[Federal Register Volume 62, Number 198 (Tuesday, October 14, 1997)]
[Notices]
[Pages 53367-53369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27051]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39197; File No. SR-NASD-97-68]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by National
Association of Securities Dealers, Inc. Relating to Syndicate Covering
Transactions and Members' Obligations To Obtain an Underwriting
Activity Report
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 8, 1997, the
National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the prposed rule change and on September
17, 1997, the NASD filed Amendment No. 1. The proposed rule change and
Amendment No. 1 are described in Items I, II, and III below, which
Items have been prepared by NASD Regulation, Inc. (``NASD
Regulation''). The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons. For the
reasons discussed below, the Commission is granting accelerated
approval of the proposed rule change.
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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
NASD Regulation is proposing to amend NASD Rules 2710, 4624, and
6540. Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
2700. Securities Distributions
2710. Corporate Financing Rule--Underwriting Terms and Arrangements
(a) Definitions
No change.
(b) Filing Requirements
(1) through (10)
No Change.
(11) Request for Underwriting Activity Report
Notwithstanding the availability of an exemption from filing under
subparagraph (b)(7) of this Rule, a member acting as a manager (or in a
similar capacity) of a distribution of a publicly traded subject
security or reference security that is subject to SEC Rule 101 or an
``actively-traded'' security under SEC Rule 101 (except for a security
listed on a national securities exchange) shall submit a request to the
Corporate Financing Department for an Underwriting Activity Report with
respect to the subject and/or reference security in order to facilitate
compliance with SEC Rules 101, 103, or 104, and other distribution-
related Rules of the Association. The request shall be submitted at the
time a registration statement or similar offering document is filed
with the Department, the SEC, or other regulatory agency, or, if not
filed with any regulatory agency, at least two (2) business days prior
to the commencement of the restricted period under Sec Rule 101. The
request shall include a copy of the registration statement or similar
offering document (if not previously submitted pursuant to subparagraph
(b)(5) of this Rule). If no member is acting as managing underwriting
of such distribution, each member that is a distribution participant or
an affiliated purchaser shall submit a request for an Underwriting
Activity Report, unless another member has assumted responsibility for
compliance with this subparagraph. For purposes of subparagraphs (b)
(11) and (12), SEC Rules 100, 101, 103, and 104 are rules of the
Commission adopted under Regulation M and the following terms shall
have the meanings as defined in SEC Rule 100: A distribution, A
distribution participant, A reference security, A restricted period,
and A subject security.
(12) Submission of Pricing Information
A member acting as a manager (or in a similar capacity) of a
distribution [subject to subparagraph (b)(11)] of securities that are
listed on a national securities exchange and considered a subject
security or reference security that is subject to SEC Rule 101 or an
``actively-traded'' security under SEC Rule 101 or a distribution of
any other securities that are considered ``actively-traded'' under SEC
Rule 101 shall provide written notice to the Market Regulation
Department of NASD Regulation, Inc., no later than the close of
business the day the offering terminates, that includes the date and
time of the pricing of the offering, the offering price, and the time
the offering terminated, which notice may be submitted on the
Underwriting Actvity Report.
(13) Information on Syndicate Covering Transactions
A member acting as a manager (or in a similar capacity) of a
distribution of a publicly traded subject security or reference
security that is subject to SEC Rule 101 or an ``actively-traded''
security under SEC Rule 101 shall, no later than thirty (30) days after
the effective date of the offering, maintain information as required by
the Corporate Financing Department of NASD Regulation, Inc. on the
amount of the syndicate short position in a manner consistent with SEC
Rule 17a-2.\2\
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\2\ The requirement in Rule 2710(b)(13) will expire no later
than January 1, 2000.
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(c) Underwriting Compensation and Arrangements
No change.
4000. The NASDAQ Stock Market
4624. Penalty Bids and Syndicate Covering Transactions
(a) A market maker acting as a manager (or in a similar capacity)
of a distribution of a Nasdaq security that is a subject or reference
security under SEC Rule 101 shall provide written notice to the
Corporate Financing Department of NASD Regulation, Inc. of its
intention to impose a penalty bid on syndicate members or to conduct
syndicate covering transactions pursuant to SEC Rule 104 prior to
imposing the penalty bid or engaging in the first syndicate covering
transaction. A market maker that intends to impose a penalty bid on
syndicate members may request that its quotation be identified as a
penalty bid on Nasdaq pursuant to paragraph (c) below.
