[Federal Register Volume 63, Number 31 (Tuesday, February 17, 1998)]
[Notices]
[Pages 7846-7847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3855]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39632; File No. SR-NASD-98-09]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc., Relating to the Operation of the OTC Bulletin
Board
February 9, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on February
3, 1998, the Nasdaq Stock Market, Inc. (``Nasdaq'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by Nasdaq. Nasdaq has designated this proposal
as one constituting a stated policy, practice, or interpretation with
respect to the meaning, administration or enforcement of an existing
rule under Sec. 19(b)(3)(A) of the Act, which renders the rule
effective upon the Commission's receipt of this filing. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is proposing to effect the removal of quotations from the
OTC Bulletin Board (``OTCBB'') of certain American Depositary Receipts
(``ADRs'') representing underlying shares in Cifra, S.A. de D.V., a
foreign private issuer organized under the laws of Mexico.
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
1. Purpose
This rule change is being filed to effect the removal of quotations
from the OTCBB of certain ADRs representing underlying shares in Cifra,
S.A. de D.V. ADRs (``Cifra''). As the Commission is well aware, the
OTCBB is a quotation medium used by NASD members to quote securities
not listed on Nasdaq or a national securities exchange. As originally
developed, the OTCBB sought to provide increased transparency through a
centralized electronic quotation system for all such OTC equity
securities, including foreign equities and ADRs. As the Commission also
is aware, ADRs are negotiable receipts usually issued by U.S. banks,
which certify that a stated number of shares of a foreign private
issuer have been deposited in the bank or its foreign affiliate or
correspondent. The depositary banks maintain a registry of ADR holders,
and, usually for a fee, monitor dividend declarations, collect and
convert dividends to U.S. currency, and remit the dividends to U.S.
shareholders. Thus ADRs provide benefits to U.S. shareholders by
simplifying the transfer of interests in the underlying foreign
securities as well as information and dividends by these foreign
companies.
For some time, National Association of Securities Dealers, Inc.
(``NASD'') members have displayed quotations for Cifra's ADRs in the
OTCBB pursuant to applicable NASD and SEC rules governing the display
of quotations in quotation media such as the OTCBB.\1\ The particular
security that is the subject of this filing, identified with ticker
symbol CFRAY, has been described on the OTCBB display screen as an ADR
representing underlying Series B securities in Cifra. It is the
understanding of Nasdaq staff that these particular ADR securities
exist in what is known as an ``unsponsored'' ADR environment. That is,
the ADRs representing the underlying shares came about as the result of
several bank depositaries who operate such unsponsored programs for the
benefit of shareholders without the cooperation of
[[Page 7847]]
the underlying issuer company.\2\ Further, it is understood that on
December 17, 1997, the shareholders of Cifra acted to amend the by-laws
of Cifra to cancel Series A and Series B shares, and create a new
Series V share. Specifically, the Series A and Series B shares changed
into Series V shares on a one-for-one basis. It is further understood
that the new Series V shares became the subject of a sponsored ADR
facility, which Cifra has agreed to sponsor. Nasdaq believes that as a
result of this exchange, shareholders of unsponsored Series B ADRs now
hold, in effect, ADRs that represent Series V securities of Cifra.
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\1\ As of this filing, approximately thirteen (13) market makers
are displaying priced or unpriced quotations in the OTCBB for this
security. It is the understanding of Nasdaq staff that these same
securities have been quoted in NQB's Pink Sheets, a quotation medium
not affiliated with the NASD or Nasdaq.
\2\ Such unsponsored programs do not necessarily need the
consent of the underlying issuer. See e.g., Securities Act Release
No. 6894; Exchange Act Release No. 29226 (May 23, 1991), at Section
II.B.1. (Advance Notice of Possible Commission Action and Request
for Information and Public Comment).
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Although one depository bank has taken steps to terminate its
unsponsored program in the Series B ADRs (apparently due to that bank's
involvement as depositary for the new sponsored facility) Nasdaq is
aware of several other banks issuing the unsponsored ADRs that intend
to continue their unsponsored programs for Series B ADRs. On December
24, 1997, the NASD issued a Uniform Practice Code notice to notify
broker-dealers and clearing entities of these events.
There are now two separate and identifiable ADR securities that, as
Nasdaq understands, represent in fact the same Series V shares, albeit
in different ``multiples'' or ratios.\3\ While the unsponsored
depositary banks and shareholders may nominally refer to these programs
as Series B ADR facilities, it is Nasdaq's understanding that all
underlying shares, including those on deposit with these banks, are now
Series V shares, and that this fact is understood by the parties
involved.
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\3\ The unsponsored ADRs had a ratio of 1:1, while the new
sponsored facility has a ratio of 10 Series V shares for each ADR.
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While Nasdaq is not aware of any SEC or NASD rules that explicitly
prohibit the simultaneous operation of multiple unsponsored ADR
facilities with the same shares underlying, it is Nasdaq's
understanding that the SEC has discouraged the operation of multiple
facilities where there is both a sponsored and unsponsored facility
operating at the same time. Nasdaq believes that this has been based,
in part, on the potential for market disorder or investor confusion,
especially when the rights provided by the unsponsored ADRs are not
equivalent to those of the sponsored ADRs or the securities are not
otherwise deemed fungible. In addition, Nasdaq believes that
technically, what has been referred to as a ``Series B ADR'' can no
longer exist in its current form given that no Series B shares underlie
it. Nasdaq also believes that there may be issues of confusion with
respect to facilitating the quotation and/or trading of these two
securities simultaneously.\4\ Nasdaq notes that the removal of what
were formerly Series B ADRs from the OTCBB does not necessarily
prohibit any future transactions in these securities, nor will it
affect the ability of these securities to be quoted in another
quotation medium.\5\
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\4\ To minimize confusion at the time of the exchange, Nasdaq
amended the name of the security as it appears on the OTCBB display
to delete reference to the Series ``B'' and to add the reference
``UNSPON'' to indicate that this security is the unsponsored form of
the ADR.
\5\ While it is the responsibility of the NASD to generally
oversee and regulate members use and activity respecting quotations
in any quotation medium, the NASD and Nasdaq cannot directly control
the operation of quotation media other than the OTCBB. Unlike rules
governing listings on Nasdaq, SEC and NASD rules governing the OTCBB
do not currently provide the NASD or Nasdaq the authority to halt or
prohibit trading of any non-Nasdaq security, with the limited
exception of 10-day trading halts imposed by the SEC pursuant to
Section 12(k) of the Act.
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) and (11) of the Act.\6\ Section
15A(b)(6) requires, among other things, that the NASD's rules promote
just and equitable principles of trade, facilities securities
transactions, and protect public investors. Subsection (11) thereunder
authorizes the NASD to adopt rules governing the form and content of
quotations for securities traded over the counter for the purposes of
producing fair and informative quotations, preventing misleading
quotations, and promoting orderly procedures for collecting and
disseminating quotations.
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\6\ 15 U.S.C. Sec. 78o-3.
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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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective on filing pursuant to
Section 19(b)(3)(A) of the Act and subparagraph (e) of Rule 19b-4
thereunder in that it constitutes a stated policy, practice, or
interpretation with respect to the meaning, administration or
enforcement of an existing rule. The NASD will implement the rule on
February 28, 1998.
At any time within 60 days of the filing of a rule change pursuant
to Section 19(b)(3)(A) of the Act, the Commission may summarily
abrogate the rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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
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 SR-NASD-98-09 and should be
submitted by March 10, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3855 Filed 2-13-98; 8:45 am]
BILLING CODE 8010-01-M