[Federal Register Volume 59, Number 213 (Friday, November 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27361]
[[Page Unknown]]
[Federal Register: November 4, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34912; File No. SR-NASD-94-50]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to Excess
Spread Parameters for CQS Securities
October 28, 1994.
On September 9, 1994, the National Association of Securities
Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') a proposed rule
change pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act'')\1\ and Rule 19b4-4 thereunder.\2\ The rule change amends
Schedule D to the NASD By-Laws to provide that the calculation
methodology used to determine the excess spread parameters for CQS
securities shall include quotations from national securities exchanges.
In addition, to avoid confusion concerning the application of the
excess spread parameters to CQS securities, the NASD is moving the
excess spread parameters for CQS securities, as amended by this filing,
to Section 2 of Part VI of Schedule D to the NASD By-Laws\3\ from
Section 2 of Part V of Schedule D.\4\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\NASD Manual, Schedules to the By-Laws, Schedule D, Part V,
Sec. 2(d) (CCH) 1818.
\4\Id., Schedules to the By-Laws, Schedule D, Part VI, Sec. 2(c)
(CCH) 1829.
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Notice of the proposed rule change together with its terms of
substance was provided by issuance of a Commission release and by
publication in the Federal Register.\5\ No comments were received in
response to the Commission release. This order approves the proposed
rule change.
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\5\Securities Exchange Act Release No. 34682 (Sept. 19, 1994),
59 FR 48920 (Sept. 23, 1994).
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Currently, Section 2(d) of Part V of Schedule D to the NASD By-Laws
provides that registered market makers in CQS securities may not enter
quotations in CQS securities that exceed the NASD's parameters for
maximum allowable spreads. The maximum allowable spread presently is
125 percent of the average of the three narrowest market maker spreads
in each security, with the limitation that the maximum allowable spread
can never be less than 1/4 of a point.\6\
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\6\If there are fewer than three market makers in a security,
the maximum allowable spread is 125% of the average of all market
makers' spreads in the security.
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The calculation of ``average dealer spreads'' in CQS securities,
however, does not include quotations (i.e., spreads) from national
securities exchanges trading those securities. Accordingly, to have the
excess spread parameters for CQS securities be more reflective of and
related to the quotations disseminated by all market centers trading
CQS securities, the NASD proposed to include quotations from the
exchanges into its ``average dealers spread'' calculation. As a result,
to the extent that the spread reflected in the best bid and offer
disseminated by an exchange(s) is narrower than any of the three
narrowest spreads quoted by CQS market makers, the proposed rule change
may contribute narrower spreads by CQS market makers. Narrower spreads
by CQS market makers, in turn, will enhance the continuity and quality
of the markets provided by CQS market makers, to the ultimate benefit
of investors.
In addition, to avoid confusion concerning the application of the
excess spread parameters to CQS securities, the NASD is proposing to
move the excess spread parameters for CQS securities, as amended, to
Section 2 of Part VI of Schedule D to the NASD By-Laws from Section 2
of Part V of Schedule D. Part V of Schedule D imposes obligations on
all Nasdaq market makers and Part VI pertains to trading of CQS
securities on Nasdaq. By placing the excess spread parameters for CQS
securities in Part VI of Schedule D instead of Part V. CQS market
makers will be less likely to overlook the parameters.
The Commission believes that the rule change is consistent with the
requirements of Sections 15A(b)(6) and 15A(b)(11) of the Act and,
therefore, has determined to approve the NASD's proposal. Section
15A(b)(6) requires, among other things, that the rules of a national
securities association be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principle of trade, to foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing information with
respect to, and 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. Section 15A(b)(11) requires, among other things, that
the rules of a national securities association must be designed to
produce fair and informative quotations.
By including exchange quotations in the calculation for determining
maximum allowable spreads in CQS securities, the excess spread
parameter may contribute to narrower spreads in CQS securities, which,
in turn, will promote the efficiency, continuity, and quality of
Nasdaq's market in CQS securities. In addition, more stringent excess
spread parameters will compel market makers to maintain quotes that are
reasonably related to the prevailing market, reinforcing their
obligations to make continuous markets.
For the reasons stated above, the Commission finds that the
proposed rule change is consistent with the requirements of the Act. In
the instances where the spread reflected in the best bid and offer
disseminated by an exchange(s) is narrower than any of the three
narrowest spreads quoted by CQS market makers, this rule change may
contribute narrower spreads by CQS market makers.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-94-50 be, and hereby is,
approved.
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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Jonathan G. Katz,
Secretary.
[FR Doc. 94-27361 Filed 11-3-94; 8:45 am]
BILLING CODE 8010-01-M
