Federal Register / Vol. 62, No. 146 / Wednesday, July 30, 1997 / Notices 40879

9 15 U.S.C. 78q–1. 10 17 CFR 200.30–3(a) (12).

1See Letter from Robert E. Aber, Vice President

and General Counsel, The Nasdaq Stock Market,

Inc., to Katherine England, Assistant Director,

Office of Market Supervision, Division of Market

Regulation, Commission, dated July 17, 1997. The

amendment would extend the 50 stock pilot from

December 31, 1997, to March 27, 1998, and expand

it to 150 stocks. This amendment corrects a

technical deficiency in an earlier amendment to

expand and extend the 50 stock pilot in a similar

fashion that was not published for notice and

comment. See Letter from Robert E. Aber, Vice

President and General Counsel, The Nasdaq Stock

Market, Inc., to Katherine England, Assistant

Director, Office of Market Supervision, Division of

Market Regulation, Commission, dated July 10,

1997.

2The initial approval of the 50 stock pilot

program was announced in Securities Exchange Act

Release No. 38156 (January 10, 1997), 62 FR 2415

(January 16, 1997). The approval of the extension

was announced in Securities Exchange Act Release

No. 38152 (April 15, 1997), 62 FR 19373 (April 21,

1997). On July 18, 1997, the Commission approved

a proposed rule change that extended—but did not

expand—the 50 stock pilot from July 18, 1997, to

December 31, 1997. Securities Exchange Act

Release No. 38851 (July 18, 1997), 62 FR 39565

(July 23, 1997) (File No. SR–NASD–97–49).

recalculated using the security

information for the replacement

collateral.

5. Substitution of Maturing Collateral

Finally, GSCC is making eligible for

its netting system repos with underlying

collateral that matures on or prior to the

scheduled close date by eliminating

from the list of requirements for nettingeligibility the requirement that the

maturity date of the underlying

securities be on or later than the

scheduled settlement date of the close

leg. The proposal will add Section 6 to

Rule 18 to require that if a repo

participant has transferred securities as

underlying collateral that mature prior

to the settlement date of the close leg,

that participant must substitute

equivalent securities with a later

maturity date prior to the business day

before the maturity date.

The proposed rule change is

consistent with the requirements of

Section 17A of the Act 9 and the rules

and regulations thereunder because it

will authorize GSCC to make forwardstarting repos eligible for netting in a

prudent fashion once they are compared

by GSCC. This will allow members to

enjoy the benefit of guaranteed

settlement of their forward-starting

repos as soon as possible.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

GSCC does not believe that the

proposed rule change would impose a

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments relating to the

proposed rule change have not yet been

solicited or received. Members will be

notified of the rule change filing and

comments will be solicited by an

important notice. GSCC will notify the

Commission of any written comments

received by GSCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 GSCC 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, N.W.,

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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of GSCC. All submissions should

refer to the file number SR–GSCC–97–

03 and should be submitted by August

20, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Jonathan G. Katz,

Secretary.

[FR Doc. 97–20052 Filed 7–29–97; 8:45 am]

BILLING CODE 8610–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38872; File No. SR–NASD–

97–26]

Self-Regulatory Organizations; Notice

of Amendment to Proposed Rule

Change by the National Association of

Securities Dealers, Inc. Relating to an

Expansion of the Pilot for the NASD’s

Rule Permitting Market Makers to

Display Their Actual Quotation Size

July 24, 1997.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’), 15 U.S.C. 78s(b)91),

notice is hereby given that on July 17,

1997, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) an

amendment 1 to the proposed rule

change described below. The proposal

would allow market makers to quote

their actual size by reducing the

minimum quotation size requirement

for market makers in certain securities

listed on The Nasdaq Stock Market

(‘‘Nasdaq’’) to one normal unit of

trading (‘‘Actual Size Rule’’). The Actual

Size Rule presently applies to a group

of 50 Nasdaq securities on a pilot basis.2

The NASD has proposed to extend this

pilot program to March 27, 1998, and to

add an additional 100 stocks to the pilot

program. The Commission has already

received comments from many

individual investors and other market

participants on the ongoing pilot. The

Commission is publishing this notice to

solicit comments on the amended

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NASD proposes to amend NASD

Rule (a)(1)(C) to allow market makers to

quote their actual size by reducing the

minimum quotation size requirement

for market makers in certain securities

listed on Nasdaq to one normal unit of

trading. The text of the proposed rule

change is as follows. (Additions are

italicized; deletions are bracketed.)

