[Federal Register Volume 62, Number 47 (Tuesday, March 11, 1997)]
[Notices]
[Pages 11237-11245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5979]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38360; File No. SR-NASD-97-15]
March 4, 1997.
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 by the National Association of Securities Dealers, Inc. Relating to
Amendments to the Corporate Financing Rule, The Nasdaq Stock Market
Rules, and Over-the-Counter Bulletin Board Rules To Effect Compliance
With SEC Regulation M
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 March 3,
1997, the National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change and Amendment No.
1. The proposed rule change and Amendment No. 1 are 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. For the reasons discussed
below, the Commission is granting accelerated approval of the proposed
rule change and Amendment No. 1.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to amend the Corporate Financing Rule in Rule
2710, The Nasdaq Rules, and the Over-the-Counter Bulletin Board Rules
of the Association to effect compliance with the Commission's
Regulation M. Below is the text of the proposed rule change. Proposed
new language is in italics; proposed deletions are in brackets.
2710. Corporate Financing Rule--Underwriting Terms and Arrangements
(a) No change.
(b) Filing Requirements--(1) through (10) No change.
(11) Request for Underwriting Activity Report. Notwithstanding the
availability of an exemption from filing under subparagraph (b)(7) of
this Rule, a member acting as a manager (or in a similar capacity) of a
distribution of a publicly traded subject or reference security that is
subject to SEC Rule 101 shall submit a request to the Corporate
Financing Department for an Underwriting Activity Report with respect
to the subject and/or reference security in order to facilitate
compliance with SEC Rules 101, 103, or 104, and other distribution-
related Rules of the Association. The request shall be submitted at the
time a registration statement or similar offering document is filed
with the Department, the SEC, or other regulatory agency or, if not
filed with any regulatory agency, at least two (2) business days prior
to the commencement of the restricted period under SEC Rule 101. The
request shall include a copy of the registration statement or similar
offering document (if not previously submitted pursuant to subparagraph
(b)(5) of this Rule). If no member is acting as managing underwriter of
such distribution, each member that is a distribution participant or an
affiliated purchaser shall submit a request for an Underwriting
Activity Report, unless another member has assumed responsibility for
compliance with this subparagraph. For purposes of this subparagraph,
SEC Rules 100, 101, 103, and 104 are rules of the Commission adopted
under Regulation M and the following terms shall have the meanings as
defined in SEC Rule 100: ``distribution,'' ``distribution
participant,'' ``reference security,'' ``restricted period,'' and
``subject security.''
(c) No change.
4000. The Nasdaq Stock Market
4200. Definitions
(a) For purposes of the Rule 4000 Series, unless the context
requires otherwise:
[(a)-(x)] (1)-(23)
[(y) ``Penalty bid'' means a stabilizing bid that permits the
managing underwriter to reclaim a selling concession granted to a
syndicate member in connection with the sale of securities in an
underwritten offering when the syndicate member resells such securities
to the managing underwriter.]
[(z) ``Pre-effective stabilizing bid'' means a stabilizing bid
entered prior to the effective date of an offering.]
[(aa)] (24) ``Reported security'' means an equity security for
which quotations are entered into the Consolidated Quotations Service.
(25) ``SEC Rule 100'', ``SEC Rule 101'', ``SEC Rule 103'', and
``SEC Rule 104'' mean the rules adopted by the Commission under
Regulation M, and any amendments thereto.
[(bb)] (26) ``Solicitation expenses'' means direct marketing
expenses incurred by a member in connection with a limited partnership
rollup transaction, such as telephone calls, broker/dealer fact sheets,
members' legal and other fees related to the solicitation, as well as
direct solicitation compensation to members.
[(cc)] (27) ``Stabilizing bid'' means [a bid entered for the
purpose of supporting the price of a security to facilitate an offering
of such security as permitted by SEC Rules 10b-6 and 10b-7.] the terms
``stabilizing'' or to ``stabilize'' as defined in SEC Rule 100.
[(dd)] (28) ``Transaction costs'' means costs incurred in
connection with a limited partnership rollup transaction, including
printing and mailing the proxy, prospectus or other documents; legal
fees not related to the solicitation of votes or tenders; financial
advisory fees; investment banking fees; appraisal fees; accounting
fees; independent committee expenses; travel expenses; and all other
fees related to the preparatory work of the transaction, but not
including costs that would have otherwise been incurred by the subject
limited partnerships in the ordinary course of business or solicitation
expenses.
(29) ``Underwriting Activity Report'' is a report provided by the
Corporate Financing Department of NASD Regulation, Inc. in connection
with a distribution of securities subject to SEC Rule 101 pursuant to
Rule 2710(b)(11) and includes forms that are submitted by members to
comply with their notification obligations under Rules 4614, 4619, and
4623.
(b) For purposes of Rules 4614, 4619, and 4623, the following terms
shall have the meanings as defined in SEC Rule 100: ``affiliated
purchaser,'' ``distribution,'' ``distribution participant,''
``independent bid,'' ``net purchases,'' ``passive market maker,''
``penalty bid,'' ``reference security,'' ``restricted period,''
``subject security,'' and ``syndicate covering transaction''.
4600. Nasdaq Market Maker Requirements
4614. Stabilizing Bids
(a) [Eligibility.]
[A market maker may enter a stabilizing bid in Nasdaq, which bid
will be identified with the appropriate identifier on the Nasdaq
quotation display.]
Market Maker Obligation/Identifier
A market maker that intends to stabilize the price of a Nasdaq
security that is a subject of reference security under SEC Rule 101
shall submit a request to Nasdaq Market Operations
[[Page 11238]]
for the entry of a one-sided bid that is identified on Nasdaq as a
stabilizing bid in compliance with the standards set forth in this Rule
and SEC Rules 101 and 104.
(b) Eligibility
Only one market maker in an issue may enter a stabilizing bid.
(c) Limitations on Stabilizing Bids
(1) A stabilizing bid [will] shall not be [displayed] entered in
Nasdaq unless at least one other market maker in addition to the market
maker entering the stabilizing bid is registered as a market maker in
the [issue] security and enter[s]ing quotations that are considered an
independent bid under SEC Rule 104.
([b]2) [Character.]