(b) The notice required by paragraph (a) shall include:
(1) The identity of the security and its Nasdaq symbol;
(2) The date the member is intending to impose the penalty bid and/
or conduct syndicate covering transactions[; and
[[Page 53368]]
(3) The amount of the syndicate short position, in the case of
syndicate covering transactions]
(c) Notwithstanding paragraph (a), a market maker may request that
its quotation be identified as a penalty bid on Nasdaq [display] by
providing notice to Nasdaq Market Operations, which notice shall
include the date and time that the penalty bid identified should be
entered on Nasdaq and, if not in writing, shall be confirmed in writing
no later than the close of business the day the penalty bid identified
is entered on Nasdaq.
(d) The written notice required by [paragraphs (a) and (c) of] this
Rule may be submitted on the Underwriting Activity Report [by including
the information required by subparagraphs (b)(1) and (b)(2) or
paragraph (c)].
6500. OTC Bulletin Board Service
6540. Requirements Applicable to Market Makers
(a) No change.
(b) No change.
(1) Permissible Quotation Entries.
(A)-(C)--No change.
(D) Any member that intends to be a distribution participant in a
distribution of securities subject to SEC Rule 101, or is an affiliated
purchaser in such distribution, and is entering quotations in an OTCBB-
eligible security that is the subject security or reference security of
such distribution shall, unless another member has assumed
responsibility for compliance with this paragraph:
(i) No change.
(ii) No change.
(iii) provide written notice to the Corporate Financing Department
of NASD Regulation, Inc. of its intention to impose a penalty bid or to
conduct syndicate covering transactions pursuant to SEC Rule 104 prior
to imposing the penalty bid or engaging in the first syndicate covering
transaction. Such notice shall include information as to the date the
penalty bid or first syndicate covering transaction will occur [and the
amount of the syndicate short position]; and
(iv) No change.
(E) The written notice required by subparagraphs (b)(1)(D) (i),
(iii) and (iv) of this rule may be submitted on the Underwriting
Activity Report provided by the Corporate Financing Department of NASD
Regulation, Inc. [by including the information required by those
subparagraphs.]
(F) No change.
(2) through (4) No change.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD Regulation 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 III below. NASD Regulation 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
On April 1, 1997, NASD Rules designed to facilitate compliance with
the SEC's Regulation M became effective.\3\ Rule 104 of Regulation M
requires members acting as managing underwriters to notify the
appropriate regulator of the market for the security in distribution of
a member's intention to engage in syndicate short covering
transactions. It is the understanding of NASD Regulation staff that the
purpose of this requirement is to establish a database at the regulator
of those offerings in which syndicate short covering transactions may
have been conducted, thereby facilitating a study of syndicate short
covering practices by the staff of the SEC. Because the Association has
traditionally been responsible for regulating the permissible amount of
over-allotment options that may be utilized to cover syndicate short
positions in public offerings, NASD Regulation believes that the
Association has a long-standing interest in developing information to
assist it and the SEC in the regulation of the over-allotment process.
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\3\ Securities Exchange Act Release No. 38360 (March 4, 1997),
and amended Securities Exchange Act Release No. 38399 (March 14,
1997).
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To allow NASD members to comply with their notification obligations
under Rule 104, NASD Regulation developed a standardized form
designated as the Regulation M Trading Notification. Both NASD Rule
4624 regarding The Nasdaq Stock Market and NASD Rule 6540 regarding the
OTC Bulletin Board Service require that members include the amount of
the syndicate short position on the Regulation M Trading Notification.
This latter information is not required to be provided under SEC Rule
104 of Regulation M.
Members of the industry have expressed concern regarding their
ability to provide accurate data on the amount of a syndicate short
position at the time the Regulation M Trading Notification is required
to be submitted i.e., prior to the first syndicate covering
transaction. At that time, the member cannot generally provide accurate
information as to the total amount of the syndicate short position.
