[Federal Register Volume 65, Number 247 (Friday, December 22, 2000)]
[Notices]
[Pages 80969-80970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43718; File No. SR-NASD-00-36]


Self-Regulatory Organizations; The National Association of 
Securities Dealers, Inc.; Order Approving Proposed Rule Change Relating 
to Options Position Reporting Requirements and Application of Options 
Position and Exercise Limits to Trades With Non-member Brokers and 
Dealers

December 13, 2000.

I. Introduction

    On June 14, 2000, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through it wholly owned subsidiary, 
NASD Regulation, Inc. (``NASD Regulation''), submitted to the 
Securities and Exchange Commission (``SEC'' or ``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
apply options position reporting requirements and options position and 
exercise limits to trades with non-member brokers and dealers.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on September 7, 2000.\3\ No comments were received. This order 
approves the proposal.
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    \3\ Securities Exchange Act Release No. 43220 (August 29, 2000), 
65 FR 54334.
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II. Description of the Proposal

    Presently, 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: (1) Account in which a member has an interest; 
(2) an account in which a member's partner, officer, director or 
employee has an interest, or (3) a customer account.
    However, the NASD's definition of ``customer'' excludes a broker or 
dealer; therefore, non-member brokers and dealers are currently outside 
the scope of these rules. To bring non-member brokers and dealers 
within the purview of NASD Rule 2860, the NASD proposed to amend the 
rule to: (1) 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; (2) apply the 
NASD's options position and exercise limits to members that effect 
trades for

[[Page 80970]]

non-member brokers and non-member dealers; (3) codify an interpretive 
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.
    In addition, the NASD proposed 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 amendments codify options 
position reporting requirements set forth in Notice to Members 94-46, 
which states that the reporting requirements are ``applicable to all 
standardized options positions established by members of their 
customers.'' Access firms are defined in the requirements 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, the rule proposal clarifies that, consistent with current 
practice, a member may report positions directly to the Association or 
have such positions reported to the Association by another firm. 
According to the Association, 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.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to national securities association. Specifically, 
the Commission finds that the proposal to amend NASD Rule 2860 is 
consistent with section 15A(b)(6) of the Act.\4\
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    \4\ 15 U.S.C. 78o-3(b)(6).
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    Section 15A(b)(6) \5\ requires that the rules of the registered 
national securities association be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, facilitating transactions in securities, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.\6\
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    \5\ Id.
    \6\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation, consistent with Section 3 of the Act. 15 U.S.C. 
78c(f).
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    The Commission believes that the proposed rule change will protect 
individual investors and the public by enabling the NASD to better 
monitor the financial exposure of its member firms. The Commission also 
believes that the proposed rule change will result in consistent 
application of position and exercise limits by ensuring that trades 
effected by NASD members on behalf of non-member brokers and non-member 
dealers are also subject to those limits. Finally, the Commission 
believes that the proposed provisions clarifying options reporting 
procedures, and other technical amendments, are also consistent with 
the overall objective of the rule proposal.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-NASD-00-36) be, and hereby 
is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    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)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-32649 Filed 12-21-00; 8:45 am]
BILLING CODE 8010-01-M