40732 Federal Register / Vol. 62, No. 146 / Wednesday, July 30, 1997 / Rules and Regulations

1See Securities Exchange Act Release No.

37619A (September 6, 1996), 61 FR 48290

(September 12, 1996) (‘‘Adopting Release’’).

2 17 CFR 240.11Ac1–1(c)(5)(i).

3 17 CFR 240.11Ac1–1(c)(5)(ii).

4 17 CFR 240.11Ac1–1(a)(25).

5 17 CFR 11Ac1–1(c)(1). See Securities Exchange

Act Release No. 38110 (January 2, 1997), 62 FR

1279 (January 9, 1997) which postponed the

effective date of the 1% Rule, with respect to the

amended definition of ‘‘subject security,’’ from

January 10, 1997, to April 10, 1997. See also

Securities Exchange Act Release No. 38490 (April

opening of, addition to, or renewal of,

an account.

The FDIC believes that in cases where

a premium is not related to, or

dependent on, the balance in a demand

deposit account and the duration of that

balance, such a premium generally

should not be viewed as interest. From

an economic point of view, such

premiums do not appear to constitute

interest on the account, since interest is

generally a payment to, or for the

account of, a depositor as compensation

for the use of the depositor’s funds. (12

CFR 329.1(c)).

As an additional matter, since interest

rates on time deposits were deregulated,

there is no longer any need to provide

that premiums that are paid at the time

of renewal are permissible. This

revision removes the reference to

renewal in the preexisting exception.

In light of all the foregoing, the FDIC

is amending its interpretive rule

effective on date of publication in the

Federal Register to except from the

prohibition of the payment of interest

on demand deposits, any premiums that

are not related to the balance in an

account and the duration of the account

balance.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5

U.S.C. 601–612) requires an agency to

publish a regulatory flexibility analysis

for any final rule for which the agency

was required to publish a general notice

of proposed rulemaking. Under 5 U.S.C.

553(b), a general notice of proposed

rulemaking is not required for

interpretative rules. Accordingly, no

regulatory flexibility analysis is required

in this case.

Under 5 U.S.C. 553(d), a 30-day

period between publication date and

effective date is not required for

interpretative rules. Accordingly, this

interpretive rule is effective on date of

publication in the Federal Register.

Paperwork Reduction Act

No collections of information

pursuant to the Paperwork Reduction

Act are contained in the rule.

List of Subjects in 12 CFR Part 329

Banks, banking, Interest rates.

For the reasons set forth in the

preamble, the FDIC amends 12 CFR part

329 as set forth below:

PART 329—INTEREST ON DEPOSITS

1. The authority citation for part 329

continues to read as follows:

Authority: 12 U.S.C. 1819, 1828(g) and

1832(a).

2. In § 329.103, paragraph (a)(1) is

amended by removing ‘‘, or renewal

of,’’, and a new paragraph (e) is added

after paragraph (d) to read as follows:

* * * * *

§ 329.103 Premiums.

* * * * *

(e) Notwithstanding paragraph (a) of

this section, any premium that is not,

directly or indirectly, related to or

dependent on the balance in a demand

deposit account and the duration of the

account balance shall not be considered

the payment of interest on a demand

deposit account and shall not be subject

to the limitations in paragraph (a) of this

section.

By order of the Board of Directors.

Dated at Washington, D.C. this 23rd day of

July, 1997.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 97–20018 Filed 7–29–97; 8:45 am]

BILLING CODE 6714–01–P

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 240

[Release No. 34–38870; File No. S7–30–95]

RIN 3235–AG66

Order Execution Obligations

AGENCY: Securities and Exchange

Commission.

ACTION: Revised compliance dates;

exemptive order.

SUMMARY: The Securities and Exchange

Commission (‘‘Commission’’) is

announcing the final phase-in schedule

for compliance with Rules 11Ac1–

1(c)(5) (‘‘ECN Amendment’’ of the

‘‘Quote Rule’’) and 11Ac1–4 (‘‘Limit

Order Display Rule’’) under the

Securities Exchange Act of 1934

(‘‘Exchange Act’’) and is providing

exemptive relief to accommodate the

new schedule. In addition, the

Commission is providing temporary

exemptive relief from compliance with

the 1% requirement of the Quote Rule

with respect to non-19c–3 securities.

DATES: Effective Date: July 24, 1997.

Compliance Dates: The phase-in

schedule with respect to the remaining

approximately 5,766 Nasdaq securities

will be as follows: 250 Nasdaq securities

on August 4, 1997; 250 Nasdaq

securities on August 11, 1997; 850

Nasdaq securities on September 8, 1997;

850 Nasdaq securities on September 15,

1997; 850 Nasdaq securities on

September 22, 1997; 850 Nasdaq

securities on September 29, 1997; 850

Nasdaq securities on October 6, 1997;

and the remaining approximately 930

Nasdaq securities on October 13, 1997.