While NASD Regulation believes it important to be able to collect
accurate information on the amount of the syndicate short position in
order to assist the SEC in its study of syndicate short covering
activities, such information need not be immediately provided to the
Association. In order to address the concerns of the industry, NASD
Regulation is proposing to amend NASD Rule 4624 and NASD Rule 6540 to
delete the current requirement to provide immediate information on the
amount of syndicate short positions. In its place, NASD Regulation is
proposing to amend Rule 2710, the Corporate Financing Rule, to
establish a new requirement in Subparagraph (b)(13) that, no later than
30 days after the effective date of the offering, the managing
underwriter shall maintain information as required by the Corporate
Financing Department of NASD Regulation, Inc. on the amount of the
syndicate short position and that such information be retained in the
same manner as the managing underwriter's syndicate covering
transaction records under SEC Rule 17a-2. Rule 17a-2 requires that a
managing underwriter separately maintain information on stabilizing
transactions and syndicate covering transactions. It is anticipated
that the managing underwriter will maintain with its records of
syndicate covering transactions, as required by Rule 17a-2, a record of
the amount of the syndicate short position. NASD Regulation intends to
require that the information to be retained by the managing underwriter
consist of whether the syndicate short position was no greater than the
over-allotment option, or whether a naked short position was less than
1%, between 1% and 5%, between 5% and 10%, or over 10% of the offering
size. The proposed change to NASD Rule 2710 includes a sunset provision
to eliminate the requirement to retain information on the amount of
syndicate short positions at the conclusion of the study of syndicate
short covering practices, but no later than January 1, 2000.
In addition, NASD Regulation is proposing to amend Subparagraph
(b)(11) of Rule 2710 to conform its rule language to that of
Subparagraph (b)(12) and to the Association's original intent
[[Page 53369]]
regarding the scope of that provision. The proposed rule change would
clarify that the managing underwriter is required to request an
Underwriting Activity Report with respect to a distribution of a
security that is considered an ``actively-traded'' security under SEC
Rule 101.\4\ Currently, the language of Subparagraph (b)(11) is
misleading in that it only imposes this requirement with respect to
subject or reference securities that are ``subject to SEC Rule 101.''
Because ``actively-traded'' securities are exempt from SEC Rule 101,
they are not considered ``subject to'' SEC Rule 101. In Notice to
Members 97-10 (March 1997), announcing adoption of the amendments of
the NASD to implement Regulation M, the NASD stated that the
Underwriting Activity Report'' will indicate whether the security
qualifies under SEC Rule 101 as an actively-traded security or for the
one-day or five-day restricted periods.'' Thus, the proposed change to
Subparagraph (b)(11) will make the rule language consistent with the
Association's requirement that the managing underwriter request an
Underwriting Activity Report for securities that are considered
``actively-traded'' under SEC Rule 101.
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\4\ An ``actively-traded'' security is a subject or reference
security with a value of average daily trading volume of at least $1
million, which is issued by an issuer whose common equity securities
have a public float of at least $150 million.
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Moreover, NASD Regulation is proposing to amend Subparagraph
(b)(11) to exclude exchange-listed securities from the requirement that
the managing underwriter obtain an Underwriting Activity Report.
Originally, it had been anticipated that the managing underwriter would
be provided information on the value of average daily trading volume
and market value of public float with respect to exchange-listed
securities, in addition to securities included in The Nasdaq Stock
Market, Inc. or quoted on the OTC Bulletin Board Service. However,
since this information has not been available, the proposed rule change
would eliminate the obligation of managing underwriters to request the
Underwriting Activity Report with respect to exchange-listed
securities. The managing underwriter of an offering of exchange-listed
securities would, nonetheless, continue to be responsible under
Subparagraph (b)(12) to advise the Market Regulation Department of
information regarding the pricing and termination of the offering.
Conforming amendments are made to Subparagraph (b)(12) in light of this
proposed change to Subparagraph (b)(11). Finally, Subparagraph (b)(12)
is also proposed to be revised to clarify that the managing underwriter
of any offering of securities considered ``actively-traded'' under SEC
Rule 101 must also advise the Market Regulation Department of
information on pricing and termination.
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(2) \5\ of the Act in that the proposed
rule change will enforce and facilitate compliance by NASD members with
the requirements of SEC Regulation M.
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\5\ 15 U.S.C. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation 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 Act and the rules and regulations thereunder applicable to a
registered national securities association. Specifically, the
provisions of Section 15A(b)(2) of the Act which requires that an
association enforce compliance with Securities Exchange Act Rules in
addition to the rules of the association. The Commission believes that
the proposal will enforce and facilitate compliance by NASD members
with the requirements of Regulation M, SEC Rules 100 through 105.
In addition, 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 approving this proposed rule change, the Commission notes
that it has also considered the proposal's impact on efficiency,
competition, and capital formation.\6\
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\6\ 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 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,\7\ that the proposed rule change, SR-NASD-97-68, be, and hereby
is, approved.
\7\ 17 U.S.C. 78s(B)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(2).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27051 Filed 10-10-97; 8:45 am]
BILLING CODE 8010-01-M