[A stabilizing bid, pre-effective stabilizing bid, or a penalty bid
may be entered in Nasdaq.] A stabilizing bid must be available for all
freely tradeable outstanding securities of the same class being
offered.
(3) A market maker shall not enter a stabilizing bid at the same
time that it is quoting any other bid or offer in the security.
([c]d) [Notice] Submission of Request to Association
(1) A market maker that wishes to enter a stabilizing bid shall [so
notify the] submit a request to Nasdaq Market Operations [in writing
prior to the first day on which the stabilizing bid is to appear in
Nasdaq] for the entry in the Nasdaq quotation display of a one-sided
bid identified as a stabilizing bid. The market maker shall confirm its
request in writing no later than the end of the day on which the
stabilizing bid is entered by submitting an Underwriting Activity
Report to Nasdaq Market Operations that includes the information
required by subparagraph (d)(2). [and the fact that the market maker is
a manager of the distribution.]
(2) In lieu of submitting the Underwriting Activity Report as set
forth in subparagraph (d)(1), [T] the market maker may provide written
[notice] confirmation to Nasdaq Market Operations that shall include:
(A) the [name] identity of the security and its Nasdaq symbol;
(B) [the date on which the security's registration will become
effective, if it is already included in Nasdaq] the contemplated
effective date of the offering and the date when the offering will be
priced;
[(C) whether the stabilizing bid will be a penalty bid or a
penalty-free bid]
(C) the date and time that an identifier should be included on the
Nasdaq quotation display; and
(D) a copy of the cover page of the preliminary or final prospectus
[or shelf registration statement] or similar offering document, unless
the Association determines otherwise.
[(2) In the case of a pre-effective stabilizing bid, the notice
shall include (A) the name of the security and its Nasdaq symbol; (B)
the contemplated effective date of the offering; (C) whether it is
contemplated that the pre-effective stabilizing bid will be converted
to a stabilizing bid and, if so, whether the stabilizing bid will be a
penalty bid or a penalty-free bid; and (D) a copy of the preliminary
prospectus, unless the Association determines otherwise.]
[(3) A market maker that has provided the written notice prescribed
above shall also contact Nasdaq Market Operations for authorization on
the day the market maker wishes to enter the stabilizing bid.]
[(d) Dual Bids in the Same Issue. A market maker shall not enter a
stabilizing bid at the same time that it is quoting any other bid or
offer in the issue.]
[(e) Volume Reporting for Stabilizing Bids. A market maker entering
a stabilizing bid shall report all purchases made on the stabilizing
bid and enter ``zero volume'' for sales during the period in which the
stabilizing bid is in effect.]
4619. Withdrawal of Quotations and Passive Market Making
(a)-(c) No change.
(d) Excused withdrawal status or passive market maker status may be
granted to a market maker that is a distribution participant (or, in
the case of excused withdrawal status, an affiliated purchaser) in
order to comply with SEC Rules [10b-6] 101, [or Rule 10-6A] 103, or 104
under the Act on the following conditions:
(1) A [market maker] member acting as a manager (or in a similar
capacity) of a distribution of a Nasdaq security that is a subject or
reference security under SEC Rule 101 and any member that is a
distribution participant or that is an affiliated purchaser in such a
distribution that does not have a manager shall [: (A)] provide written
notice to Nasdaq Market Operations [of the prospective distribution] no
later than the business day prior to the first entire trading session
of the one-day or five-day restricted period under SEC Rule 101, unless
later notification is necessary under the specific circumstances.
[and the fact that the market maker is a manager of the
distribution, the Nasdaq security or securities that are subject to SEC
Rule 10b-6 no later than 5 business days following the filing of a
registration statement with the Association pursuant to Rule 2710, or,
if the member is not required to file the registration statement with
the Association, no later than 5 business days following the filing of
offering documents with the appropriate regulatory authority; and, (B)
no later than noon Eastern Time on the business day prior to the
beginning of the cooling off period:]
[(i)] (A) [request] The notice required by subparagraph (d)(1) of
this Rule shall be provided by submitting a completed Underwriting
Activity Report that includes a request on behalf of each market maker
that is a distribution participant or an affiliated purchaser to
withdraw[al of] the market maker[s']'s quotations, or [identification
of] that includes a request on behalf of each market maker that is a
distribution participant that its [the market makers'] quotations be
identified as those of a passive market maker [by providing written
notice to Nasdaq Market Operations of the identity of the market makers
that are distribution participants], and includes the contemplated date
and time of the commencement of the [cooling off period] restricted
period. [and the identity of the market makers that intend to act as
passive market makers; and]
[(ii)] (B) The managing underwriter shall advise [the] each market
maker that [they have] it has been identified as a distribution
participant[s] or an affiliated purchaser to Nasdaq Market Operations
and that [their] its quotations will be automatically withdrawn or
identified as passive market maker quotations, [upon the request made
by the manager] unless [they submit to] a market maker that is a
distribution participant notifies [the Association the notice specified
in] Nasdaq Market Operations as required by subparagraph [(3)] (d)(2),
below.
[(2) If the security is being distributed pursuant to an offering
for which no registration statement or offering document is required to
be filed, each market maker that is a distribution participant shall,
no later than noon Eastern Time on the business day prior to the
beginning of the cooling off period, provide written notice to Nasdaq
Market Operations of its participation in the distribution, the
contemplated date and time of the commencement of the cooling off
period, the Nasdaq security or securities that are subject to SEC Rule
10b-6, and request withdrawal of its quotations or identification as a
passive market maker.]
[[Page 11239]]
([3] 2) A market maker that has been identified to Nasdaq Market
Operations as a distribution participant shall [provide written notice
to] promptly notify Nasdaq Market Operations and the manager of its
intention not to participate in the prospective distribution or not to
act as a passive market maker [no later than 4:00 p.m. Eastern Time on
the business day prior to the beginning of the cooling off period] in
order to avoid having its quotations withdrawn or identified as the
quotations of a passive market maker, or in order to have its excused
withdrawal status rescinded.
(3) If a market maker that is a distribution participant withdraws
its quotations in a Nasdaq security in order to comply with the net
purchases limitation of SEC Rule 103 or with any other provision of SEC
Rules 101, 103, or 104 and promptly notifies Nasdaq Market Operations
of its action, the withdrawal shall be deemed an excused withdrawal.
