4562 Federal Register / Vol. 62, No. 20 / Thursday, January 30, 1997 / Notices

5 17 CFR 200.30–3(a)(12).

1See Securities Exchange At Release No. 38156

(January 10, 1997) (order partially approving file

SR–NASD–96–43).

2Among others, the new SEC rules include a new

rule, SEC Rule 11Ac1–4 (‘‘Display Rule’’),

governing the display of customer limit orders, and

amendments to the SEC’s firm quote rule, Rule

11Ac1–1, requiring market makers to reflect in their

quotes any better priced orders that they place into

an ECN (‘‘ECN Rule’’). The SEC also adopted an

‘‘ECN Display Alternative’’ that permits market

makers to comply with the ECN Rule by having an

ECN display their orders to the marketplace. See

Securities Exchange Act Release No. 37619A

(September 6, 1996), 61 FR 48290 (September 12,

1996).

3SelectNet permits NASD members to direct buy

or sell orders in Nasdaq securities to a single market

maker (preferenced orders) or broadcast the order

to all market makers in the security. Nasdaq

operates SelectNet to provide investors and

members with an automated means to facilitate the

communication of trading interest between

members, the negotiation of orders with the

possibility of price improvement, and the

dissemination of last sale reports to the tape.

SelectNet also serves as an effective auxiliary

mechanism to one-on-one telephone

communication between members, especially in

times of market stress. The service is available for

members to negotiate and execute orders form 9:00

a.m. until 5:15 p.m., Eastern Standard Time.

4Each exchange currently is permitted to trade up

to 500 Nasdaq National Market securities on a UTP

basis. At the present time, however, the CHX is the

only exchange that trades Nasdaq stocks pursuant

to UTP. Accordingly, the CHX would be the only

exchange that would be granted access to SelectNet

at this time.

deliveries between the participant’s free

account and the additional account

made this approach more expensive

than the memo seg approach as a means

of complying with Rule 15c3–3. The

rule change will accommodate transfers

of securities, including customer fullypaid securities, from a participant’s free

account to an additional account within

the same collateral group and will do so

using procedures that are less expensive

than a regular book-entry delivery.

II. Discussion

Section 17A(b)(3)(F) requires the rules

of a clearing agency be designed to

assure the safeguarding of securities and

funds which are in the custody or

control of the clearing agency or for

which it is responsible. The

Commission believes that the proposed

rule change is consistent with DTC’s

obligations under the Act. The new

service will permit participants to move

securities positions from a participant’s

free account to an additional DTC

account within the same collateral

group without undergoing DTC’s usual

risk monitoring controls and therefore at

a lower cost. Because such transfers do

not affect the overall level of a

participant’s collateral monitor or its net

debit position, the Commission believes

that DTC can implement the new

procedure while still assuring the

safeguarding of securities and funds in

its custody or for which it is

responsible. Furthermore, because the

fees associated with the transfer of

securities within a collateral group will

now be comparable to the costs of memo

seg, participants will be afforded the

flexibility to choose which method to

protect customer fully-paid securities

that best suits their needs without cost

differences being a significant factor.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and in

particular Section 17A of the Act and

the rules and regulations thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

DTC–96–17) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2258 Filed 1–29–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38191; File No. SR–NASD–

97–02]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by National

Association of Securities Dealers, Inc.

Relating to Access to Nasdaq’s

SelectNet Service by National

Securities Exchanges Trading Nasdaq

Securities on an Unlisted Trading

Privilege Basis

January 22, 1997.

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 January 17, 1997,

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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NASD is proposing to grant

national securities exchanges trading

securities listed on The Nasdaq Stock

Market (‘‘Nasdaq’’) on an unlisted

trading privilege (‘‘UTP’’) basis access to

Nasdaq’s SelectNet Service for those

securities in which the exchange

disseminates quotations through the

Nasdaq system.

