[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