[Federal Register Volume 60, Number 106 (Friday, June 2, 1995)]
[Notices]
[Pages 28813-28814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13532]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35774; File No. SR-NASD-95-24]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change Regarding
Depository Eligibility Requirements
May 26, 1995.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 19, 1995, 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 primarily by the NASD. The Commission is publishing this
notice to solicit comments from interested persons.
\1\15 U.S.C. 78s(b)(1) (1988).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD proposes to amend Part II, Section 1(c) of Schedule D to
the NASD By-laws (``By-laws'') to establish depository eligibility
requirements for issuers that desire to have their securities included
in the Nasdaq Stock Market (``Nasdaq'').
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 self-regulatory organization has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.\2\
\2\The Commission has modified the language in these sections.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Under the proposed rule change, the NASD will adopt a uniform
depository eligibility rule for issuers that desire to have their
securities eligible for inclusion in Nasdaq. The uniform rule has been
developed by the Legal and Regulatory Subgroup of the U.S. Working
Committee of the Group of Thirty in coordination with each of the
national securities exchanges and the NASD. It is anticipated that each
national securities exchange in addition to the NASD will file rule
changes proposing adoption of depository eligibility standards
substantially similar to the NASD's proposed rule\3\ and will seek to
make such changes effective contemporaneously with the effective date
of the transition from a five-day (``T+5'') to a three-day (``T+3'')
settlement cycle. The transition is set to occur June 7, 1995.\4\
\3\In addition to the listing requirement contained in Schedule
D to the By-laws, the NASD is proposing to amend the definition of
``depository eligibility'' contained in its book-entry settlement
rule contained in Section 11 of the NASD Uniform Practice Code
consistent with the amendment to Schedule D. Section 11 must be
amended because the NASD's depository settlement rule applies to all
NASD members regardless of where the securities are listed. In
comparison, the depository settlement rule of the exchanges only
applies to transactions in the securities listed on the exchange.
\4\Securities Exchange Act Release Nos. 33023 (October 6, 1993),
58 FR 52891 (adoption of Rule 15c6-1) and 34952 (November 9, 1994),
59 FR 59137 (change of effective date of Rule 15c6-1 from June 1,
1995 to June 7, 1995).
The proposed rule change will require that before any issue of
securities of a domestic issuer (excluding securities of a Canadian
issuer) is eligible for inclusion in Nasdaq, such issue of securities
must have a CUSIP number that is included in the file of eligible
issues maintained by a securities depository registered as a clearing
agency under Section 17A of the Securities Exchange Act of 1934.\5\
\5\U.S.C 78q-1 (1988).
---------------------------------------------------------------------------
While the NASD believes that depository eligibility should be
universal and that few exemptions be granted, the proposed rule change
will not apply to a security if the terms of such security cannot be
reasonably modified to meet the criteria for depository eligibility at
all securities depositories. The exemption authority is intended to
address the situation where a Nasdaq company issues short-term warrants
and other similar short-term securities that are not generally
depository eligible. The NASD does not believe that the issuers of such
securities should be required to obtain individual exceptions from the
proposed new listing requirement in order to permit those securities to
be listed during their short life span. However, an exemption is not
intended to be available in instances where the issuer could meet the
depository eligibility requirements but chooses not to do so or has not
left enough time prior to the offering to do so.
The proposed rule change sets forth additional requirements that
must be met before a security will be deemed to be ``depository
eligible,'' as such term is used in Part II, Section 1(c) of Schedule D
to the By-laws and Section 11 of the NASD Uniform Practice Code
(``UPC'').\6\ The proposed rule specifies different requirements for
depository eligibility depending upon whether a new issue is
distributed by an underwriting syndicate before or after the date a
securities depository system is available for monitoring repurchases of
the [[Page 28814]] distributed shares by syndicate members (``flipping
tracking system'').
\6\Pursuant to section 11 of the UPC, trades by a member in
depository eligible securities generally must be settled by book-
entry through a securities depository.
---------------------------------------------------------------------------
Currently, a flipping tracking system is being developed that will
include a securities depository service that (i) can be activated upon
the request of the managing underwriter for a period of time that the
managing underwriter specifies, (ii) in certain circumstances, will
require the delivering participant to provide to the depository
information sufficient to identify the seller of such shares as a
precondition to the processing of book-entry delivery instructions for
distributed shares, and (iii) will report to the managing underwriter
the identity of any other syndicate member or selling group member
whose customer(s) sold distributed shares (but will not report to the
managing underwriter the identity of such customer[s]), and in certain
circumstances, will report to such syndicate member or selling group
member the identity of such customer(s). Prior to the availability of a
flipping tracking system, the managing underwriter may delay the date a
security is deemed ``depository eligible'' for up to three months after
trading has commenced in the security. After the availability of a
flipping tracking system, a new issue will be deemed to be depository
eligible upon commencement of trading on Nasdaq.
The NASD believes that the proposed rule change is consistent with
the provisions of section 15A(b)(6) of the Act\7\ in that the proposed
rule change is designed to encourage book-entry settlement of
transactions by requiring that securities included in Nasdaq and listed
on the national securities exchanges be depository eligible thereby
reducing the risks to the financial markets and investors associated
with physical delivery, clearance, and settlement of securities
transactions.
\7\15 U.S.C. 78f(b)(5) (1988).
---------------------------------------------------------------------------
(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.
(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
Within thirty-five 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 ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the NASD 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.
The NASD has requested accelerated approval of the proposed rule
change in order that the rule can become effective on June 7, 1995.\8\
\8\Supra note 4 and accompanying text.
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submissions, 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, 450 Fifth Street, NW., Washington,
DC 20549. Copies of such filings will also be available for inspection
and copying at the principal office of the NASD. All submissions should
refer to the file number SR-NASD-95-24 and should be submitted by June
23, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-13532 Filed 6-1-95; 8:45 am]
BILLING CODE 8010-01-M
