[Federal Register Volume 59, Number 193 (Thursday, October 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24796]
[[Page Unknown]]
[Federal Register: October 6, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34766; File No. SR-NASD-94-52]
Self-Regulatory Organizations; Filing and Order Granting
Accelerated Approval of Proposed Rule Change by the National
Association of Securities Dealers, Inc., Relating to an Interim
Extension of the OTC Bulletin Board Service Through December
31, 1994
September 30, 1994.
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
September 23, 1994, the National Association of Securities Dealers,
Inc. (``NASD'') 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 the NASD. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and is simultaneously
approving the proposal.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
On June 1, 1990, the NASD, through a subsidiary corporation,
initiated operation of the OTC Bulletin Board Service (``OTCBB
Service'' or ``Service'') in accord with the Commission's approval of
File No. SR-NASD-88-19, as amended.\1\ The OTCBB Service provides a
real-time quotation medium that NASD member firms can elect to use to
enter, update, and retrieve quotation information (including unpriced
indications of interest) for securities traded over-the-counter that
are neither listed on The Nasdaq Stock MarketSM nor on a primary
national securities exchange (collectively referred to as ``OTC
Equities'').\2\ Essentially, the Service supports NASD members' market
making in OTC Equities through authorized Nasdaq Workstation units.
Real-time access to quotation information captured in the Service is
available to subscribers of Level 2/3 Nasdaq service as well as
subscribers of vendor-sponsored services that now carry OTCBB Service
data. The Service is currently operating under interim approval that
expires on October 3, 1994.\3\
---------------------------------------------------------------------------
\1\Securities Exchange Act Release No. 27975 (May 1, 1990), 55
FR 19124 (May 8, 1990).
\2\With the Commission's January 1994 approval of File No. SR-
NASD-93-24, the universe of securities eligible for quotation in the
OTCBB now includes certain equities listed on regional stock
exchanges that do not qualify for dissemination of transaction
reports via the facilities of the Consolidated Tape Association.
Securities Exchange Act Release No. 33507 (January 24, 1994), 59 FR
4300 (order approving File No. SR-NASD-93-24).
\3\Securities Exchange Act Release No. 34613 (August 30, 1994),
59 FR 46278.
---------------------------------------------------------------------------
The NASD hereby files this proposed rule change, pursuant to
section 19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain
authorization for an interim extension of the Service through December
31, 1994. During this interval, there will be no material change in the
OTCBB Service's operational features, absent Commission approval of a
corresponding Rule 19b-4 filing.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filings 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 in
Item IV below. The 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 this filing is to ensure continuity in the operation
of the OTCBB Service while the Commission considers an earlier NASD
rule filing (File No. SR-NASD-92-7) that requested permanent approval
of the Service. For the month ending August 31, 1994, the Service
reflected the market making positions of 402 NASD member firms
displaying quotations/indications of interest in approximately 5,107
OTC Equities.
During the proposed extension, foreign securities and American
Depositary Receipts (collectively, ``foreign/ADR issues'') will remain
subject to the twice-daily, update limitation that traces back to the
Commission's original approval of the OTCBB Service's operation. As a
result, all priced bids/offers displayed in the Service for foreign/ADR
issues will remain indicative.
In conjunction with the start-up of the Service in 1990, the NASD
implemented a filing requirement (under section 4 of Schedule H to the
NASD By-Laws) and review procedures to verify member firms' compliance
with Rule 15c2-11 under the Act. During the proposed extension, this
review process will continue to be an important component of the NASD's
oversight of broker-dealers' market making in OTC Equities. The NASD
also expects to work closely with the Commission staff in developing
further enhancements to the Service to fulfill the market structure
requirements mandated by the Securities Enforcement Remedies and Penny
Stock Reform Act of 1990, particularly section 17B of the Act.\4\ The
NASD notes that implementation of the Reform Act entails Commission
rulemaking in several areas, including the development of mechanisms
for gathering and disseminating reliable quotation/transaction
information for ``penny stocks.''
