[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33442-33444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15811]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35875; File No. SR-NASD-95-27]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc. Relating to
the Adjustment of Open Orders
June 21, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 33443]] (``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given
that on June 19, 1995,\1\ 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.
\1\ The NASD originally submitted the proposed rule change on
May 23, 1995. On June 19, 1995, the NASD submitted Amendment No. 1
which amendment made technical changes to the proposal.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to amend Article III, Section 46 of the Rules
of Fair Practice to provide that where the issuer of a security
declares a cash dividend or other distribution of less than one cent
($.01) members will not adjust open orders for such securities. Below
is the text of the proposed rule change. Proposed new language is
italics.
Rules of Fair Practice
Article III
Adjustment of Open Orders
Sec. 46.
(a) A member holding an open order from a customer or another
broker/dealer shall, prior to executing or permitting the order to be
executed, reduce, increase or adjust the price and/or number of shares
of such order by an amount equal to the dividend, payment or
distribution, on the day that the security is quoted ex-dividend, ex-
rights, ex-distribution or ex-interest, except where a cash dividend or
distribution is less than one cent ($.01), as follows:
(i) In the case of a cash dividend or distribution, the price of
the order shall be reduced by subtracting the dollar amount of the
dividend or distribution from the price of the order and rounding the
result to the next lower \1/8\ of a dollar;
(ii) In the case of a stock dividend or split, the price of the
order shall be reduced by rounding the dollar value of the stock
dividend or split to the next higher \1/8\ of a dollar and subtracting
that amount from the price of the order; provided, further, that the
size of the order shall be increased by (1) multiplying the size of the
original order by the numerator of the ratio of the dividend or split,
(2) dividing the result by the denominator of the ratio of the dividend
or split, and (3) rounding the result to the next lower round lot; and
(ii) In the case of a dividend payable in either cash or securities
at the option of the stockholder, the price of the order shall be
reduced by the dollar value of the cash or securities, whichever is
greater, according to the formulas in (a)(i) or (a)(ii), above;
provided, that if the stockholder opts for securities, the size of the
order shall be increased pursuant to the formula in (a)(ii), above.
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
Article III, Section 46 of the Rules of Fair Practice requires
members holding open orders to proportionally reprice such orders
according to the value of the dividend or distribution on the date the
security is quoted ex-dividend, ex-rights, ex-distribution or ex-
interest. Shortly after the rule became effective in September 1994,
several member firms questioned the necessity of complying with Section
46 if a dividend or other distribution was less than one cent ($.01).
The NASD has examined the matter and determined that where
dividends of less than one cent ($.01) are involved inefficiencies and
costs associated with complying with Section 46 may exceed any benefit
to be gained. The impact of such a small dividend on the price of the
security is probably de minimis in nature and the likelihood that
unadjusted orders will result in bad executions for customers is low.
Accordingly, the NASD is proposing to amend Section 46 to state that
where a dividend or other distribution is less than one cent ($.01) the
price of the order shall not be adjusted.
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act \2\ in that the
elimination of the costs and inefficiencies associated with mandating
the repricing of orders where the dividend or distribution is less than
one cent ($.01) will refine the functioning of Section 46 to the
benefit of the market and investors.
\2\ 15 U.S.C. 78o-3
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(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, 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 (iii) 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, N.W., Washington, D.C. 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 [[Page 33444]] submissions should refer to File Number SR-
NASD-95-27 and should be submitted by July 19, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to the delegated authority.\3\
\3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-15811 Filed 6-27-95; 8:45 am]
BILLING CODE 8010-01-M