* * * * *

NASD Rule 4613 Character of

Quotations

(a) Two-Sided Quotations

(1) No change.

(A)–(B) No change.
40880 Federal Register / Vol. 62, No. 146 / Wednesday, July 30, 1997 / Notices

3See Securities Exchange Act Release No. 38513

(April 15, 1997), 62 FR 19369 (April 21, 1997).

4A copy of the executive summary of the report

is available at Nasdaq’s World Wide Web site at

‘‘http://www.nasdaq.com’’. Members of the public

may also download a file containing the entire

report at this site.

(C) As part of a pilot program

implemented by The Nasdaq Stock

Market, during the period January 20,

1997 through at least [December 31,

1997] March 27, 1998, a registered

market maker in a security listed on The

Nasdaq Stock Market that became

subject to mandatory compliance with

SEC Rule 11Ac1–4 on [January 20, 1997]

or prior to February 24, 1997, must

display a quotation size for at least one

normal unit of trading (or a larger

multiple thereof) when it is not

displaying a limit order in compliance

with SEC Rule 11Ac1–4, provided,

however, that a registered market maker

may augment its displayed quotation

size to display limit orders priced at the

market maker’s quotation.

* * * * *

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its initial filing with the

Commission,3 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.

On June 3, 1997, the NASD filed with

the Commission a report containing its

economic analysis of the operation of

the Actual Size Rule for the group of 50

stocks in the pilot, as requested by the

Commission.4 The study examines the

effects of the removal of the 1,000-Share

Quote Size Rule on market quality.

Several commenters have provided their

own economic analysis in rebuttal.

The NASD’s study compares the

market quality of pilot stocks with the

market quality of peer stocks in the next

tranche of stocks that became subject to

the Order Handling Rules, but remained

subject to the 1,000-Share Quote Size

Rule. The study: (1) Summarizes the

relevant academic literature; (2)

empirically assesses market quality for

both groups pre- and post-rule change

by examining spread, volatility, depth,

and liquidity; and (3) examines the use

of automatic execution systems for the

pilot stocks, Nasdaq’s Small Order

Execution System (‘‘SOES’’), and some

private systems to assess whether

investors continue to have reasonable

access to market maker capital. Copies

of the report, economic studies, and

comment letters are available in the

Commission’s Public Reference room in

File No. SR–NASD–97–26.

The NASD asserts that the evidence

analyzed in the study reveals that the

pilot stocks and non-pilot stocks have

experienced virtually the same

improvements in market quality since

implementation of the SEC’s Order

Handling Rules. Specifically, the NASD

says that if found no statistically

significant basis to conclude that the

market quality of the pilot stocks has

been affected as a result of removal of

the 1,000-Share Quote Size Rule. In

addition, the NASD found that investors

in the pilot stocks continue to have

substantial and reasonable access to

market maker capital through both

SOES and market makers’ proprietary

automatic execution systems.

The Commission approved the Actual

Size Rule on a pilot basis so that the

effects of the rule could be assessed.

When doing so, the Commission stated

that it believed that a reduction in the

quotation size requirement could reduce

the risks that market makers must take,

produce accurate and informative

quotations, and encourage market

makers to maintain competitive prices

even in the changing market conditions

resulting from the Order Execution

Rules.

At the Commission’s request, an

extension until March 27, 1998, has

been made to provide the Commission

with additional time to evaluate the

economic studies and review the

comments on the NASD’s study.

For the reasons noted above, the

NASD believes the proposed rule

change is consistent with Sections

11A(a)(1)(C), 15A(b)(6), 15A(b)(9), and

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

11A(a)(1)(C) provides that it is in the

public interest to, among other things,

assure the economically efficient

execution of securities transactions and

the availability to brokers, dealers, and

investors of information with respect to

quotations for and transactions in

securities. Section 15A(b)(6) requires

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)(9) requires that rules of

an Association not impose any burden

on competition not necessary or

appropriate in furtherance of the

purposes of the Exchange Act. Section

15A(b)(11) requires the NASD to, among

other things, formulate rules designed to

produce fair and informative quotations.