---------------------------------------------------------------------------
\4\On November 24, 1992, the NASD filed an application with the
Commission for interim designation of the Service as an automated
quotation system pursuant to Section 17B(b) of the Act. On December
30, 1992, the Commission granted Qualifying Electronic Quotation
System (``QEQS'') status for the Service for purposes of certain
penny stock rules that became effective on January 1, 1993. On
August 26, 1993, the Commission granted the NASD's request for an
extension of QEQS status until such time as the OTCBB meets the
statutory requirements of section 17B(b)(2). Finally, on May 13,
1994, the NASD filed an application with the Commission for
permanent designation of the Service as an automated quotations
system for penny stocks pursuant to section 17B(b).
---------------------------------------------------------------------------
2. Statutory Basis
The NASD believes that the proposed rule change is consistent with
sections 11A(a)(1), 15A(b) (6) and (11), and section 17B of the Act.
Section 11A(a)(1) sets forth the Congressional findings and policy
goals respecting operational enhancements to the securities markets.
Basically, the Congress found that new data processing and
communications techniques should be applied to improve the efficiency
of market operations, broaden the distribution of market information,
and foster competition among market participants. Section 15A(b)(6)
requires, among other things, that the NASD's rules promote just and
equitable principles of trade, facilitate 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. Finally, Section 17B contains Congressional findings and
directives respecting the collection and distribution of quotation
information on low-priced equity securities that are neither Nasdaq nor
exchange-listed.
The NASD believes that extension of the Service through December
31, 1994, is fully consistent with the foregoing provisions of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD believes that the 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The NASD requests that the Commission find good cause, pursuant to
section 19(b)(2) of the Act, for approving the proposed rule change
prior to the 30th day after its publication in the Federal Register to
avoid any interruption of the Service. The current authorization for
the Service extends through October 3, 1994. Hence it is imperative
that the Commission approve the instant filing on or before that date.
Otherwise, the NASD will be required to suspend operation of the
Service pending Commission action on the proposed extension.
The NASD believes that accelerated approval is appropriate to
ensure continuity in the Service's operation pending a determination on
permanent status for the Service, as requested in File No. SR-NASD-92-
7. Continued operation of the Service will ensure the availability of
an electronic quotation medium to support member firms' market making
in approximately 5,107 OTC Equities and the widespread dissemination of
quotation information on these securities. The Service's operation also
expedites price discovery and facilitates the execution of customer
orders at the best available price. From the regulatory standpoint, the
NASD's capture of quotation data from participating market makers
supplements the price and volume data reported by member firms pursuant
to Part XII of Schedule D to the NASD By-Laws.
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, N.W., 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 the file number in the caption
above and should be submitted by [insert date 21 days from the date of
publication].
V. Commission's Findings and Order Granting Accelerated Approval
The Commission finds that approval of the proposed rule change is
consistent with the Act and the rules and regulations thereunder, and,
in particular, with the requirements of section 15A(b)(11) of the Act,
which provides that the rules of the NASD relating to quotations must
be designed to produce fair and informative quotations, prevent
fictitious or misleading quotations, and promote orderly procedures for
collecting, distributing, and publishing quotations.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publishing notice of the
filing thereof. Accelerated approval of the NASD's proposal is
appropriate to ensure continuity in the Service's operation as an
electronic quotation medium that supports NASD members' market making
in these securities and that facilities price discovery and the
execution of customers' orders at the best available price.
Additionally, continued operation of the Service will materially assist
the NASD's surveillance of its members trading in OTC Equities that are
eligible and quoted in the Service, and in non-Tape B securities that
are listed on regional exchanges and quoted in the OTCBB by NASD
members.
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change be, and hereby is, approved for an
interim period through December 31, 1994.
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. 94-24796 Filed 10-5-94; 8:45 am]
BILLING CODE 8010-01-M'