Concurrently, the Commission is

exempting responsible broker and

dealers, electronic communications

networks, exchanges and associations

from compliance with the Order

Execution Rules, with respect to the

Nasdaq securities that are not phased in

under such schedule, until October 13,

1997. In addition, the Commission is

exempting substantial market makers

and specialists from compliance with

the 1% requirement of the Quote Rule

with respect to non-Rule 19c–3

securities until September 30, 1997.

FOR FURTHER INFORMATION CONTACT:

Gail Marshall-Smith, Special Counsel,

or David Oestreicher, Special Counsel,

(202) 942–0158, Division of Market

Regulation, Securities and Exchange

Commission, 450 Fifth Street, NW., Mail

Stop 5–1, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

Background

On August 28, 1996, The Commission

adopted Rule 11Ac1–4, the Limit Order

Display Rule, and amendments to Rule

11AC1–1, the Quote Rule under the

Exchange Act.1 The Limit Order Display

Rule requires over-the-counter (‘‘OTC’’)

market makers and exchange specialists

to publicly display certain customer

limit orders. The ECN Amendment of

the Quote Rule requires OTC market

makers and specialists to publicly

disseminate the best prices that they

enter into an electronic communications

network (‘‘ECN’’),2 or to comply

indirectly with the ECN Amendment by

using an ECN that furnishes the best

market maker and specialist prices

therein to the public quotation system

(the ‘‘ECN Display Alternative’’).3 In

addition, the Quote Rule term ‘‘subject

security’’ 4 was amended, thereby

requiring OTC market makers and

specialist to publish quotes in any

exchange-listed security if their volume

in that security exceeds 1% of the

aggregate volume during the most recent

calendar quarter.5
Federal Register / Vol. 62, No. 146 / Wednesday, July 30, 1997 / Rules and Regulations 40733

9, 1997), 62 FR 18514 (April 16, 1997) which

further postponed the effective date of the

definition of ‘‘subject security’’ until July 28, 1997.

6See Securities Exchange Act Release Nos.

37619A (September 6, 1996), 37972 (November 22,

1996), 38110 (January 2, 1997), and 38139 (January

8, 1997).

7See Securities Exchange Act Release Nos. 38246

(February 5, 1997) and 38490 (April 9, 1997)

outlining previous phase-in schedules for the Order

Execution Rules. The Commission notes that a

broker-dealer’s duty of best execution discussed in

the Adopting Release is applicable to all securities

and is not based on whether or not the security has

been phased-in under the Limit Order Display Rule

or the ECN Amendment.

8The Nasdaq Stock Market made system

enhancements in mid-July which were designed to

improve its capacity levels.

9The Commission notes, however, that while

ECNs qualifying for the ECN Display Alternative

must publicly display quotes in Nasdaq securities

once those securities are phased in pursuant to the

phase-in schedule, these ECNs may voluntarily

begin publicly displaying quotes in any Nasdaq

security beginning August 4, 1997.

10The Nasdaq Stock Market will continue to

identify which Nasdaq securities are to be phased

in, and will notify market participants of the

specific securities at least a week prior to the

securities being phased-in.

11These 850 securities, as well as the subsequent

securities phased-in under this schedule, will be

selected from the remaining approximately 5,180

Nasdaq securities.

12 17 CFR 240.11Ac1-1(d).

13 17 CFR 240.11Ac1-4(d).

14The term ‘‘responsible broker or dealer’’ is

defined in Rule 11Ac1–1(a)(21).

15See 17 CFR 240.19c–3. Exchange Act Rule 19c–

3 prohibits the application of off-board trading

restrictions to securities that (1) were not traded on

an exchange before April 26, 1979; or (2) were

traded on an exchange on April 26, 1979, but

ceased to be traded on an exchange for any period

of time thereafter. Accordingly, exchange-traded

securities not subject to off-board trading

restrictions are referred to as Rule 19c–3 securities,

and exchange-traded securities subject to off-board

trading restrictions are referred to as non-Rule 19c–

3 securities.

16OTC market makers and specialists are

currently required to publish two-sided quotes in

Rule 19c–3 securities if their aggregate trading

volume exceeds 1% during the most recent

calendar quarter. This obligation with respect to

Rule 19c–3 securities remains unchanged by this

action.

17 17 CFR 200.30(a)(28) and (61).

