[Federal Register Volume 59, Number 184 (Friday, September 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23594]
[[Page Unknown]]
[Federal Register: September 23, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34682; File No. SR-NASD-94-50]
Self-Regulatory Organizations; Notice of Proposed Rule Change by
the National Association of Securities Dealers, Inc. Relating To Excess
Spread Parameters for CQS Securities
September 19, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 9, 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.
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\1\15 U.S.C. Sec. 78S(b)(1) (1988).
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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 Schedule D to the NASD By-Laws to
provide that the calculation methodology utilized to determine the
excess spread parameters for CQS securities shall include quotations
from national securities exchanges. In addition, in order to avoid
confusion concerning the application of the excess spread parameters to
CQS securities, the NASD is proposing to move the excess spread
parameters for CQS securities, as amended, to Section 2 of Part VI of
Schedule D to the NASD By-Laws from Section 2 of Part V of Schedule D.
(Additions are in italics; deletions are bracketed.)
Schedule D
Part Requirements Applicable to Nasdaq Market Makers
Section 2 Character of Quotations
(a)-(c) No change
(d) Excess Spreads. A market maker shall not enter quotations in
Nasdaq [or Consolidated Quotation Service (CQS)] securities that exceed
the parameters for maximum allowable spreads as approved by the NASD
Board of Governors and that may be published from time to time by the
Association. The maximum allowable spreads for Nasdaq securities shall
be 125 percent of the average of the three (3) narrowest market maker
spreads in each security (if there are fewer than three (3) market
makers in a security, the maximum allowable spread will be 125% of the
average spread); provided however, that the maximum allowable spread
shall never be less than \1/4\ point.
Part VI Consolidated Quotations Service (CQS)
Section 2 Obligations of CQS Market Makers
(a) No change.
(b) CQS market makers shall be required to input a minimum
quotation size of 200 or 500 shares in each reported security (as
established from time to time by the Association) depending on the
trading characteristics of the security[, and shall be subject to the
excess spread parameters established for Nasdaq market makers in Part
V, Schedule D of the NASD By-Laws].
(c) Excess Spreads. A market maker shall not enter quotations in
CQS securities that exceed the parameters for maximum allowable spreads
as approved by the NASD Board of Governors and that may be published
from time to time by the Association. The maximum allowable spreads for
CQS securities shall be 125 percent of the average of the three (3)
narrowest market maker spreads in each security, which average spread
calculations shall include quotations from national securities
exchanges (if the number of CQS market makers in a security plus the
number of national securities exchanges trading that security is less
than three (3), the maximum allowable spread will be 125 percent of the
average spread); provided, however, that the maximum allowable spread
shall never be less than \1/4\ of a point.
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
Currently, Section 2(d) of Part V of Schedule D to the NASD By-Laws
provides that registered market makers in CQS securities may not enter
quotations in CQS securities that exceed the NASD's parameters for
maximum allowable spreads. The maximum allowable spread presently in
125 percent of the average of the three narrowest market maker spreads
in each security, with the limitation that the maximum allowable spread
can never be less than 1/4 of a point.\2\
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\2\If there are fewer than three market makers in a security,
the maximum allowable spread is 125% of the average of all market
makers' spreads in the security.
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The calculation of ``average dealer spreads'' in CQS securities,
however, does not include quotations (i.e., spreads) from national
securities exchanges trading those securities. Accordingly, in order to
have the excess spread parameters for CQS securities be more reflective
of and related to the quotations disseminated by all market centers
trading CQS securities, the NASD is proposing to include quotations
from the exchanges into its ``average dealer spread'' calculation. As a
result, to the extent that the spread reflected in the best bid and
offer disseminated by an exchange(s) is narrower than any of the three
narrowest spreads quoted by CQS market makers, the proposed rule change
may contribute narrower spreads by CQS market makers. Narrower spreads
by CQS market makers, in turn, will enhance the continuity and quality
of the markets provided by CQS market makers, to the ultimate benefit
of investors.
In addition, in order to avoid confusion concerning the application
of the excess spread parameters to CQS securities, the NASD is
proposing to move the excess spread parameters for CQS securities, as
amended, to Section 2 of Part VI of Schedule D to the NASD By-Laws from
Section 2 of Part V of Schedule D. Part VI of Schedule D deals with the
trading of CQS securities on Nasdaq and Part V deals with obligations
imposed on Nasdaq market makers. By placing the excess spread
parameters for CQS securities in Part VI of Schedule D instead of Part
V, market participants will be less likely to overlook the parameters.
The NASD believes 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 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.
Section 15A(b)(11) requires, among other things, that the rules of a
national securities association must be designed to produce fair and
informative quotations. Specifically, by including exchange quotations
in its calculation methodology for determining maximum allowable
spreads in CQS securities, the NASD and Nasdaq believe the proposal may
contribute to narrower spreads in CQS securities, which, in turn, will
promote the efficiency, continuity, and quality of Nasdaq's market in
CQS securities.
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
Within 35 days of the date of publication of this notice in the
Fedeal 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 NASD 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, 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 submissions should refer to file number SR-NASD-94-50 and
should be submitted by October 14, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
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\3\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-23594 Filed 9-22-94; 8:45am]
BILLING CODE 8010-01-M
