Federal Register / Vol. 65, No. 110 / Wednesday, June 7, 2000 / Notices 36191

13 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3The Commission notes that, in SR–NASD–99–

32, the NASD added a provision to Rule 6750

allowing some Nasdaq officers to modify the

minimum quotation size for securities with a price

greater than $200 per share. See Exchange Act

Release No. 41907 (Sept. 23, 1999), 64 FR 52817

(Sept. 30, 1999).

4See Exchange Act Release No. 32570 (July 1,

1993), 58 FR 36725 (July 8, 1993).

5This requirement applies only to market makers

entering priced quotations. Market makers are

Continued

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,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the MSRB. All

submissions should refer to File No.

SR–MSRB–00–7 and should be

submitted by June 28, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14248 Filed 6–6–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42852; File No. SR–NASD–

00–17]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to Minimum

Quotation Sizes in the OTC Bulletin

Board

May 30, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on April 10,

2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’),

through its wholly owned subsidiary the

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by Nasdaq. 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

Nasdaq proposes an amendment to

NASD Rule 6750 that would modify the

minimum quotation sizes for securities

quoted at a price exceeding $200 in the

OTC Bulletin Board (‘‘OTCBB’’). Below

is the text of the proposed rule change.

Proposed new language is in italic;

proposed deletions are in brackets.

6750. Minimum Quotation Size

Requirements For OTC Equity Securities

(a) Every member firm that functions

as a market maker in OTC Equity

Securities by entering firm quotations

into the OTC Bulletin Board Service

(OTCBB) (or any other inter-dealer

quotation system that permits quotation

updates on a real-time basis) must honor

those quotations for the minimum size

defined in the table below. In this

regard, it is the market maker’s

responsibility to determine the

minimum size requirement applicable

to its firm bid and/or offer in each of its

registered securities (excluding OTC

Equity Securities for which the OTCBB

will not accept firm quotations).

Depending on the price level of the bid

or offer, a different minimum size can

apply to each size of the market being

quoted by the member firm in a given

security.

Price

(bid or offer)

Minimum

quote size

0–.50 * ....................................... 5,000

.51–1.00 .................................... 2,500

1.01–10.00 ................................ 500

10.01–100.00 ............................ 200

100.01–200.00 .......................... 100

[200.01–+ .................................. 50]

200.01–500 ............................... 25

500.01–1000 ............................. 10

1000.01–2500 ........................... 5

2500.01+ ................................... 1

* The OTCBB can accept bids/offers expressed in fractions as small as 1/256 or in

decimals up to six places. In applying the

price test for minimum quotation size, any increment beyond an upper limit in the right

hand column will trigger application of the minimum quote size for the next tier. For example, a bid (or offer) of $.505 must be firm for a

size of 2,500 shares.

[A Nasdaq officer at the Executive

Vice President level or above, within its

discretion, may modify the minimum

quotation size for those securities with

a price exceeding $200.]

(b) No change.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Nasdaq 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. Nasdaq 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

1. Purpose

Nasdaq is proposing to modify the

minimum quotation size for securities

quoted on the OTCBB that exceed a

price of $200 per share. Nasdaq believes

that this modification is necessary to

correct a previously unforeseen problem

with the schedule contained in Rule

6750, which presently mandates that

securities priced over $200 per share be

traded in blocks of 50 shares or more.3

For certain highly priced and/or thinly

traded securities, this rule has had an

undesired and detrimental effect on

transparency and liquidity.

Rule 6750 was originally approved by

the Commission in 1993 4 during the

early stages of the OTCBB service. Prior

to implementation of the rule, all priced

quotations on the OTCBB were required

to be firm for blocks of 100 shares or

more. This approach soon proved

unworkable for lower priced securities

for which a quote of 100 shares could

represent an insignificant aggregate

dollar value commitment to the market.

