[Federal Register Volume 65, Number 174 (Thursday, September 7, 2000)]
[Notices]
[Pages 54334-54335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22862]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43220; File No. SR-NASD-00-36]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
Options Position Reporting Requirements and the Application of Options 
Position and Exercise Limits to Trades With Non-Member Brokers and 
Dealers

August 29, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 14, 2000, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its wholly owned 
subsidiary, NASD Regulation, Inc. (``NASD Regulation''), filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by NASD Regulation. 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\ 17 CFR 240.19b-4.
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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 Rule 2860 of the NASD, to: 
(1) Apply the NASD's options position and exercise limits to members 
that effect trades for non-member brokers and non-members dealers; (2) 
require members to report the options positions that they effect for 
non-member brokers and non-member dealers where such positions meet the 
reporting thresholds under NASD rules; (3) codify an interpretative 
position with respect to which firms are required to report 
standardized options positions under the NASD's options position 
reporting requirements; and (4) clarify that a member may have its 
clearing firm report options positions to the NASD.
    The text of the proposed rule is available at the Office of NASD 
Regulation and at the Commission.

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 IV 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

1. Purpose
    The NASD's options position limits, exercise limits, and reporting 
requirements, Rules 2860(b)(3), 2860(b)(4) and 2860(b)(5), 
respectively, apply to any account in which a member, or any partner, 
officer, director or employee of the member has an interest, or for the 
account of any customer. However, because the NASD's definition of 
``customer'' excludes a broker or dealer, non-member brokers and non-
member dealers are currently outside the scope of these rules.\3\ Thus, 
conventional options transactions \4\ of a non-member broker or non-
member dealer that are effected by an NASD member are not subject to 
any position and exercise limits or options reporting.\5\ To remedy 
this gap, NASD Regulation proposes amending its options position and 
exercise limits and reporting requirements to include the accounts of 
non-member brokers and non-member dealers.
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    \3\ Rule 0120(g) states that the term ``customer'' shall not 
include a broker or dealer.
    \4\ Standardized options transactions of a non-member are 
subject to position and exercise limits and reporting requirements 
of the applicable options exchange(s) on which the member of such 
exchange(s) effects the transaction. A ``standardized option'' is 
any options contract issued, or subject to issuance by, the Options 
Clearing Corporation that is not a FLEX Equity Option.
    \5\ A ``conventional option'' is any option contract not issued, 
or subject to issuance, by the Options Clearing Corporation. NASD 
Rule 2860(b)(2)(N).
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    In addition, NASD Regulation proposes several technical amendments 
to the options position reporting requirements to take into account 
staff interpretive positions with respect to reporting standardized and 
conventional options. Specifically, the

[[Page 54335]]

amendments codify the options position reporting requirements as set 
forth in Notice to Members 94-46, which state that the reporting 
requirements are ``applicable to all standardized options positions 
established by `access' firms or their customers and all conventional 
options positions established by members or their customers.'' Access 
firms are defined as NASD members that conduct a business in exchange-
traded options but are not themselves members of the options exchange 
upon which such options are listed and traded. Limiting reporting of 
standardized options positions under NASD rules to access firms only 
avoids imposing duplicative reporting requirements on NASD members who 
are also members of an options exchange, inasmuch as members of an 
options exchange (i.e., dual members) are required to report positions 
on standardized options pursuant to the rules of the options 
exchange(s) of which they are a member.
    Finally, NASD Regulation proposes an amendment to clarify that, 
consistent with current practices, a member may report positions 
directly to the Association or have such positions reported to the 
Association by another firm, such as the member's clearing firm. The 
amendment is accomplished by using the phrase ``file or cause to be 
filed.'' This amendment would not eliminate the member's ultimate 
responsibility to ensure that the firm reporting the positions on the 
member's behalf makes the necessary filings with the NASD.
2. Statutory Basis
    NASD Regulation represents that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) \6\ of the Act, 
which requires, among other things, that the Association's rules must 
be designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The NASD represents that 
applying options positions and exercise limits and position reporting 
requirements to transactions effected by members of non-member brokers 
and non-member dealers preserves the integrity and effectiveness of 
position and exercise limits. In this manner, the proposed rule change 
promotes just and equitable principles of trade and protects investors 
and the public interest.
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    \1\ 15 U.S.C. 78o(b)(6).
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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. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. 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, NW., Washington, DC 20549-0609. 
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 SR-NASD-00-36 and should be 
submitted by September 28, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-22862 Filed 9-6-00; 8:45 am]
BILLING CODE 8010-01-M