Nothing in this subparagraph shall prohibit the Association from taking
such action as is necessary under the circumstances against a member
and its associated persons for failure to contact Nasdaq Market
Operations to obtain an excused withdrawal as required by subparagraphs
(a) and (d) of this Rule.
(4) [In the event the manager of a distribution is not a market
maker, each market maker that is a distribution participant shall
comply with paragraph (d)(1) unless another market maker has assumed
responsibility for compliance.] The quotations of a passive market
maker shall be identified on Nasdaq as those of a passive market maker.
[For purposes of this Rule, the term ``cooling off period'' refers to
the periods specified in SEC Rule 10b-6(a)(4)(xi), the terms
``distribution'' and ``distribution participant'' refers to these terms
as defined in SEC Rule 10b-6(c)(5) and (c)(6) and the term ``passive
market maker'' refers to this term as defined in SEC Rule 10b-6A(T).]
* * * * *
4623. Penalty Bids and Syndicate Covering Transactions
(a) A market maker acting as a manager (or in a similar capacity)
of a distribution of a Nasdaq security that is a subject or reference
security under SEC Rule 101 shall provide written notice to the
Corporate Financing Department of NASD Regulation, Inc. of its
intention to impose a penalty bid on syndicate members or to conduct
syndicate covering transactions pursuant to SEC Rule 104 prior to
imposing the penalty bid or engaging in the first syndicate covering
transaction. A market maker that intends to impose a penalty bid on
syndicate members may request that its quotation be identified as a
penalty bid on Nasdaq pursuant to paragraph (c) below.
(b) The notice required by paragraph (a) shall include:
(1) the identity of the security and its Nasdaq symbol;
(2) the date the member is intending to impose the penalty bid and/
or conduct syndicate covering transactions; and
(3) the amount of the syndicate short position, in the case of
syndicate covering transactions.
(c) Notwithstanding paragraph (a), a market maker may request that
its quotation be identified as a penalty bid on Nasdaq display by
providing notice to Nasdaq Market Operations, which notice shall
include the date and time that the penalty bid identifier should be
entered on Nasdaq and, if not in writing, shall be confirmed in writing
no later than the end of the day on which the penalty bid identifier is
entered on Nasdaq.
(d) The written notice required by paragraphs (a) and (c) of this
Rule may be submitted on the Underwriting Activity Report by including
the information required by subparagraphs (b)(1) and (b)(2) or
paragraph (c).
6500. OTC Bulletin Board Service
6540. Requirements Applicable to Market Makers
(a) No change.
(b) No change.
(1) Permissible Quotation Entries
(A)-(C) No change.
(D) Any member that intends to be a distribution participant in a
distribution of securities subject to SEC Rule 101, or is an affiliated
purchaser in such distribution, and is entering quotations in an OTCBB-
eligible security that is the subject or reference security of such
distribution shall, unless another member has assumed responsibility
for compliance with this paragraph:
(i) provide written notice to Nasdaq Market Operations prior to the
pricing of the distribution that includes the intended date and time of
the pricing of the offering;
(ii) Withdraw all quotations in the OTCBB-eligible security to
comply with the applicable restricted period under SEC Rule 101 and not
enter a stabilizing bid pursuant to SEC Rule 104 in the OCTBB; and
(iii) provide written notice to the Corporate Financing Department
of NASD Regulation, Inc. of its intention to impose a penalty bid or to
conduct syndicate covering transactions pursuant to SEC Rule 104 prior
to imposing the penalty bid or engaging in the first syndicate covering
transaction. Such notice shall include information as to the date the
penalty bid or first syndicate covering transaction will occur and the
amount of the syndicate short position.
(E) The written notice required by subparagraphs (b)(1)(D)(i) and
(iii) of this rule may be submitted on the Underwriting Activity Report
provided by the Corporate Financing Department of NASD Regulation, Inc.
by including the information required by those subparagraphs.
(F) For purposes of subparagraph (D), SEC Rules 100, 101, 103 and
104 are rules of the Commission adopted under Regulation M and the
following terms shall have the meanings as defined in SEC Rule 100:
``affiliated purchaser,'' ``distribution,'' ``distribution
participant,'' ``penalty bid,'' ``reference security,'' ``restricted
period,'' ``stabilizing,'' ``subject security,'' and ``syndicate
covering transaction.''
* * * * *
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 Regulation, Inc. (``NASD
Regulation'') 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 test of these statements may be examined
at the places specified in Item III below. NASD Regulation 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
(a) On December 20, 1996, the Commission approved new Regulation M
to replace Rules 10b-6, 10b-6A, 10b-7, 10b-8 and 10b-21 under the Act
(the ``trading practice rules'').\1\ Regulation M, which consists of
SEC Rules 100 through 105, governs the activities of underwriters,
issuers, selling security-holders, their respective affiliated
purchasers, and others that have an interest in the outcome of an
offering of securities. New Regulation M will be effective March 4,
1997, with the
[[Page 11240]]
exception that the Commission's recordkeeping requirements related to
penalty bids and syndicate covering transactions will become effective
April 1, 1997.
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\1\ Securities Exchange Act Release No. 38067 (December 20,
1996), 62 FR 520 (January 3, 1997).
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The NASD is proposing to amend the rules of The Nasdaq Stock Market
(``Nasdaq''), the Over-the-Counter Bulletin Board (``OTCBB''), and the
Corporate Financing Rule (NASD Rule 2710) (collectively ``NASD rules'')
to clarify certain of the provisions and to implement the requirements
of Regulation M in SEC Rules 101, 103, and 104 as they apply to members
of the Association. In general, the amendments to the NASD rules
establish a new requirement for members to obtain an Underwriting
Activity Report from the Corporate Financing Department of NASD
Regulation with respect to a proposed distribution subject to SEC Rule
101; modify current Nasdaq requirements with respect to the entry of
stabilizing and penalty bids and requests for excused withdrawal of
quotations or designation of quotations as those of a passive market
maker; and establish new requirements for notification with respect to
penalty bids and syndicate covering transactions for Nasdaq and OTCBB
securities.
