------

    On December 20 1997, the SEC adopted its proposed change to Rule 
10b-21 in the form of Rule 105.\50\ In its release adopting Rule 105, 
the Commission's analysis does not indicate that the Commission revised 
its initial belief that implementation of the NASD's Rule, among other 
factors, lessened the regulatory justification for some of the 
provisions of former Rule 10b-21.
---------------------------------------------------------------------------

    \50\ Securities Exchange Act Release No. 38067 (December 20, 
1997), International Series Release No. 1039, 62 FR 520 (January 3, 
1997) [File No. S7-11-96].
---------------------------------------------------------------------------

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. In fact, without a short sale 
rule for the Nasdaq market, Nasdaq would be adversely affected in its 
ability to compete for listings with exchange markets and investors on 
Nasdaq will not be afforded the same protections against abusive short 
selling as investors on exchange markets. Accordingly, Nasdaq believes 
approval of the Rule is necessary to ensure that Nasdaq and investors 
on Nasdaq are not subject to an impermissible burden on competitors.

[[Page 46544]]

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the NASD consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation Of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. People 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Room. Copies of the filing will also 
be available for inspection and copying at the NASD's principal 
offices. All submissions should refer to File No. SR-NASD-97-58 and 
should be submitted by September 24, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\51\
---------------------------------------------------------------------------

    \51\ 17 CFR 200.30-3(a)(12) (1997).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-23343 Filed 9-2-97; 8:45 am]
BILLING CODE 8010-01-M