[Federal Register Volume 59, Number 132 (Tuesday, July 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16823]
[[Page Unknown]]
[Federal Register: July 12, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34321; File No. SR-NASD-94-36]
Self-Regulatory Organizations; Notice and Immediate Effectiveness
of Proposed Rule Change by National Association of Securities Dealers,
Inc., Relating to Small Order Execution System Tier Size
Classifications
July 6, 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 June 7,
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
The NASD is submitting this filing to effectuate The Nasdaq Stock
Market, Inc.'s (``Nasdaq'') periodic reclassification of Nasdaq
National Market (``NNM'') securities into appropriate tier sizes for
purposes of the maximum order size tiers for Nasdaq's Small Order
Execution System (``SOES'') and the minimum quote size requirements for
Nasdaq market makers in NNM securities. Since the NASD's proposal is an
interpretation of existing NASD rules, there are no language changes.
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 rule change is to effectuate Nasdaq's periodic
reclassification of NNM securities into appropriate tier sizes for
purposes of the maximum order size tiers for SOES and the minimum quote
size requirements for Nasdaq market makers in NNM securities. Nasdaq
reviews the tier level applicable to each security periodically
(approximately every six months) to determine if the trading
characteristics of the issue have changed so as to warrant a tier level
adjustment. Such a review was conducted as of February 28, 1994, using
the following established criteria:\1\
\1\The classification criteria is set forth in footnote 1 to
Section (a)(7) of the SOES Rules and Section 2(a) of Part V of
Schedule D to the NASD By-Laws.
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NNM securities with an average daily non-block volume of 3,000
shares or more a day, a bid price less than or equal to $100, and
three or more market makers are subject to a minimum quotation size
requirement of 1,000 shares and a maximum SOES order size of 500
shares;\2\
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\2\On December 23, 1993, the Commission approved a reduction in
the maximum SOES tier size to 500 shares from 1,000 shares. See
Securities Exchange Act Release No. 33377 (Dec. 23, 1993), 58 FR
69419 (Dec. 30, 1993). Even though the maximum order size for SOES
is now 500 shares, Nasdaq has continued to classify NNM securities
within the 1,000 share tier size because Nasdaq market makers must
continue to display a size of 1,000 shares in their quotations for
these securities, and remain firm for a minimum of 1,000 shares at
their publicized quotations in these securities for orders outside
of SOES.
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NNM securities with an average daily non-block volume of 1,000
shares or more a day, a bid price less than or equal to $150, and
two or more market makers are subject to a minimum quotation size
requirement of 500 shares and a maximum SOES order size of 500
shares; and
NNM securities with an average daily non-block volume of less
than 1,000 shares a day, a bid price less than or equal to $250, and
less than two market makers are subject to a minimum quotation size
requirement of 200 shares and a maximum SOES order size of 200
shares.
Pursuant to the application of this classification criteria, 500
NNM securities will be reclassified effective July 11, 1994. These 500
NNM securities are set out in the NASD's Notice To Members 94-48 (June
1994).
In ranking NNM securities pursuant to the established
classification criteria, Nasdaq followed the changes dictated by the
criteria with two exceptions. First, an issue was not moved more than
one tier size level. For example, if an issue was previously
categorized in the 1,000-share tier size, it would not be permitted to
move to the 200-share tier even if the reclassification criteria showed
that such a move was warranted. In adopting this policy, Nasdaq was
attempting to maintain adequate public investor access to the market
for issues in which the tier size level decreased and minimize market
maker exposure in issues for which the tier size level increased.
Second, for eight securities priced below $1 where the reclassification
called for a reduction in tier size, Nasdaq determined not to recommend
a decline in tier size given the low price of these securities and the
negligible effect on market maker exposure. As a result, five
securities that would have been reduced to a tier size of 200 shares
from 500 shares remained at 500 shares and three securities that would
have been reduced to a tier size of 500 shares from 1,000 shares
remained at 1,000 shares.
The NASD believes that the proposed rule change is consistent with
Sections 15A(b)(6) and 15A(b)(11) of the Act. Section 15A(b)(6)
requires, among other things, that the rules of the NASD be designed to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, and to remove impediments to
and perfect the mechanism of a free and open market. Section 15A(b)(11)
applies to the form and content of quotations. Section 15A(b)(11)
requires that rules relating to quotations must be fair and informative
so as to promote orderly procedures for collecting, distributing and
publishing quotations. The NASD believes that the reassignment of NNM
securities within SOES tier size levels and minimum quotation size
levels will further these ends by providing an efficient mechanism for
small, retail investors to execute their orders on Nasdaq and providing
investors with the assurance that they can effect trades up to a
certain size at the quotations displayed on Nasdaq.
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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The proposed rule change has become effective immediately pursuant
to section 19(b)(3)(A)(i) of the Act and subparagraph (e) of Securities
Exchange Act Rule 19b-4 because the reranking of NNM securities into
appropriate order size tiers and quotation size requirements was done
pursuant to the NASD's stated policy and practice with respect to the
administration and enforcement of two existing NASD rules. Further, in
the SOES Tier Size Order,\3\ the Commission requested that the NASD
provide this information as an interpretation of an existing NASD rule
under section 19(b)(3)(A) of the Act. At any time within 60 days of the
filing of such proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Securities Exchange Act of 1934.
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\3\See Securities Exchange Act Release No. 25791 (June 9, 1988),
53 FR 22594 (June 16, 1988).
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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-94-36 and
should be submitted by August 2, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-16823 Filed 7-11-94; 8:45 am]
BILLING CODE 8010-01-M