General
The NASD is proposing to amend the Nasdaq Rules to eliminate the
requirement that members submit their request to enter a stabilizing or
penalty bid, for an excused withdrawal of quotations, or for the
identification of quotations as those of a passive market maker on the
day prior to the requested action. Further, in connection with
stabilizing and penalty bids, the proposed rule change replaces the
current requirement for written notification with a requirement for
notification followed by written confirmation. These changes are made
in order to permit the Association to respond to the quicker timetable
that is increasingly characteristic of securities distributions and to,
particularly, provide members the maximum flexibility required for
shelf offerings.
In addition, the proposed rule change amends Nasdaq and OTCBB Rules
to distinguish between the obligations of members that are distribution
participants and members that are affiliated purchasers (as those terms
are defined in SEC Rule 100 adopted under Regulation M). While a member
that is a distribution participant may stabilize the price of a
security and engage in passive market making, a member that is
considered an affiliated purchaser to the issuer is not permitted to
conduct these market-related activities during a distribution.
The proposed rule change also clarifies that the requirements for
stabilizing, excused withdrawal, passive market making, penalty bids,
and syndicate covering transactions in a Nasdaq or OTCBB security apply
regardless of whether a Nasdaq or OTCBB security is the subject of the
distribution or is a reference security (as those terms are defined in
SEC Rule 100 adopted under Regulation M). Similarly, the requirement
that a member request an Underwriting Activity Report, as discussed
below, from the Corporate Financing Department of NASD Regulation
applies regardless of whether a publicly traded security is a subject
or reference security under SEC Rule 101. Thus, a member that is a
distribution participant or an affiliated purchaser in a private
placement of a security that is convertible to a publicly traded
security will be required to request an Underwriting Activity Report
with respect to the reference security. Moreover, if the reference
security is listed on Nasdaq the member will be obligated to comply
with the provisions of Rules 4614, 4619, and 4623 or if the reference
security is quoted in the OTCBB, the member will be obligated to comply
with the provisions of Rule 6540. The same analysis would apply if the
privately placed security is the same security as that traded in the
public markets.
Amendments to the Nasdaq Rules
Definitions
The proposed rule change would reorganize Rule 4200 of the NASD
Rules applicable to Nasdaq into two paragraphs, with the result that
the current definitions in paragraphs (a) through (dd) would be
consecutively numbered as subparagraphs of paragraph (a). In addition,
the Association is proposing to adopt a definition as new subparagraph
(a)(25) of Rule 4200 that would clarify that references in the Nasdaq
Rules to SEC Rule 100, SEC Rule 101, SEC Rule 103, and SEC Rule 104
means those rules adopted by the SEC under Regulation M, and any
amendments thereto.
The definition of ``penalty bid'' in current paragraph (2) to Rule
4200 is proposed to be deleted because SEC Rule 100 adopted under
Regulation M contains a definition of penalty bid. Moreover, for
purposes of Rule 4614, a penalty bid will no longer be treated as a
form of stabilizing bid by the NASD.
The definition of ``stabilizing bid'' in renumbered subparagraph
(a)(27) is proposed to be amended to refer to the definition of
``stabilizing'' in SEC Rule 100 adopted under Regulation M. Unlike SEC
Rule 104 adopted under Regulation M, the Association's rules have
differentiated between a pre-effective stabilizing bid and a
stabilizing bid entered after the pricing and effectiveness of an
offering. The Association is deleting the definition of pre-effective
stabilizing bid as unnecessary and confusing.
Moreover, the NASD is proposing to adopt, for purposes of the
Nasdaq Rules, a definition of the term ``Underwriting Activity Report''
in subparagraph (a)(29) of Rule 4200 to reference the report to be
provided by the Corporate Financing Department of NASD Regulation to
the managing underwriter of a distribution of a publicly traded subject
or reference security that is subject to SEC Rule 101. The requirement
that members obtain the Report is proposed to be adopted in Rule
2710(b)(11). The Report will provide members participating in the
offering with information on whether the security meets the average
daily trading volume (``ADTV'') and public float value requirements for
the one-day or five-day restricted periods under SEC Rule 101 and
whether the ADTV of the market makers participating in the offering
meet the requirements of SEC Rule 103 for passive market making. In
addition, the Report permits a member to provide the requisite
notifications to the NASD with respect to the member's request for
excused withdrawal of quotations from Nasdaq and designation of Nasdaq
quotations as those of a passive market maker, as well as information
on the member's request to stabilize and, under Nasdaq and OTCBB Rules,
impose a penalty bid or conduct syndicate covering transactions. Thus,
the Report permits the Association to provide information to the
underwriting syndicate to facilitate compliance with SEC Rules 101 and
103 and can be used by members to submit information to the Association
to comply with the member's obligations under Nasdaq and OTCBB Rules
and SEC Rules 101, 103 and 104.
Finally, the Association is proposing to adopt new paragraph (b) or
Rule 4200 to incorporate the definitions of important terms from SEC
Rule 100 adopted under Regulation M for purposes of the Nasdaq Rules,
including affiliated purchase, distribution, distribution participant,
independent bid, net purchases, passive market maker, penalty bid,
reference security, restricted period, subject security, and syndicate
covering transaction. Incorporating the SEC's definitions of these
terms will avoid the need for the
[[Page 11241]]
Association to amend its rules as these terms are amended by the SEC.
Stabilizing Bids
SEC Rule 104 adopted under Regulation M replaces Rule 10b-7 under
the Act to regulate stabilization activities during a distribution. The
new rule retains the requirement that only one stabilizing bid is
permitted in any market at the same price at the same time, that the
market be notified of the intent to enter a stabilizing bid, and that
the stabilizing bid be disclosed. Rule 4614 of the Nasdaq Rules
currently includes provisions that meet the requirements of prior SEC
Rule 10b-7 and new Rule 104. However, the NASD is proposing to amend
Rule 4614 to clarify certain of its provisions, delete obsolete
provisions, and modify the procedural requirements for notification and
the information required to be submitted to Nasdaq in order for a
market maker to enter a stabilizing bid.
The NASD is proposing to amend Rule 4614 of the Nasdaq Rules by
adding new paragraph (a) that requires a market maker that intends to
stabilize the price of a Nasdaq security in compliance with SEC Rule
104 to submit a request to Nasdaq Market Operations to enter a one-
sided bid identified on Nasdaq as a stabilizing bid. Paragraph (b)
retains the requirement that only one market maker in an issue may
enter a stabilizing bid. Several provisions that impose limitations on
stabilizing bids have been organized under a new heading in paragraph
(c).
