[Federal Register Volume 60, Number 184 (Friday, September 22, 1995)]
[Notices]
[Pages 49307-49308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23559]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36245; File No. SR-NASD-95-38]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by National Association of
Securities Dealers, Inc. Relating to the Effective Date of an Amendment
to the Prompt Receipt and Delivery of Securities Interpretation
Concerning Affirmative Determinations Made in Connection with Short
Sales
September 18, 1995.
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
September 6, 1995,\1\ 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.
\1\The proposed rule change was initially submitted on August
31, 1995, but was amended prior to publication in the Federal
Register. The amendment was intended to clarify the requirements
imposed on NASD members with respect to the annotation requirement.
The amendment is available for copying in the Commission's Public
Reference Room.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The NASD is proposing to change the effective date of a rule change
previously approved by the Commission regarding an amendment to the
NASD's Prompt Receipt and Delivery of Securities (``Interpretation'')
issued by the NASD Board of Governors under Article III, Section 1 of
the NASD Rules of Fair Practice that deals with affirmative
determinations made by members in connection with short sales.\2\
Specifically, the NASD proposes to delay, until February 20, 1996, the
effectiveness of the portion of the rule change that prohibits NASD
members from using blanket or standing assurances that securities are
available for borrowing to satisfy their affirmative determination
requirements. An affirmative determination as to stock availability and
annotation of that affirmative determination must still be made for
each and every transaction, however. Thus, a firm that relies on a fax
sheet or other standing assurance as to stock availability must
annotate such reliance for each short sale transaction.
\2\NASD Manual. Rules of Fair Practice, Article III, Sec. 1,
(CCH) para.2151.04.
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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
On September 12, 1994, the SEC approved an NASD rule change (SR-
NASD-94-32) that amended the Interpretation.\3\ Specifically, the new
rule requires members to annotate, on the trade ticket or on some other
record maintained for that purpose by the member firm, the following
information:
\3\See Securities and Exchange Act Release No. 34653 (September
12, 1994), 59 FR 47965 (September 19, 1994).
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1. If a customer assures delivery, the member must annotate that
conversation noting the present location of the securities; whether the
securities are in good deliverable form; and whether they will be
delivered to the firm within time for settlement; or
2. If the member locates the stock, the member must annotate the
identity of the individual and firm contacted who offered assurance
that the shares would be delivered or were available for borrowing by
settlement date; and the number of shares needed to cover the short
sale.
The amendment also provided that the manner by which a member or
person associated with a member annotates compliance with this
``affirmative determination'' requirement (e.g., marking the order
ticket, recording inquiries in a log, etc.) is left for each individual
firm to decide. In addition, the amendment clarified that an
affirmative determination and annotation of that affirmative
determination must be made for each and every transaction since a
``blanket'' or standing assurance that securities are available for
borrowing is not acceptable to satisfy the affirmative determination
requirement (``standing assurance provision''). Thus, by requiring
firms to annotate each and every affirmative determination, the
amendment made clear the NASD's policy that firms cannot rely on daily
fax sheets of ``borrowable stocks'' to satisfy their affirmative
determination requirements under the Interpretation.
In NASD Notice to Members 94-80, the NASD announced that the
effective date of the amendments to the Interpretation would be
November 30, 1994. Based upon feedback from a broad spectrum of NASD
members that compliance with the amended Interpretation would not be
possible by November 30, 1994, due to a variety of operational
adjustments that needed to be made, the NASD decided to postpone the
effective date of the amendments to the Interpretation until January 9,
1995,
[[Page 49308]]
to give member firms sufficient time to prepare for the rule change.\4\
\4\See NASD Special Notice, dated November 29, 1994.
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In addition, in light of the NASD's concern that the prohibition
against the use of daily fax sheets and other ``blanket'' or standing
assurances may have created an unnecessarily burdensome regulatory
requirement of NASD members, the NASD decided to postpone the effective
date of the standing assurance provision until August 1, 1995, to give
the NASD the opportunity to determine whether to amend or delete the
rule or let it go into effect as approved by the SEC.\5\ The effective
date for the standing assurance provision was extended once more, until
September 5, 1995.\6\ Because the NASD is still in the process of
evaluating comments raised by market participants concerning the
provision, the NASD is proposing to further postpone the effective date
of the standing assurance provision until February 20, 1996.\7\
\5\See Securities Exchange Act Release No. 35207 (January 10,
1995), 60 FR 3445 (January 17, 1995).
\6\See NASD Special Notice, dated July 28, 1995.
\7\Of course, if the standing assurance provision were to be
modified or deleted prior to February 20, 1996, pursuant to a rule
proposal approved by the Commission, the provision would not go into
effect in its current form on February 20, 1996.
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The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act, which requires that the
rules of the NASD, among other things, remove impediments to and
perfect the mechanism of a free and open market and to protect
investors and the public interest, in that delaying the effective date
of the standing assurance provision until February 20, 1996, will
assist members in complying with the new rule. Similarly, the NASD
believes that delaying the effective date of the standing assurance
provision until February 20, 1996, will give the NASD and its members
ample time to consider whether to retain this provision or modify it to
better reflect industry practice, thereby avoiding member firm
confusion and ensuring that NASD rules are crafted to achieve their
regulatory goals in a manner that is the least burdensome for the
membership.
B. Self-Regulatory Organization's Statement on Burden on Competing
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 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 foregoing rule change has become effective upon filing pursuant
to Section 19(b)(3)(A)(i) of the Act and paragraph (e) of Rule 19b-4
promulgated thereunder in that it changes the effective date of a new
provision of the NASD's rules and is therefore a policy relating to the
administration or enforcement (i.e., the effective date) of a new rule
of the Association.
At any time within 60 days of the filing of a rule change pursuant
to Section 19(b)(3)(A) of the Act, the Commission may summarily
abrogate the 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 Act.
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-95-38 and
should be submitted by October 13, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
\8\17 CFR 200.30(a0(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-23559 Filed 9-21-95; 8:45 am]
BILLING CODE 8010-01-M
