[Federal Register Volume 62, Number 124 (Friday, June 27, 1997)]
[Notices]
[Pages 34724-34725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16916]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38757; File No. SR-NASD-97-31]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the National Association of Securities Dealers, Inc.,
Relating to an Amendment to the NASD's Rule Governing Market Maker
Registration
June 23, 1997.
On April 24, 1997, the Nasdaq Stock Market, Inc. (``Nasdaq''), a
wholly owned subsidiary of the National Association of Securities
Dealers, Inc. (``NASD'' or ``Association''), filed with the Securities
and Exchange Commission(``Commission'' or ``SEC'') a proposed rule
change pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act'')\1\ and Rule 19b-4 thereunder.\2\ The rule change amends
NASD Rule 4611(d) to permit managers and co-managers of an underwriting
syndicate participating in a secondary offering of a security listed
and traded on Nasdaq to register as a market maker in such issue on a
same-day basis on the day of the secondary offering. Notice of the
proposed rule change, together with the substance of the proposal, was
provided by issuance of a Commission release and by publication in the
Federal Register.\3\ No comment letters were received. The Commission
is approving the proposed rule change.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 38610 (May 12, 1997), 62
FR 27094 (May 16, 1997).
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I. Description of Rule Change
The NASD and Nasdaq evaluated the current rules governing members
registering as Nasdaq market makers by entering a registration request
``on-line'' via a Nasdaq terminal and determined, as explained below,
to amend NASD rule 4611(d). As amended, Rule 4611(d) would permit
managers and co-managers of an underwriting syndicate participating in
a secondary offering of a security listed and traded on Nasdaq to
register as a market maker in such issue on a same-day basis on the day
of the secondary offering.\4\
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\4\ See SR-NASD-97-30, Securities Exchange Act Release No. 38756
(June 23, 1997), amending NASD Rule 4612(g) to permit a member who
is a manager or co-manager of a secondary offering to be eligible to
become a Primary Nasdaq Market Maker (``PMM'') in that issue prior
to the effective date of the secondary offering regardless of
whether the member was a registered market maker in the stock before
the announcement of the secondary offering.
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Presently, for issues that have been trading on Nasdaq for more
than five days, ``on-line'' registrations pursuant to Rule 4611(d) are
not effective until the day after the registration request is made
(``One-Day Delay Rule''). This one-day delay for market maker
registration in non-initial public offerings is designed to minimize
the potential for ``fair weather'' market making. Specifically, the
one-day delay helps to assure that members registering as market makers
are making a legitimate commitment of their capital to the issue for
the betterment of the market, not just to capture short-term trading
profits during brief periods of favorable market conditions.
Nasdaq continues to believe that the one-day delay in market maker
registration serves to minimize the potential for ``fair weather''
market makers. There have been instances, however, where managers and
co-managers of an underwriting syndicate for a secondary offering have
been precluded from trading the issue on the day of the secondary
offering because they did not submit a market maker registration
request on the day before the offering. The NASD is aware of numerous
instances in which this has occurred after an issuer has changed its
investment bankers. When this happens, the issuer's new investment
banker often erects an informational barrier between its employees who
are working on the secondary offering and its employees who make
markets in Nasdaq stocks. This is done to reduce the chances that
insider trading, or other misuse of the information received from the
issues, will occur. Consequently, the firm's employees who make markets
in Nasdaq stocks, and who are responsible for completing the on-line
registration, normally do not learn of the secondary offering until
just prior to the announcement or effective date of the secondary
offering.
Accordingly, because of the inherent commitment of managers and co-
managers of underwriting syndicates to their issues, the need for these
members to make a market in the stock to manage their risk, and the
additional liquidity and pricing efficiency that these market makers
can provide, Nasdaq believes it would be appropriate to amend NASD Rule
4611(d) to permit managers and co-managers of a secondary offering to
register in that issue on a same-day basis on the day of the secondary
offering.
II. Discussion
The Commission finds the proposed rule change is consistent with
Section 15A(b)(6) of the Act.\5\ 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. Specifically, by permitting
managers and co-managers of secondary offerings to become registered
market makers in such issues on the day of the secondary offering, the
Commission finds the
[[Page 34725]]
proposal will enhance the liquidity and stability of the market,
facilitate greater market maker competition, and promote the capital
formation process by enabling managers and co-managers of secondary
offerings to better manage their risks associated with the offering. At
the same time, given the inherent commitment of managers and co-
managers to the stocks they underwrite, the Commission finds that
permitting managers and co-managers of secondary offerings to register
in such issues on a same-day basis on the day of the offering will not
compromise the regulatory purposes underlying the ``One-Day Delay
Rule.''
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\5\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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III. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NASD-97-31) be, and hereby is,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-16916 Filed 6-26-97; 8:45 am]
BILLING CODE 8010-01-M