Discussion

On January 20, 1997, the Order

Execution Rules became effective.6 The

Commission recognized in adopting the

Order Execution Rules that they would

result in a significant change in the

order handling practices of OTC market

makers. The Commission thereafter

chose to require compliance with the

rules over a phased-in period.

Subsequently, the Commission required

compliance with the Order Execution

Rules for the Nasdaq securities on a

phased-in basis through July 7, 1997.7

The Commission, therefore, provided

exemptive relief, until July 28, 1997,

from compliance with the Order

Execution Rules with respect to the

Nasdaq securities not phased in under

the Order Execution Rules. To date,

compliance is mandatory for all

exchange-traded securities and 700 of

the 1,000 most actively traded Nasdaq

securities.

The Commission has been closely

monitoring the implementation of the

rules and has found that the

implementation appears to be occurring

successfully. The success to date is due,

in-part, to affording market participants

time to adapt to the new regulatory

requirements.

Moreover, the Commission has

provided Nasdaq the time necessary to

upgrade its systems to improve its

ability to handle the additional

quotation traffic resulting from the

Order Execution Rules.8 The

Commission believes it has succeeded

in striking a reasonable balance between

the desire to provide the benefits of the

Order Execution Rules to investors and

the need to ensure that implementation

of the Rules do not compromise the

integrity or capacity of automated

systems operated by Nasdaq, brokerdealers, ECNs, or vendors. Accordingly,

the Commission believes it is

appropriate to continue phasing in both

the Limit Order Display Rule and the

ECN Amendment for the remaining

Nasdaq securities.9

The 700 Nasdaq securities currently

in compliance with the Order Execution

Rules account for over 62% of the total

share volume on Nasdaq and over 85%

of the total dollar volume. The

Commission, therefore, believes that the

remaining Nasdaq securities can be

phased in on a more accelerated

schedule.

The new compliance schedule for the

remaining, approximately 5,766 Nasdaq

securities is as follows: 250 Nasdaq

securities on August 4, 1997, of which

150 securities will be selected from the

1,000 most actively traded Nasdaq

securities and 100 securities will be

selected from the remaining Nasdaq

securities; 10 250 Nasdaq securities on

August 11, 1997, of which 150 securities

will be the last of the 1,000 most

actively traded Nasdaq securities not

already phased-in and 100 securities

will be selected from the remaining

Nasdaq securities; 850 Nasdaq securities

on September 8, 1997; 11 850 Nasdaq

securities on September 15, 1997; 850

Nasdaq securities on September 22,

1997; 850 Nasdaq securities on

September 29, 1997; 850 Nasdaq

securities on October 6, 1997; and the

remaining approximately 930 Nasdaq

securities on October 13, 1997. To

accommodate this phase-in schedule

and pursuant to Rule 11Ac1-1(d) 12 of

the Exchange Act, the Commission is

exempting responsible brokers and

dealers, electronic communications

networks, exchanges, and associations,

until October 13, 1997, from the

requirements of Rule 11Ac1-1(c)(5)(i),

the ECN Amendment, with respect to all

Nasdaq securities not phased in as of

October 13, 1997. The Commission is

also exempting, pursuant to Rule

11Ac1-4(d) 13 of the Exchange Act,

responsible brokers and dealers,

electronic communications networks,

exchanges, and associations, until

October 13, 1997 from the requirements

of Rule 11Ac1-4, the Limit Order

Display Rule, with respect to all Nasdaq

securities not phased in as of October

13, 1997.

The Commission has granted this

exemptive relief to permit the continued

phase-in and orderly operation of the

Order Execution Rules. Moreover, the

Commission believes that a three-week

pause after 200 of the less active Nasdaq

securities are phased in will provide an

opportunity to enable broker-dealers to

make any necessary operational

adjustments to handle the remaining

approximately 5,180 securities.

Accordingly, the Commission finds that

the exemptive relief provided herein to

responsible brokers and dealers,

electronic communications networks,

exchanges, and associations is

consistent with the public interest, the

protection of investors and the removal

of impediments to and perfection of the

mechanism of a national market system.

In addition, the Commission,

pursuant to Rule 11Ac1–1(d), is

extending the exemptive relief granted

to responsible broker dealers 14 from the

requirements of Rule 11Ac1–1(c)(1),

with respect to non-Rule 19c–3

securities 15 until the current calendar

quarter ends September 30, 1997.16 OTC

market makers and specialists,

therefore, responsible for more than 1%

of the aggregate trading volume during

the calendar quarter ending September

30, 1997, must, within 10 business days,

commence quoting regular and

continuous two-sided markets.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Jonathan G. Katz,

Secretary.

[FR Doc. 97–20053 Filed 7–29–97; 8:45 am]

BILLING CODE 8010–01–M