[Federal Register Volume 68, Number 11 (Thursday, January 16, 2003)]
[Notices]
[Pages 2382-2383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-950]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47158; File No. SR-NASD-2002-178]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Short Interest Reporting

January 10, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 
1934, as amended, (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on December 16, 2002, the National Association of 
Securities Dealers, Inc. (``NASD'') 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 NASD. NASD has designated the proposed rule change as 
``constituting a stated policy, practice, or interpretation with 
respect to the meaning, administration or enforcement of an existing 
rule'' under paragraph (f)(1) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend NASD Rule 3360 to clarify member firms' 
reporting requirements of short positions held on behalf of other 
broker/dealers. Below is the text of the proposed rule change. The 
proposed new language is in italics; the proposed deletions are in 
brackets.
* * * * *

3360. Short-Interest Reporting

    (a) Each member shall maintain a record of total ``short'' 
positions in all customer and proprietary firm accounts in securities 
included in The Nasdaq Stock Market and in each other security listed 
on a registered national securities exchange and not otherwise reported 
to another self-regulatory organization and shall regularly report such 
information to [the Association] NASD in such a manner as may be 
prescribed by [the Association] NASD. For the purposes of this rule, 
the term ``customer'' includes a broker/dealer. Reports shall be made 
as of the close of the settlement date designated by [the Association] 
NASD. Reports shall be received by [the Association] NASD no later than 
the second business day after the reporting settlement date designated 
by [the Association] NASD.
    (b) No change.
* * * * *

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 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 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 purpose of the proposed rule change is to clarify members' 
short interest reporting requirements for short positions held on 
behalf of other broker/dealers. NASD Rule 3360(a) requires members to 
maintain a record of total short positions in all customer and 
proprietary firm accounts in Nasdaq securities (and listed securities 
if not reported to another self-regulatory organization (``SRO'')) and 
requires members to report such information to NASD on a monthly basis. 
Rule 3360(b) provides that short positions required to

[[Page 2383]]

be reported under the Rule are those resulting from short sales as the 
term is defined in Rule 3b-3 under the Act,\4\ with limited exceptions.
---------------------------------------------------------------------------

    \4\ Rule 3b-3 under the Exchange Act provides, in part, the 
following: ``The term `short sale' means any sale of a security 
which the seller does not own or any sale which is consummated by 
the delivery of a security borrowed by, or for the account of, the 
seller.''
---------------------------------------------------------------------------

    NASD staff has received inquiries from members concerning the 
application of Rule 3360 in light of the definition of ``customer'' in 
NASD Rule 0120(g). Specifically, Rule 0120(g) provides that the term 
``customer'' does not include a broker or dealer, unless the context 
otherwise provides. As a result, members have inquired whether short 
sale positions in accounts held for other broker/dealers are required 
to be reported under Rule 3360.
    In response to such inquiries, the staff has advised members that 
short sale positions held for other broker/dealers that fall within the 
definition of short position provided in Rule 3360(b) must be reported 
under Rule 3360(a), unless these positions already are reported to an 
SRO. This long-standing position is consistent with that taken by other 
SROs with respect to their short interest reporting requirements.\5\ 
Non-self-clearing broker/dealers generally are considered to have 
satisfied their reporting requirement by making appropriate 
arrangements with their respective clearing organizations. In addition, 
because non-member broker/dealers are not subject to NASD rules and, 
therefore, are not required to comply with Rule 3360, it is 
particularly important that members understand that they must report 
such positions under the Rule, unless these positions are otherwise 
reported to an SRO. Accordingly, to eliminate all ambiguity, NASD 
proposes to amend Rule 3360(a) to clarify that short sale positions in 
accounts held for other broker/dealers must be reported, unless the 
position is otherwise reported to an SRO.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 35287 (January 27, 
1995), 60 FR 6743 (February 3, 1995), approving amendments to short 
interest reporting rules of NASD, New York Stock Exchange, 
Philadelphia Stock Exchange, Pacific Stock Exchange, Boston Stock 
Exchange, Chicago Stock Exchange, and Chicago Board Options 
Exchange, to ensure uniform short position reporting across each of 
the SROs.
---------------------------------------------------------------------------

2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act \6\, which requires, among 
other things, that the NASD's rules 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. NASD believes that the proposed rule change is 
necessary to ensure that members' short interest reporting is accurate 
and complete.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD 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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    NASD has neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    NASD has designated the proposed rule change as ``constituting a 
stated policy, practice, or interpretation with respect to the meaning, 
administration or enforcement of an existing rule'' under Section 
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(1) thereunder,\8\ which 
renders the proposal effective upon receipt of this filing by the 
Commission.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR Sec.  240.19b-4(f)(1).
---------------------------------------------------------------------------

    At any time within 60 days of this filing, the Commission may 
summarily abrogate this proposal 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, 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 NASD. 
All submissions should refer to file number SR-NASD-2002-178 and should 
be submitted by February 6, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-950 Filed 1-15-03; 8:45 am]
BILLING CODE 8010-01-P