[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8278]
[[Page Unknown]]
[Federal Register: April 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33839; File No. SR-NASD-94-17]
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 June 1,
1994
March 31, 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 March
24, 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 April 1, 1994.\3\
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\1\Securities Exchange Act Release No. 27975 (May 1, 1990), 55
FR 19124 (May 8, 1990).
\2\Certain securities listed on a regional exchange may now be
eligible for OTCBB quotations. Specifically, on January 24, 1994,
the Commission approved an NASD proposal to expand the universe of
securities eligible for quotation in the OTC Bulletin Board to
include securities which:
(1) Are listed on one or more regional stock exchanges; and
(2) Do not meet the requirements for dissemination of
transaction reports through the facilities of the Consolidated Tape
(``non-Tape B securities''). Securities Exchange Act Release No.
33507 (January 24, 1994) (order approving File No. SR-NASD-93-24).
\3\Securities Exchange Act Release No. 33522 (January 26, 1994)
59 FR 4733 (February 1, 1994).
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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 June 1,
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 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 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 February 28, 1993, the Service
reflected the market making positions of 384 NASD member firms
displaying quotations/indications of interest in approximately 4,182
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 the 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.''
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\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'' status for the Service for purposes of certain penny stock
rules that became effective on January 1, 1993. The OTCBB will
retain its QEQS status for the term of the proposed extension.
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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, inter alia, 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 June 1,
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. 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 required 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 4,182 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 a 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 section 2 of Schedule H 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 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 withhheld 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 28, 1994.
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 facilitates price discovery and the
execution of customers' orders at 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 June 1, 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. 94-8278 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M
