[Federal Register Volume 62, Number 198 (Tuesday, October 14, 1997)]
[Notices]
[Pages 53365-53367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27050]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39198; File No. SR-NASD-97-73]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval Proposed Rule Changes by the National
Association of Securities Dealers, Inc. Relating to Rule 4612, Primary
Nasdaq Market Maker Standards
October 3, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 30, 1997, the
National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described
[[Page 53366]]
in Items I, II, and III below, which Items have been prepared by the
Nasdaq Stock Market, Inc. (``Nasdaq''). 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Act,
Nasdaq, a wholly owned subsidiary of the NASD, is herewith filing a
proposed rule change to extend a suspension of the Primary Nasdaq
Market Maker qualification criteria (``PMM Standards'') found in Rule
4612 (a) and (b) of the NASD Rules for all Nasdaq National Market
securities for six months or until such earlier time when new PMM
Standards can be adopted and implemented.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq 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. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Nasdaq is proposing to extend a suspension of the existing PMM
Standards until April 1, 1998 or until such earlier time that new PMM
Standards can be adopted and implemented. The standards currently
contained in NASD Rule 4612 have been suspended on a temporary basis
since February of this year.\2\ That suspension will expire after
October 1, 1997.
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\2\ See Securities Exchange Act Release No. 38294 (February 14,
1997), 62 FR 8289 (February 24, 1997) (order granting temporary
accelerated approval of File No. SR-NASD-97-07).
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The suspension was necessary because the previous numerical
criteria used to establish Primary Nasdaq Market Maker status was
rendered significantly less relevant due to implementation of the new
SEC Order Execution Rules (i.e., the Limit Order Display Rule and
amendments to the Quote Rule). This is because the old PMM standards
were based primarily on a market maker's quotes in relation to the
inside quote and the quotes of other market makers, and the ratio of
executions to quote changes.\3\ Because the new SEC rules, implemented
in January of this year, incorporate customer limit orders in a market
maker's quote, a market maker's proprietary activity has become
indistinguishable from its customer activity.
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\3\ Specifically, a Nasdaq market maker was deemed to be a
Nasdaq Primary Market Maker if it met two of three criteria: (1) The
market maker maintains the best bid or best offer as shown on Nasdaq
no less than 35% of the time; (2) a market maker maintains a spread
no greater than 102% of the average dealer spread; and (3) no more
than 50% of a market maker's quotation changes occur without a trade
execution. In addition, if a registered market maker meets only one
of the above criteria, it may nevertheless qualify if the market
maker accounts for volume at least 1\1/2\ times its proportionate
share of overall volume in the stock.
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It was therefore determined that developing new PMM standards would
be necessary. Nasdaq's Quality of Markets Committee and Nasdaq staff,
in consultation with Commission staff, endeavored to develop new and
meaningful PMM Standards as expeditiously as possible. The new PMM
Standards are intended to more properly identify firms that are
engaging in responsible market maker activity deserving of the benefits
associated with being designated a Primary Nasdaq Market Maker, such as
being exempt from the short sale rule. A detailed and comprehensive
proposal was recently approved by the Board of Directors of The Nasdaq
Stock market at its meeting in September 1997, and Nasdaq expects to
submit new PMM Standards to the Commission in the form of a proposed
rule change shortly.
Nasdaq believes this proposed rule change is consistent with
Section 15A(b)(6) of the Act in that it is designed to prevent
fraudulent and manipulative acts and facilitates transactions in
securities. In particular, this temporary extension should provide
market makers with certainty regarding whether they are entitled to an
exemption under the rule which should promote market efficiency and
enhance the orderliness of the market during a transition period. It
should also help in reducing investor confusion at this time and
thereby promote efficient and fair markets.
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. 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 the file number in the caption
above and should be submitted by November 4, 1997.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds that the NASD's proposal is consistent with
the provisions of Section 15A(b)(6) of the Act which requires, in part,
that an association have rules that are designed to prevent fraudulent
and manipulative acts and practices, promote just and equitable
principals of trade, and in general, to protect investors. In addition,
the Commission finds that accelerated approval of this proposal will
continue to accommodate the new SEC Order Execution Rules while Nasdaq
seeks to implement new standards applicable to market makers. The
Commission notes, however, that while it is approving this proposed
rule change, that it anticipates no delay in the filing of the proposed
rule change by the NASD with respect to the newly developed PMM
standards.
In approving this proposed rule change, the Commission notes that
it has also considered the proposal's impact on efficiency,
competition, and capital formation.\4\
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\4\ 15 U.S.C. 78c(f).
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The Commission, therefore, finds good cause for approving the
proposed rule change prior to the thirtieth day
[[Page 53367]]
after the date of publication of filing thereof in the Federal
Register.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\5\ that the proposed rule change, SR-NASD-97-73, be, and hereby
is, approved.
\5\ 17 U.S.C. 78s(B)(2).
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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. 97-27050 Filed 10-10-97; 8:45 am]
BILLING CODE 8010-01-M