The notice provisions in renumbered subparagraph (d)(1) have been
revised to permit submission to Nasdaq Market Operations of a market
maker's request to enter a stabilizing bid at any time. Currently, Rule
4614 requires that Nasdaq Market Operations be notified on the day
prior to the first day on which the stabilizing bid is to appear. This
requirement is no longer necessary. Since a one-sided bid identified as
a stabilizing bid can only be entered on Nasdaq by the staff of Nasdaq
Market Operations, there is no need to set a particular time period for
providing notification. System changes now permit the staff of Nasdaq
Market Operations to enter a stabilizing bid with the appropriate
identifier with only a short period of notification prior to the
opening of the market or any other time during the trading session for
the entry of the bid requested by the member. Moreover, a member may
determine, and is permitted by SEC Rule 104, to enter a stabilizing bid
at any time during a trading session. Thus, it is the obligation of the
member to provide the staff sufficient time to enter its one-sided
stabilizing bid on Nasdaq and the staff of Nasdaq Market Operations
will enter a member's stabilizing bid as soon as possible after receipt
of the request from the member.
The Association is also proposing to delete the requirement in
subparagraph (d)(1) of Rule 4614 that the request for entry of a
stabilizing bid be in writing and replace it by a requirement that the
request be confirmed in writing by the end of the day of which the
stabilizing bid is entered. In light of the speed at which many
secondary offerings and shelf distributions are priced and distributed
and the volatility of the market, the Association believes it important
that members be provided the ability to move quickly in response to
changing market conditions and the requirements of such offerings. The
information required to be provided to the staff of Nasdaq Market
Operations by subparagraph (d)(2) is easily conveyed in a conversation
by telephone.
Subparagraph (d)(1) of Rule 4614 is also proposed to be amended to
permit a member to provide its written request by submitting an
Underwriting Activity Report provided by the Corporate Financing
Department of NASD Regulation, with the requisite information included
in the Report that is set forth in subparagraph (d)(2). In lieu of the
Underwriting Activity Report, a member is also permitted under
subparagraph (d)(2) to provide written notice to Nasdaq Market
Operations that contains the information related to its request to
stabilize the price of a security. The information required to be
included in the Underwriting Activity Report or in a separate request
has been revised in order to clarify and simplify the requirements.
Thus, the requirement to provide a copy of the preliminary prospectus
has been replaced with a requirement to provide the cover page of the
prospectus, because only the information on the cover page is necessary
to Nasdaq Market Operations staff and is easily transmitted by fax to
the Association.
Excused Withdrawals and Passive Market Making
Market makers are not permitted by the Nasdaq Rules to withdraw
their market making quotations unless the withdrawal is excused. In the
absence of obtaining an excused withdrawal, a member is prohibited by
Nasdaq Rules from acting as a market maker in the security for 20
business days. Rule 4619 of the Nasdaq Rules regulates requests for
excused withdrawals of quotations by market makers and the request by
market makers for identification of their quotations as those of a
passive market maker.
SEC Rule 101 adopted under Regulation M has replaced the current
``cooling-off'' periods of Rule 10b-6 that are triggered by the
anticipated commencement of the distribution with a three-tier
``restricted period'' that is calculated from the time of pricing the
subject security. Actively-traded securities, i.e., securities with an
ADTV of at least $1 million and a public float value of at least $150
million, are no longer subject to any restricted period. Securities
with an ADTV of at least $100,000, with a public float value of at
least $25 million, are subject to a restricted period of one business
day prior to the date on which the subject security's price is
determined and all other securities that do not meet the ADTV and
public float value tests are subject to a restricted period of five
business days.
SEC Rule 103 adopted under Regulation M, which replaces Rule 10-6A
under the Act, permits ``passive'' market making activity in Nasdaq
stocks in connection with fixed-price offerings that are underwritten
on a firm-commitment basis and permits all Nasdaq stocks to qualify for
passive market making. The new SEC rule also allows passive market
making throughout the restricted period, in contrast to Rule 10b-6A,
which prohibited passive market making upon the commencement of offers
and sales.
The NASD is proposing to revise Rule 4619 in subparagraph (d)(1)
to: (1) Distinguish between the obligations of a member that is a
distribution participant and a member that is an affiliated purchaser;
(2) clarify that the primary obligation to obtain excused withdrawal
and/or identification of quotations as those of a passive market maker
is imposed on the managing underwriter of the distribution, regardless
of whether the managing underwriter is also a Nasdaq market maker in
the security; (3) clarify that the rule applies regardless of whether
the Nasdaq security is a subject or reference security; (4) replace the
cooling-off periods of Rule 10b-6 with the one-day and five-day
restricted periods of SEC Rule 101; and (5) clarify that passive market
making quotations must be identified on Nasdaq.
In addition, the amendments to subparagraph (d)(1) of Rule 4619
provide that notification to Nasdaq Market Operations must occur no
later than the business day prior to the first entire trading session
of the one-day or five-day restricted period under SEC
[[Page 11242]]
Rule 101 of Regulation M. This amendment deletes the provision that
previously required notification to Nasdaq Market Operations by noon
Eastern Time on the business day prior to the beginning of the cooling-
off period. It is anticipated that members will provide notification as
follows: If a one-day restricted period commences at the close of
Nasdaq at 4:00 p.m. (ET) on Monday, notice should be provided to Nasdaq
Market Operations with respect to excused withdrawal or passive market
making status for Tuesday by 6:00 p.m. on Monday, with the offering
being priced and sold after 4:00 p.m. (ET) on Tuesday. The five-day
restricted period is calculated in a similar manner.2 The
provision permits notification to be received later than the day prior
to the first entire trading session of the restricted period if such
later notification is necessary under the specific circumstances, so
long as the Association will be able to maintain its regulatory program
to provide surveillance of excused withdrawals and passive market
making.
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\2\ See definition of ``business day'' in SEC Rule 100 for
purposes of calculating the restricted period under SEC Rule 101.
The term ``business day'' for purposes of the Nasdaq Rules refers to
a calendar day on which trading occurs on Nasdaq.
