[Federal Register Volume 62, Number 29 (Wednesday, February 12, 1997)]
[Rules and Regulations]
[Pages 6468-6469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3432]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-38246; File No. S7-30-95]
RIN 3235-AG66
Order Execution Obligations
AGENCY: Securities and Exchange Commission.
ACTION: Revised compliance dates; exemptive order.
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SUMMARY: The Securities and Exchange Commission is revising the
compliance dates and is providing exemptive relief to responsible
brokers and dealers, electronic communications networks, exchanges, and
associations with respect to certain Nasdaq securities to be phased-in
under Rule 11Ac1-4 (``Limit Order Display Rule'') and amendments to
Rule 11Ac1-1 (``ECN Amendment'') (cumulatively ``Order Execution
Rules'').
DATES: Effective: February 5, 1997. Compliance Dates: Compliance with
the Order Execution Rules shall continue to be required with respect to
exchange-listed securities and the 50 Nasdaq securities that were
phased-in on January 20, 1997. The phase-in schedule with respect to
the next 100 Nasdaq securities shall be as follows: (1) 50 Nasdaq
securities shall be phased-in on February 10, 1997; (2) an additional
50 Nasdaq securities shall be phased-in on February 24, 1997.
Exemptive Relief: The Commission is exempting responsible brokers
and dealers, electronic communications networks, exchanges, and
associations, until April 14, 1997, from the requirements of the Order
Execution Rules with respect to the Nasdaq securities not phased-in
under such rules as of February 24, 1997.
[[Page 6469]]
FOR FURTHER INFORMATION CONTACT:
Betsy Prout Lefler, Special Counsel, Gail Marshall-Smith, Special
Counsel, or David Oestreicher, Special Counsel, (202) 942-0158,
Division of Market Regulation, Securities and Exchange Commission, 450
Fifth Street, NW., Mail Stop 5-1, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
Background
On August 28, 1996, the Securities and Exchange Commission
(``Commission'') adopted Rule 11Ac1-4, the ``Limit Order Display
Rule,'' and amendments to Rule ``Ac1-1, the ``ECN Amendment,'' to
require OTC market makers and exchange specialists to display certain
customer limit orders, and to publicly disseminate the best prices that
the OTC market maker or exchange specialist has placed in certain
electronic communications networks (``ECNs''), or to comply indirectly
with the ECN Amendment by using an ECN that furnishes the best market
maker and specialist prices therein to the public quotation system.
On January 20, 1997, the Order Execution Rules became effective. As
of that date, compliance with the rules became mandatory for all
exchange-traded securities and 50 Nasdaq securities. Compliance with
the rules for the remaining Nasdaq securities is to be completed in
accordance with a schedule established by the Commission.\1\ Under the
previously announced schedule, compliance with the Order Handling Rules
would have been required with respect to another 100 Nasdaq securities
on February 7, 1997, and another 850 Nasdaq securities on February 28,
1997. In addition, on March 28, 1997, compliance would have been
required with respect to all remaining Nasdaq securities under the ECN
Rule, and with respect to another 1500 Nasdaq securities under the
Limit Order Display Rule. Thereafter, compliance under the Limit Order
Display Rule was to be phased-in over several months.
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\1\ See Securities Exchange Act Release Nos. 37619A (September
6, 1997) (``Adopting Release''), 37972 (November 22, 1996), 38110
(January 2, 1997), and 38139 (January 8, 1997). The Commission notes
that a broker-dealer's duty of best execution discussed in the
Adopting Release applies whether or not the security has been
phased-in under the Order Execution Rules.
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The Commission has been closely monitoring the implementation of
the Order Execution Rules, and recently received two letters from
representatives of numerous industry participants (``Industry
Letters'') requesting that the Commission adopt a more conservative
schedule for implementing the Order Execution Rules.\2\ Accordingly,
the Commission has determined that it is appropriate to modify the
schedule to provide a more gradual phase-in to allow market
participants more time to adapt to the Order Execution Rules.\3\ The
new schedule is as follows: On February 10, 1997, 50 Nasdaq securities,
and on February 24, 1997, an additional 50 Nasdaq securities, shall be
phased-in for compliance under the Order Execution Rules.\4\
Furthermore, in response to the Industry Letters, the Commission is
exempting responsible brokers and dealers, electronic communications
networks, exchanges, and associations, until April 14, 1997, from the
requirements of the ECN Amendment with respect to all Nasdaq securities
not phased-in as of February 24, 1997, and from the requirements of the
Limit Order Display Rule with respect to the 2350 Nasdaq securities
that will not be phased-in as of February 24, 1997. Under the prior
schedule, all Nasdaq securities would have been phased-in by March 28,
1997 for compliance with the requirements of the ECN Amendment.
Likewise, 850 of these securities would have been phased-in on February
28, and another 1500 on March 28, 1997, for compliance with the Limit
Order Display Rule.
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\2\ See letter from Bernard L. Madoff, Securities Industry
Association, to Richard R. Lindsey, dated January 30, 1997, and
letter from John N. Tognino, Securities Traders Association, to
Richard R. Lindsey, dated January 31, 1997.
\3\ The Commission also amended subsection (a)(25)(ii) of the
Quote Rule, thereby expanding the coverage of the Quote Rule to all
exchange-traded securities. Thereafter, the Commission determined
that it was appropriate to make this aspect of the amendments
effective April 10, 1997. See Securities Exchange Act Release No.
38110, supra note 1. The present order does not change that date
and, therefore, the effective date of subsection (a)(25)(ii) of the
Quote Rule remains April 10, 1997.
\4\ Currently, compliance with the Order Handling Rules is
required for 50 of the 1000 Nasdaq securities with the highest
average daily trading volume. These 50 securities have been
identified by Nasdaq. Similarly, Nasdaq is to identify the next two
groups of 50 stocks to be phased-in under the Order Handling Rules.
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The Commission believes it is imperative to continue to phase-in
implementation of the Order Execution Rules with respect to additional
Nasdaq securities. The Commission has granted exemptive relief to
monitor operation of the rules carefully, and will develop a further
phase-in schedule for the Nasdaq securities not phased-in as of
February 24, 1997.
The Commission finds that the modifications of the compliance dates
described above, and the exemptive relief provided herein to
responsible brokers and dealers, electronic communications networks,
exchanges, and associations are consistent with the public interest,
the protection of investors and the removal of impediments to and
perfection of the mechanism of a national market system.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30(a)(28), (61), and
(62).
Dated: February 5, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3432 Filed 2-11-97; 8:45 am]
BILLING CODE 8010-01-M
