[Federal Register Volume 62, Number 60 (Friday, March 28, 1997)]
[Notices]
[Pages 14953-14954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7873]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38429; File No. SR-NASD-97-20]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to the Elimination of the Prohibitions Against NASD Members Accepting
Stop Orders and Stop Limit Orders in Exchange-Listed Securities
March 21, 1997.
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
10, 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 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.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Currently, paragraph (i)(1) of NASD Rule 6440, ``Trading
Practices,'' prohibits NASD members from accepting stop orders\1\ in
eligible securities.\2\ NASD Rule 6440(i)(2) currently allows members
to accept stop limit orders\3\ in eligible securities where the stop
price and the limit price are the same. The NASD proposes to amend NASD
Rule 6440(i) to: (1) Allow members to accept stop orders in eligible
securities; and (2) eliminate the requirement that the stop price must
equal the limit price in order for a member to accept a stop limit
order in an eligible security. Below is the text of the proposed rule
change. Additions are italicized; deletions are bracketed.
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\1\ A buy stop order is an order to buy which becomes a market
order when a transaction takes place at or above the stop price.
Conversely, a sell stop order is an order to sell which becomes a
market order when a transaction takes place at or below the stop
price.
\2\ Under NASD Rule 6410(d), ``eligible securities'' means all
common stocks, preferred stocks, long-term warrants, and rights
entitling the holder to acquire an eligible security, listed or
admitted to unlisted trading privileges on the American Stock
Exchange (``Amex'') or the New York Stock Exchange (``NYSE''), and
securities listed on the regional stocks exchanges which
substantially meet the original listing requirements of the Amex or
the NYSE.
\3\ A buy stock limit order is an order to buy that becomes a
limit order at the limit price when a transaction occurs at the stop
price. Conversely, a sell stop limit order is an order to sell that
becomes a limit order at the limit price when a transaction occurs
at the stop price.
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NASD Rule 6440
(a)-(h). No change.
(i) (1) A [No] member [shall] may, but is not obligated to, accept
a stop order in an eligible security.
(A) A buy stop order is an order to buy which becomes a market
order when a transaction takes place at or above the stop price.
(B) A sell stop order is an order to sell which becomes a market
order when a transaction takes place at or below the stop price.
(2) A member[s] may, but is not obligated to, accept stop limit
orders in eligible securities [where the stop price and the limit price
are the same]. When transactions occur at the stop price, the order to
buy or sell becomes a limit order at the stop price.
(j) 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, 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 changes. 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
The NASD proposes to amend NASD Rule 6440 to eliminate current
restrictions on the ability of NASD members to accept stop orders and
certain stop limit orders in eligible securities. Currently, NASD Rule
6440(i)(1) provides that no NASD member shall accept a stop order in an
eligible security; NASD Rule 6440(i)(2) provides that no NASD member
shall accept a stop limit order in an eligible security unless the stop
price and the limit price are the same. Under the proposed rule change,
NASD members will be allowed to accept stop orders in eligible
securities and stop limit orders where the stop price and the limit
price are not the same. The proposal also clarifies that NASD members
are not obligated to accept stop orders or stop limit orders.
The NASD believes there is no economic or regulatory reason to
preclude or restrict investors from placing stop orders or stop limit
orders in eligible securities. In this connection, the NASD notes that
there are no comparable restrictions on the placement of these types of
orders in securities listed on The Nasdaq Stock Market (``Nasdaq'').
Just as investors in Nasdaq securities are able to receive the
protections and benefits that result from placing stop orders and stop
limit orders, the NASD believes that investors in the third market
should be able to receive the same benefits and protections from
placing these types of orders. In particular, through the placement of
stop orders and stop limit orders, the NASD believes that investors
will be better able to implement their investment strategies and manage
their portfolios. Accordingly, the NASD believes its proposal will
enhance the protection of investors and the integrity of the market.
[[Page 14954]]
The NASD believes that the proposed rule change is consistent with
Section 15A(b)(6) of the Act. Among other things, Section 15A(b)(6)
requires that the rules of a national securities association be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles 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. In
particular, as noted above, because the NASD believes the proposed rule
change will better enable investors to implement their investment
strategies and manage the risks associated with their portfolios, the
NASD believes the proposal will enhance the protection of investors.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD believes that the proposed 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 Statements on Comments on the
Proposed Rule Changes Received From Members, Participants or Others
Comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reason for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve such proposed rule change, or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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, 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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to file
number SR-NASD-97-20 and should be submitted by April 18, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7873 Filed 3-27-97; 8:45 am]
BILLING CODE 8010-01-M