---------------------------------------------------------------------------
Subparagraph (d)(1) of Rule 4619 continues to require that a member
submit in writing its request for excused withdrawal or identification
of quotations as those of a passive market maker. The request is
required under subparagraph (d)(1)(A) to be submitted in the form of
the Underwriting Activity Report that is obtained from the Corporate
Financing Department of NASD Regulation pursuant to a proposed rule
change to Rule 2710(b)(11). As set forth above, the Underwriting
Activity Report will be issued to the managing underwriter of every
distribution of a publicly traded subject or reference security that is
subject to SEC Rule 101 and will provide ADTV information that will
facilitate compliance by the underwriting syndicate with the restricted
periods of SEC Rule 101 and the passive market making requirements of
SEC Rule 103.
Subparagraph (d)(1)(A) of Rule 4619 requires that the Underwriting
Activity Report that was previously provided to the managing
underwriter by the Corporate Financing Department be submitted to
Nasdaq Market Operations and include the managing underwriter's request
on behalf of each market maker that is a distribution participant or an
affiliated purchaser that the quotations of the market maker be
withdrawn. Alternatively, with respect to distribution participants,
the managing underwriter may request that the quotations of the market
maker be identified as those of a passive market maker.
Subparagraph (d)(1)(B) of Rule 4614 will continue to require that
the managing underwriter then advise each market maker that is a
distribution participant or affiliated purchaser that its quotations
will be automatically withdrawn. In addition, market makers that are
distribution participants must be advised if their quotations will be
identified as those of a passive market maker. A market maker that is a
distribution participant has the option to notify Nasdaq Market
Operations, pursuant to subparagraph (d)(2), that it does not intend to
be a participant in the distribution or does not intend to engage in
passive market making.
Subparagraph (a) of Rule 4619 requires that the market maker
request withdrawal of its quotations for any purpose, including
compliance with Regulation M, through Nasdaq Market Operations. The
action of a market maker to withdraw its quotations from Nasdaq is
treated as unexcused and is subject to the 20-day penalty. In
considering a member's obligations to comply with new Regulation M, the
Association has determined that it should revise its procedures and
rules to facilitate members' compliance with the restricted periods,
and restrictions on stabilizing and passive market making--without the
member being subject to the 20-day penalty for taking an action
intended to ensure compliance with its regulatory obligations.
The NASD is, therefore, proposing to adopt new subparagraph (d)(3)
of Rule 4619 to permit the Association to treat as an excused
withdrawal the action of a market maker to withdraw its quotations, if
the withdrawal is necessary to ensure compliance with its obligations
as a stabilizer, passive market maker, or to comply with the restricted
periods of SEC Rule 101. Thus, this provision will permit a member that
exceeds its ``net purchases'' limitation as a passive market maker to
immediately withdraw its quotations. In addition, the provision would
permit a member to immediately withdraw a stabilizing bid and would
treat as an excused withdrawal the immediate withdrawal of quotations
to comply with the one or five-day restricted periods of Regulation M.
Finally, the provision also requires that the market maker immediately
notify Nasdaq Market Operations of its action. In order, however, to
ensure that members understand that they remain obligated to request
withdrawal of their quotations through Nasdaq Market Operations and
should only rely on this provision in an unanticipated situation, the
provision clarifies that the granting of such an excused withdrawal
does not prevent the Association from taking such action as is
necessary (including, initiating a disciplinary action) against the
member and its associated persons for failure to comply with the
requirement of Rule 4619 to withdraw quotations through Nasdaq Market
Operations.
Penalty Bids and Syndicate Covering Transactions
New SEC Rule 104 adopted under Regulation M requires that the
primary market for a security be notified on any penalty bid or
syndicate covering transaction in connection with an offering of
securities. Paragraph (a) of new Rule 4623 of the Nasdaq Rules would
require submission of this notification to the Corporate Financing
Department of NASD Regulation with respect to a Nasdaq security prior
to imposing the penalty bid or engaging in the first syndicate covering
transaction. The written notification is required under paragraph (b)
to include the identity of the security and its Nasdaq symbol, the date
and time the member is intending to impose the penalty bid and/or
conduct syndicate covering transactions, and a statement of the amount
of the syndicate short position. If the SEC delays effectiveness of the
notification requirements for penalty bids and syndicate covering
transactions to a future date, the effectiveness of this provision will
also be delayed until that date.
Although not required by SEC Rule 104, a market maker has the
option to request that Nasdaq Market Operations include an identifier
with respect to a penalty bid in order to advise the market of the
member's exercise of its contractual right. Where a member requests
that its quotations be identified as a penalty bid, paragraph (c) under
Rule 4623 requires that the member must provide notification to Nasdaq
Market Operations (not the Corporate Financing Department) and, if the
notice is not in writing, must confirm the notice in writing no later
than the end of the day on which the penalty bid identifier is entered
in Nasdaq. The requirements of this provision will be effective March
4, 1997.
Finally, paragraph (d) under Rule 4623 permits, but does not
require, a member to provide the notification required under paragraphs
(a) and (c) by submitting an Underwriting Activity Report that includes
the requisite information.
[[Page 11243]]
Amendments to OTCBB Rules
The OTCBB system does not include a feature that permits the entry
of an identifier in connection with a member's quotations in the
system. Therefore, a member that is a distribution participant or an
affiliated purchaser with respect to an OTCBB-eligible security in
which it is entering quotations cannot engage in stabilizing
transactions in that security in the OTCBB and cannot request
identification of its post-offering bid as a penalty bid.
The NASD is proposing to amend subparagraph (b)(1) of rule 6540 of
the OTCBB Rules to require that a member that is to be a distribution
participant or is an affiliated purchaser in a distribution of OTCBB-
eligible securities subject to SEC Rule 101 must provide written notice
to Nasdaq Market Operations prior to the pricing of the offering that
includes the intended date and time of pricing of the offering--unless
another member assumes responsibility for the member's compliance. In
addition, the member must withdraw its quotations to comply with the
restricted periods of Regulation M, and is prohibited from entering a
stabilizing bid in the OTCBB.
Moreover, similar to the new requirements in Rule 4623 with respect
to Nasdaq securities, the member is required under rule 6540 to provide
written notice to the Corporate Financing Department of NASD Regulation
of its intention to impose a penalty bid or engage in syndicate
covering transactions prior to imposing the penalty bid or engaging in
the first syndicate covering transactions. In the latter case, the
member is required to provide advice on the amount of the syndicate
short position. If the SEC delays effectiveness of the notification
requirements to a future date, the notification regarding penalty bids
and syndicate covering transactions under rule 6540 will also be
delayed until that date.
