[Federal Register Volume 59, Number 118 (Tuesday, June 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15040]
[[Page Unknown]]
[Federal Register: June 21, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34217; File No. SR-NASD-94-31]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by The National Association of Securities Dealers, Inc. to
Eliminate Access Market Maker Procedures From Schedule D to the NASD
By-Laws
June 15, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(b)(1) (``Act''), notice is hereby given that on May
25, 1994, the National Association of Securities Dealers, Inc.
(``NASD'' or ``Association'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') 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
Pursuant to Section 19(b)(1) of the Act, the NASD hereby files a
proposed rule change to delete Part IX of Schedule D to the NASD By-
Laws which contains procedures for market maker access to The Nasdaq
Stock market (``Nasdaq'') by certain broker-dealers that do not receive
Level 3 Nasdaq Workstation service (``Level 3 service''). Below is the
text of the proposed rule change; deleted language is bracketed.
[Part IX]
[Procedures for Access to the NASDAQ System by Non-NASDAQ Market
Makers]
[These procedures permit a registered NASDAQ market maker, upon
approval by the Corporation, to enter quotations into the NASDAQ System
on behalf of another market maker who does not subscribe to Level 3
NASDAQ Service.]
[A. Definitions]
[1. An ``access market maker'' is a member of the Association who
does not subscribe to Level 3 NASDAQ service, but is or intends to be a
market maker in a security for which quotations are displayed on the
NASDAQ System.]
[2. An ``entering subscriber'' is a registered NASDAQ market maker
who has entered into an arrangement with an access market maker to
enter quotations in the NASDAQ System on behalf of such access market
maker.]
[B. The entering subscriber may enter quotations in the NASDAQ
System on behalf of an access market maker only upon submission and
approval by the Association of the following:]
[1. A fully executed copy of the access arrangement agreement which
shall contain all agreements and conditions concerning the access
arrangement.]
[2. An application for registration as an access market maker for
each security.]
[C. Access market makers and entering subscribers shall be limited
to one access arrangement in each security.]
[D. Quotations displayed by the entering subscriber on behalf of
the access market maker shall be accompanied by the entering
subscriber's market maker identifier and a special symbol designating
that an access arrangement exists. The identity of the access market
maker must be made available by the entering subscriber upon request.]
[E. All transactions resulting from the display of quotations in
the NASDAQ System by the entering subscriber shall be executed by the
entering subscriber and he shall be responsible for the transaction.
Both the entering subscriber and the access market maker shall be
subject to and be responsible for compliance with the provisions of
Schedule D.]
[F. Access market makers shall pay to the Corporation an access fee
of $70 per month for the first security and $52.50 per month for each
additional security which is subject to an approved access
arrangement.]
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
The purpose of the proposed rule change is to eliminate an outmoded
procedure by which certain NASD member firms could participate as
market makers in Nasdaq without procuring the necessary computer
equipment and subscribing to Level 3 service. Currently, Part IX of
Schedule D permits a member firm that does not receive Level 3 service
to qualify as an ``access market maker'' by entering into a suitable
agreement with another firm that is a Level 3 subscriber (``entering
subscriber''). After the NASD's approval of such an arrangement, the
entering subscriber can input two-sided quotations reflecting the
dealer interest of the access market maker. These quotations would be
displayed with the entering subscriber's market maker identifier; a
special indicator would also be displayed to inform other dealers that
an access arrangement existed with respect to the quotations displayed
in the subject security. In this circumstance, the entering subscriber
assumed responsibility for executing trades at the displayed bid and
offer. The entering subscriber and access market maker were jointly
responsible for compliance with the various market maker obligations
set forth in Part V of Schedule D to the NASD By-Laws.
In conjunction with defining the system requirements for Nasdaq's
technology migration, the Nasdaq Stock Market, Inc. (``NSMI'') staff
analyzed the cost and feasibility of providing functionality for access
market makers in the new environment. The staff found that changes in
market making practices in recent years had dramatically reduced the
use of the access market maker arrangement. The staff also found that
no NASD member was currently utilizing this access feature. Given the
absence of interested firms and the lack of any regulatory purpose in
preserving the access market maker feature, it was determined that this
feature did not warrant the expenditure of resources necessary to
provide this functionality in the new environment. The NASD also
believes that it is preferable to limit market maker participation to
Level 3 service subscribers to ensure integrity of its audit trail
file, including the ability to fix responsibility at the source for
every quotation entry and reported transaction.
The NASD believes that this proposed rule is consistent with
Sections 15A(b)(6) and 15A(b)(11) of the Act. Section 15A(b)(6)
requires that the Association's rules 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, and processing information
with respect to, and facilitating transactions in securities. Section
15A(b)(11) authorizes the Association to adopt rules governing the form
and content of quotations disseminated by member firms for the purposes
of providing fair and informative quotations, preventing fictitious or
misleading quotations, and promoting orderly procedures for collecting
and distributing quotation information.
The NASD submits that elimination of the access market maker
feature is fully consistent with the foregoing statutory provisions.
Market makers in Nasdaq securities now will be required to subscribe to
Level III service in order to enter quotations into the Nasdaq system.
This requirements will eliminate an extra step in the quotation process
by which an ``entering subscriber'' may act as an intermediary.
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, 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. Date of Effectiveness of the Proposed Rule Change 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 reasons 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 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 file number SR-NASD-94-31 and
should be submitted by July 12, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\1\
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\1\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15040 Filed 6-20-94; 8:45 am]
BILLING CODE 8010-01-M