To remedy this situation, the NASD

implemented this minimum quotation

size rule for securities priced at $200

per share and below on a ‘‘graduated’’

or ‘‘tired’’ basis.5 For securities quoted

36192 Federal Register / Vol. 65, No. 110 / Wednesday, June 7, 2000 / Notices

permitted to enter unpriced indications of interest

into the OTCBB, see NASD Rule 6520, which are

not held to the minimum quotation size standard.

6See supra note 3. 7 15 U.S.C. 78o–3(b)(6) and (11). 8 17 CFR 200.30–3(a)(12).

at 50 cents per share or less, the market

maker quoting such security would be

required to honor that quotation for a

minimum of 5,000 shares. This

approach was extended up to $200 per

share, with different minimum block

sizes at 2,500, 500, 200, and 100 shares.

For all quotations exceeding $200 per

share, the minimum quote size was

determined to be 50 shares.

Since implementation of this rule,

there have been unanticipated changes

to the OTCBB. Among those changes

has been the quotation of certain

securities for thousands of dollars per

share, and, in a few isolated instances,

securities quoted in excess of $100,000

per share. The presence of these highly

priced securities was not considered

when Rule 6750 was originally

proposed with the smallest minimum

quotation size of 50 shares. A situation

has resulted in which market makers

have been unwilling to enter priced

quotations for such highly priced and

thinly traded securities for fear of

potentially significant liability to their

proprietary accounts.

To alleviate the potential exposure of

quoting 50 shares of these highly priced

securities, market makers have ceased

entering quotations and instead post

only indications of interest for these

securities into the OTCBB. While

posting an indication of interest is

permitted in the OTCBB, the purpose of

the OTCBB or any inter-dealer quotation

medium is to permit multiple market

participants to obtain quickly and

efficiently the best bid or offer in a

security and to execute the transaction

without unnecessary delay.

Additionally, priced quotations create a

more competitive market and foster

enhanced price discovery, ultimately

benefiting the investing public.

Recognizing these goals and the

present problems caused by the lack of

flexibility in Rule 6750, the NASD

recently proposed and was granted

discretionary authority from the

Commission to modify the tier sizes for

securities quoted in excess of $200.6

This authority was conferred to alleviate

a pressing situation while providing

Nasdaq with the necessary time to

formulate and approve a permanent

proposal for minimum quotation sizes.

Accordingly, Nasdaq now submits this

proposal to modify permanently the tier

sizes for OTCBB securities quoted at

prices in excess of $200 per share. The

proposed new tier sizes were formulated

to comport with the objectives of the

original rule, effectively requiring that

each quotation represent trading interest

of approximately $5,000 to $20,000. At

the same time, Nasdaq proposes to

delete from Rule 6750 the provision

granting certain officers of the Nasdaq

discretionary authority to modify tier

sizes, as this authority will no longer be

necessary.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with the

provisions of sections 15A(b)(6) and

15A(b)(11) of the Act.7 Section

15A(b)(6) requires, in part, that the rules

of a registered national securities

association be designed, among other

things, to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principals to

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; and are not designed to

permit unfair discrimination between

customers, issuers, brokers, or dealers.

Section 15A(b)(11) requires, among

other things, that the rules of a

registered national securities association

be designed to produce fair and

informative quotations, to prevent

fictitious or misleading quotations, and

to promote orderly procedures for

collecting, distributing, and publishing

quotations.

Nasdaq believes that the proposed

rule specifically promotes the objectives

of sections 15A(b)(6) and 15A(b)(11),

respectively, by facilitating transactions

free of impediments to a free and open

market while producing fair and

informative quotations. The rule will

encourage market makers to display

firm quotations in OTCBB securities,

thereby providing increased

transparency, competition, and price

discovery.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq 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.

(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

(ii) as to which Nasdaq 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,

including whether the proposed rule is

consistent with the Act. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. 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 No.

SR–NASD–00–17 and should be

submitted by June 28, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14250 Filed 6–6–00; 8:45 am]

BILLING CODE 8010–01–M