Finally, the NASD is proposing that members be permitted, but not
required, to provide the notice to Nasdaq Market Operations or the
Corporate Financing Department, as required by the new provisions, by
submitting an Underwriting Activity Report that includes the requisite
information.
Amendments to the Corporate Financing Rule
As set forth above, a member that is a market maker in a
distribution of a Nasdaq security that is a subject or reference
security under SEC Rule 101 adopted under Regulation M, is required to
request excused withdrawal of its quotations or identification of its
quotations as those of a passive market maker by submitting information
in an Underwriting Activity Report that is provided by the Corporate
Financing Department of NASD Regulation. Moreover, a member has the
option to use the Underwriting Activity Report to request the entry of
a stabilizing bid for a Nasdaq security, or to provide advice of the
member's intention to enter a penalty bid or to engage in syndicate
covering transactions for a Nasdaq or OTCBB security, or to request an
identifier be associated with the member's penalty bid in Nasdaq. The
Underwriting Activity Report has previously been used, with the title
of ``Passive Market Making Report,'' by the Corporate financing
Department to provide information to Nasdaq market makers as to whether
the security met the price and float requirements for the two-day or
nine-day cooling-off periods under rule 10b-6 and whether the ADTV of
the market makers participating in the offering met the requirement for
passive market making under Rule 10b-6A.
The NASD is proposing to expand the use of the Underwriting
Activity Report to permit the Association to provide information to
members (not just Nasdaq market makers) to assist them in complying
with the restricted periods of SEC Rule 101. Thus, the Association
intends to calculate the ADTV for each subject and reference security
that is publicly traded prior to an offering to determine, and to so
advise the managing underwriter, whether the security qualifies under
SEC Rule 101 as a actively-traded security or for the one-day or five-
day restricted periods. The NASD is intending to provide members the
option of using the Underwriting Activity Report to submit the member's
request to stabilize a Nasdaq security, provide notification of the
member's intent to impose a penalty bid or conduct syndicate covering
transactions with respect to Nasdaq securities, and to request an
identifier be associated with a penalty bid in a Nasdaq security. In
addition, a member may use the Underwriting Activity Report to provide
the notification of an offering and of its intention to impose a
penalty bid or conduct syndicate covering transactions with respect to
OTCBB securities.
The NASD is proposing to amend the filing requirements of the
Corporate Financing Rule in Rule 2710 to add new subparagraph (b)(11)
that would require that a member acting as a manager (or in a similar
capacity) of a distribution of securities subject to SEC Rule 101
submit a request to the Corporate Financing Department for an
Underwriting Activity Report. If no member is acting as managing
underwriter, each member that is a distribution participant or an
affiliated purchaser is required to submit the request unless another
member has assumed responsibility for compliance with the requirement.
The request must be submitted with respect to any security
considered a subject or reference security under SEC Rule 101 that is
publicly traded. Thus, the requirement to request an Underwriting
Activity Report applies to follow-on or secondary distributions of a
publicly traded security (i.e., the publicly traded security is the
subject security under SEC Rule 101) and to publicly traded securities
that are reference securities in a distribution subject to SEC Rule
101. The latter situation would arise where a private placement is
proposed of a security for which a publicly traded security is a
reference security. In this case, distribution participants and
affiliated purchasers would be subject to compliance with SEC Rule 101
with respect to the publicly traded security. In addition, it is
important to note, that the requirement to request an Underwriting
Activity Report applies to every offering regardless of whether the
subject or reference security is listed on Nasdaq, quoted in the OTCBB,
traded in the non-Nasdaq over-the-counter market, or listed on a stock
exchange. Finally, the requirement to submit a request for an
Underwriting Activity Report applies regardless of the availability of
an exemption from filing of a public offering in subparagraph (b)(7) of
the Corporate Financing Rule in Rule 2710.
Proposed subparagraph (b)(11) of Rule 2710 states that the purpose
of the request for the Underwriting Activity Report is to facilitate
compliance with SEC Rules 101, 103, and 104 and other distribution-
related rules of the Association. Such other rules include the Free-
Riding and Withholding Interpretation in IM-2110-1 and the directed
commissions provision of Rule 2740. The proposed provision requires
that the request be submitted at the time a registration statement or
similar offering document is filed with the Department, the SEC, or
other regulatory agency. If no offering document is required to be
filed with a regulatory agency, the request must be submitted at least
two business days prior to the commencement of the restricted period
under SEC Rule 101.
[[Page 11244]]
Transmission of Regulatory Notices Under Regulation M
NASD Regulation is proposing to standardize the information content
of notices required to be submitted under SEC Rules 101, 103, and 104,
i.e., notification of withdrawal of quotations, identification of
quotations as those of a passive market maker, request for entry of a
stabilizing bid, and notification of penalty bids and syndicate
covering transactions. The individual notices are required to be
submitted to Nasdaq Market Operations or the Corporate Financing
Department, as applicable, as an attachment to the Underwriting
Activity Report issued by the Corporate Financing Department and will
consist of two additional notification forms, the Regulation M
Restricted Period Commencement Notification form and the Regulation M
Trading Notification form. Moreover, the Report will be able to be
requested by the submission of a Request for Underwriting Activity
Report form.
In an effort to provide greater efficiency to syndicate managers
and other distribution participants, the NASD has engaged CommScan,
Inc. (``CommScan''), a New York based company that owns and operates an
electronic communications system that currently connects the syndicate
departments of approximately 450 subscriber firms, to establish an
electronic system for transmission of the Underwriting Activity Report
between the regulatory organizations and broker/dealers. The NASD
previously analyzed CommScan's system and engaged CommScan to develop a
software application known as NASDesk/Compliance Desk, that facilitates
electronic communication between lead managers and all syndicate
members and the NASD's Corporate Financing Department prior to and
during a public offering of securities \3\ for the purpose of
compliance with the Free-Riding and Withholding Interpretation under
IM-2110-1.\4\ The NASD is proposing to expand the use of NASDesk/
Compliance Desk to provide electronic communications and database
capability with respect to compliance with NASD Rules that implement
SEC Regulation M and to add a link to Nasdaq Market Operations.
