[Federal Register Volume 63, Number 191 (Friday, October 2, 1998)]
[Notices]
[Pages 53108-53109]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26234]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40473; File No. SR-NASD-98-66]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc.; Relating to Small Order Execution System Tier 
Size Classifications

September 24, 1998.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 2, 1998, the 
National Association of Securities Dealers, Inc. (``NASD'' or 
``Association''), through its wholly-owned subsidiary The Nasdaq Stock 
Market, Inc. (``Nasdaq''), 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 Nasdaq.\2\ 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).
    \2\ On September 2, 1998, Nasdaq filed an amendment to the 
proposed rule change that replaced a previously submitted filing. 
See Letter from Robert E. Aber, Senior Vice President and General 
Counsel, Office of the General Counsel, Nasdaq, to Richard Strasser, 
Assistant Director, Division of Market Regulation, Commission, dated 
September 1, 1998 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD is submitting this filing to reclassify Nasdaq National 
Market (``NNM'') securities into appropriate tier sizes for purposes of 
determining the maximum size order for a particular security eligible 
for execution through Nasdaq's Small Order Execution System (``SOES''). 
Specifically, under the proposal, 488 NNM securities will be 
reclassified into a different SOES tier size effective October 1, 1998. 
Since the NASD's proposal is an interpretation of existing NASD rules, 
there are no language changes.

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

[[Page 53109]]

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

    The purpose of this filing is to reclassify NNM securities into 
appropriate tier sizes for purposes of determining the maximum size 
order for a particular security eligible for execution through SOES. 
Nasdaq periodically reviews the SOES tier size applicable to each NNM 
security to determine if the trading characteristics of the issue have 
changed so as to warrant a tier size adjustment. Such a review was 
conducted using data as of June 30, 1998, pursuant to the following 
established criteria: \3\

    \3\ See NASD Rule 4710(g).
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    (1) a 1,000 share maximum order size shall apply to NNM 
securities on SOES with an average daily non-block volume of 3,000 
shares or more a day, a bid price of less than or equal to $100, and 
three or more market makers;
    (2) a 500 share maximum order size shall apply to NNM securities 
on SOES with an average daily non-block volume of 1,000 shares or 
more a day, a bid price of less than or equal to $150, and two or 
more market makers; and
    (3) a 200 share maximum order size shall apply to NNM securities 
with an average daily non-block volume of less than 1,000 shares a 
day, a bid price of less than or equal to $250, and two or more 
market makers.

    Pursuant to the application of this classification criteria, 488 
NNM securities will be reclassified effective October 1, 1998. These 
488 NNM securities are set out in the NASD's Notice to Members 98-76 
(September 1998).\4\
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    \4\ Previously, Nasdaq market makers were required to maintain a 
minimum quotation size for an NNM security in an amount equal to the 
maximum SOES order size for that security. See generally, NASD Rule 
4613(a) (1)-(2). The Commission approved an amendment to NASD Rule 
4613(a)(1)(C) reducing the minimum quotation size for all Nasdaq 
securities to one normal trading unit when the market maker is not 
displaying a limit order, thus eliminating the requirement that 
market makers quote a size equal to the maximum SOES order size. See 
Securities Exchange Act Release No. 40211 (July 15, 1998), 63 FR 
39322 (July 22, 1998).
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    In ranking NNM securities pursuant to the established 
classification criteria, Nasdaq followed the changes dictated by the 
criteria with three exceptions. First, an issue was not moved more than 
one tier size level. For example, if an issue was previously 
categorized in the 1,000-share tier size, it would not be permitted to 
move to the 200-share tier even if the reclassification criteria showed 
that such a move was warranted. Second, for securities priced below $1 
where the reranking called for a reduction in tier size, the tier size 
was not reduced. Third, for the top 50 Nasdaq securities based on 
market capitalization, the SOES tier sizes were not reduced regardless 
of whether the reranking called for a tier-size reduction.
    Nasdaq believes that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act.\5\ Section 15A(b)(6) \6\ requires, among 
other things, that the rules of the NASD governing the operation of The 
Nasdaq Stock Market be designed 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. Nasdaq believes that the reassignment of NNM 
securities into SOES tier sizes commensurate with the trading 
characteristics of a particular security facilitates the entry and 
execution of appropriately sized orders in SOES.
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    \5\ 15 U.S.C. 78o-3(b)(6).
    \6\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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.

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

    The foregoing rule change constitutes a stated policy, practice or 
interpretation with respect to the administration and enforcement of an 
existing rule and, therefore, has become effective immediately pursuant 
to section 19(b)(3)(A)(i) of the Act \7\ and subparagraph (e)(1) of 
Rule 19b-4 under the Act.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 17 CFR 240.19b-4(e)(1).
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    At any time within sixty days of the filing of the proposed rule 
change, the Commission may summarily abrogate such 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.\9\
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    \9\ In reviewing this proposal, the Commission has considered 
the proposal's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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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, NW., Washington, DC 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 File No. SR-NASD-98-66 and should 
be submitted by October 23, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-26234 Filed 10-1-98; 8:45 am]
BILLING CODE 8010-01-M