A. 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 Exchange Act.

B. 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 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 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

Jonathan G. Katz, 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–97–26 and should be

submitted by August 20, 1997.
Federal Register / Vol. 62, No. 146 / Wednesday, July 30, 1997 / Notices 40881

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

2 17 CFR 240.19b–4.

3A MOC order is a market order to be executed

in its entirety at the closing price on the Exchange.

See NYSE Rule 13. The NYSE pilot program for

entry of MOC orders was permanently approved in

1996. See Securities Exchange Act Release No.

37894 (Oct. 30, 1996), 61 FR 56987 (Nov. 5, 1996).

4See Securities Exchange Act Release No. 33706

(Mar. 3, 1994), 59 FR 11093 (Mar. 9, 1994) (order

approving the original LOC pilot program).

5The term ‘‘expiration days’’ refers to both (1) the

trading day, usually the third Friday of the month,

when some stock index options, stock index futures

and options on stock index futures expire or settle

concurrently (‘‘Expiration Fridays’’) and (2) the

trading day on which end of calendar quarter index

options expire (‘‘QIX Expiration Days’’).

6See Securities Exchange Act Release No. 37969

(Nov. 20, 1996), 61 FR 60735 (Nov. 29, 1996).

7See Securities Exchange Act Release No. 37507

(July 31, 1996), 61 FR 40871 (Aug. 6, 1996).

8 15 U.S.C. 78f(b)(5).

9 15 U.S.C. 78f.

10 15 U.S.C. 78f(b)(5).

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. (17 CFR 200.30–3(a)(12)).

Jonathan G. Katz,

Secretary.

[FR Doc. 97–20047 Filed 7–29–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38865; File No. SR–NYSE–

97–19]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the New York Stock

Exchange, Inc., Relating to the Pilot for

Entry of Limit-at-the-Close Orders

July 23, 1997.

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 June 16,

1997, the New York Stock Exchange,

Inc. (‘‘NYSE’’ or ‘‘Exchange’’) 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 the selfregulatory organization. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

grant accelerated approval to the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change would

extend for one year a pilot to permit

limit-at-the-close (‘‘LOC’’) orders to be

entered in any stock at any time during

the trading day up to 3:40 p.m. on

expiration days, and 3:50 p.m. on nonexpiration days. The current pilot is

scheduled to expire July 31, 1997.

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

self-regulatory organization 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 III below.

The self-regulatory organization 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

A LOC order is one that is entered for

execution at the closing price, provided

that the closing price is at or within the

limit specified. Originally, LOC orders

could be entered only to offset

published imbalances of market-onclose (‘‘MOC’’) orders.3 LOC orders had

to be entered by 3:55 p.m. on both

expiration and non-expiration days, and

could not be cancelled, except for

legitimate errors.4

The Exchange recently implemented

an amended policy regarding LOC

orders to permit their entry at any time

during the trading day up to 3:40 p.m.

on expiration days,5 and 3:50 p.m. on

non-expiration days.6 Thereafter, as

with MOC orders, LOC orders could not

be cancelled (except for legitimate

errors), and could be entered only to

offset published imbalances. These new

procedures are part of the current pilot

for LOC orders which expires at the end

of July 1997.7

The Exchange is proposing to extend

the LOC pilot for an additional year,

until July 31, 1998, in order to study the

effects of the new order entry

procedures. The Exchange will make a

recommendation at that time as to

continuation of the pilot or a request for

permanent status of LOC orders.

2. Statutory Basis

The basis under the Act for the

proposed rule change is the requirement

under Section 6(b)(5)8 that an Exchange

have rules that are designed to promote

just and equitable principles of trade, to

remove impediments to, and perfect the

mechanism of a free and open market

and, in general, to protect investors and

the public interest. The proposed rule

change perfects the mechanism of a free

and open market by providing investors

with the ability to use LOC orders as a

vehicle for managing risk at the close.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange represents that the

proposed rule change will impose no

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. 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, N.W.,

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 at

the Commission’s Public Reference

Room. Copies of such filing will be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–NYSE–97–19 and should be

submitted by August 20, 1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6 9 and the rules

and regulations thereunder.

Specifically, the Commission finds that

the proposed rule change is consistent

with the Section 6(b)(5)10 requirements

that the rules of an exchange be

designed to promote just and equitable

principles of trade, to remove