NASDesk/Compliance Desk permits the NASD to communicate with members
through a preexisting electronic communication system known as SynWire.
As a result, the electronic communications transmitted through this
system are generally referred to as wires. When the NASD transmits a
wire to a member firm, the member is able to download the wire into a
pre-formatted database known as SynDesk. Similar to the procedures for
the Free-Riding and Withholding Interpretation, NASDesk/Compliance Desk
will provide members with pre-formatted wire templates that permit the
member firm to fill in data fields with pertinent distribution-related
compliance information required by the NASD Rules related to Regulation
M. Once the wire templates are completed with the information required
by the proposed rule change, the communication protocol designed into
NASDesk/Compliance Desk will permit the member firm to access the
SynWire transmission system and send the information directly to the
Corporate Financing Department and Nasdaq Market Operations.
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\3\ CommScan's data system provides the NASD with information on
all offerings filed with the Commission.
\4\ See Notice to Members 96-18 (March 1996) for a more complete
discussion of the operation of CommScan and SynWire.
---------------------------------------------------------------------------
Thus, the notifications described below that are intended to
provide compliance with NASD Rules and SEC Rules 101, 103, and 104 will
be able to be electronically transmitted to the NASD and will provide
real-time notice and audit trail information to the NASD and to broker/
dealers. Initially, at the advent of this program, if a member is not a
NASDesk/Compliance Desk subscriber, it may submit the information by
fax to CommScan, Inc., which will manually input the information into
the notification form and transmit it to the NASD. Moreover, until the
NASDesk/Compliance Desk system for Regulation M compliance is
implemented, members will provide the required notifications by faxing,
directly to Nasdaq Market Operations or Corporation Finance, the
notification forms provided by the Association in hard copy.
The Regulation M Restricted Period Commencement Notification form
is required to be filed with Nasdaq Market Operations by the managing
underwriter with respect to a Nasdaq security in order to request an
excused withdrawal on behalf of the distribution participants and
affiliated purchasers and whether a distribution participant proposes,
instead, to engage in passive market making, in order to comply with
the member's requirements under Rule 4619(d)(1). In addition, the
Notification is required to be filed with Nasdaq Market Operations by
members participating in an offering of an OTCBB security under Rule
6540 in order to provide the intended date and time of the pricing of
the offering. (This form is intended to replace the Passive Market
Making Activity Report currently used by the Corporate Financing
Department.)
The Regulation M Trading Notification form is required to be filed
with the Corporate Financing Department under Rule 4623 and Rule 6540
by a member to provide advice on penalty bids and syndicate short
covering transactions for Nasdaq and OTCBB securities. In addition, the
form is to be used for a request for the entry of a stabilizing bid or
an identifier for a penalty bid on Nasdaq security that is directed to
Nasdaq Market Operations. In addition, this form will be provided to
the managing underwriter of a distribution of securities listed on a
national securities exchange when a request for an Underwriting
Activity Report is received and is required to be submitted to the
Corporate Financing Department with the time and date of the pricing
and the pricing amount in order to permit the NASD to carry out its
surveillance obligations with respect to such offerings.
In addition, a Request of the Underwriting Activity Report form can
be submitted through CommScan by the underwriting manager of an
offering not otherwise subject to the filing requirements of the
Corporate Financing Rule in order to obtain the Underwriting Activity
Report from the Corporate Financing Department. The Regulation M
Restricted Period Commencement Notification form or the Regulation M
Trading Notification form is required to be attached to the
Underwriting Activity Report received by the member when the applicable
notification is submitted to Nasdaq Market Operations or the Corporate
Financing Department.
The fees to be charged by CommScan for each wire (i.e., each
notification or request) sent over their system will be assessed a
typical cost of $15 or $20 per wire, and could be less or more
depending on the amount of information contained in the wire. The
NASDesk/Compliance Desk charges are treated by the managing underwriter
as expenses of the underwriting and are charged back to the syndicate.
(b) The NASD believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(2) of the Act \5\ in that the
proposed rule change will enforce and facilitate compliance by NASD
members with the requirements of SEC Regulation M. In addition, the
proposed rule change is consistent with the provisions of Section
15A(b)(6) of the Act in that the proposed rule change to amend the
Nasdaq and OTCBB Rules and establish
[[Page 11245]]
a requirement under the Corporate Financing Rule for members to obtain
an Underwriting Activity Report will prevent fraudulent and
manipulative acts and practices, promote just and equitable principals
of trade, and protect investors and the public interest.
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\5\ 15 U.S.C. Sec. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The 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, as amended.
(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. 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, NW., 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 April 1, 1997.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds that the NASD's proposal is consistent with
the Act and the rules and regulations thereunder applicable to a
registered national securities association. Specifically, the
provisions of Section 15A(b)(2) of the Act which requires that an
association enforce compliance with Securities Exchange Act Rules in
addition to the rules of the association. The Commission believes that
the NASD proposal will enforce and facilitate compliance by NASD
members with the requirements of Regulation M, SEC Rules 100 through
105.
In addition, the Commission finds that the NASD's proposal is
consistent with the provisions of Section 15A(b)(6) of the Act which
requires, in part, that an association have rules that are designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, and in general, to protect
investors. The Commission believes that the NASD's proposal is
consistent with Section 15A(b)(6) of that Act in that the amendments to
the Nasdaq and OTCBB Rules, in addition to the establishment of a
requirement for members to an Underwriting Activity Report, provide a
regulatory framework that will assist members in complying with the
obligations under Regulation M. The Commission, therefore, finds good
cause for approving the proposed rule change prior to the thirtieth day
after the date of publication of notice of filing thereof in the
Federal Register.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change and Amendment No. 1 (SR-NASD-97-
15) be and hereby is approved. The proposed rule change is effective
March 4, 1997, with the exception of the provisions Rule 4623 and Rule
5460 that implement the notification requirements adopted under
Regulation M with respect to penalty bids and syndicate covering
transactions that will become effective on the date that the
notification requirements under SEC Rule 104 become effective.
\6\ 17 U.S.C. Sec. 78s(B)(2) (1988).
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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) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-5979 Filed 3-10-97; 8:45 am]
BILLING CODE 8010-01-M