II. Self-Regulatory Organizations’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 Organizations’s

Statement of the Purpose of, and

Statutory Basis of the Proposed Rule

Change

On January 10, 1997, the SEC approve

several NASD rule changes and a variety of

modifications to Nasdaq’s Small Order

Execution System (‘‘SOES’’) and SelectNet

Service 1 that are designed to integrate the

Commission’s new order handling and

execution rules.2 In particular, among other

things, the SEC approved an amendment to

SOES that provides that orders entered into

SOES will be rejected when a UTP exchange

is alone at the best bid or offer displayed on

Nasdaq. Because SOES will not execute

orders when a UTP exchange is alone at the

inside market, the NASD and Nasdaq believe

it is absolutely critical that NASD members

have the ability to readily access such

superior priced orders displayed by the UTP

exchange. Accordingly, in order to ensure

that the NASD members can efficiently

access UTP exchanges and that SOES will

not reject order for more than very brief

periods of time when a UTP exchange is

alone at the inside, Nasdaq proposes to

modify SelectNet to provide UTP exchanges

with the ability to send and receive

preferenced and broadcast SelectNet orders.3

For example, if the inside market in stock

ABCD is 10¥101⁄8, 10×10, and the Chicago

Stock Exchange (‘‘CHX’’) represents the only

offer at 101⁄8 SOES will reject all incoming

market orders to buy for as long as the CHX

is alone at the best offer and NASD members

will have the ability to send a preferenced

SelectNet order to the CHX specialist.4

In addition to minimizing the time

that SOES will reject orders when a UTP

exchange is alone at the inside, giving

the UTP exchanges access to SelectNet

will provide Nasdaq market makers and

UTP specialists with a more efficient

means to access each others quotes. In

this connection, Nasdaq market makers

have expressed their desire to have a
Federal Register / Vol. 62, No. 20 / Thursday, January 30, 1997 / Notices 4563

5See Securities Exchange Act Release No. 37772

(October 1, 1996).

6 17 CFR 200.30–3(a)(12) (1989).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 38042 (Dec.

11, 1996), 61 FR 6633 (Dec. 17, 1996).

Subsequently, NASD Regulation extended the time

period for Commission action until January 31,

1997. Letter from John Ramsay, Deputy General

Counsel, NASD Regulation, to Katherine A.

England, Assistant Director, Division of Market

Regulation, SEC, dated January 21, 1997.

4See Securities Exchange Act Release No. 36783

(Jan. 29, 1996), 61 FR 3955 (Feb. 2, 1996).

more efficient linkage with the CHX

because of the impact CHX quotes have

on their proprietary execution systems.

In particular, because many firms

operate systems that guarantee

executions based on the best bid or offer

on Nasdaq, which includes CHX quotes,

these firms want to be able to readily

access CHX quotes when the CHX is

alone at the inside price. In addition,

among other things, more efficient

access to CHX quotes will serve to avoid

locked and crossed markets. In sum, the

NASD believes its proposal will serve to

promote intermarket competition,

enhance the price discovery process for

Nasdaq securities, and dramatically

improve the access of Nasdaq market

makers to the CHX floor and vice versa.

Accordingly, Nasdaq and the NASD

believe that the proposed rule change is

consistent with Sections 15A(b)(6) and

11A(a)(1)(C) of the Act. Among other

things, 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 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. Specifically, by improving

the access of Nasdaq market makers and

UTP specialists to each others’ quotes,

the proposed rule change will serve to

enhance intermarket competition, the

best execution of investors’ orders, and

the price discovery process for Nasdaq

securities. Moreover, Nasdaq and the

NASD believe the proposed rule change

will serve to benefit small investors

because it will help to minimize the

length of time that SOES will reject

orders when a UTP exchange is alone at

the best bid or offer on Nasdaq. Finally,

Nasdaq and the NASD believe that

providing UTP exchanges access to

SelectNet is responsive to the

Commission’s request that Nasdaq and

the exchanges create an electronic

linkage between Nasdaq market makers

and exchange specialists.5

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

The proposed rule change has become

effective immediately pursuant to

Section 19(b)(3)(A)(i) of the Act and

subparagraph (e) of Securities Exchange

Act Rule 19b–4 because, consistent with

the standards set forth in Rule 19b–

4(e)(5), the proposal does not: (1)

significantly affect the protection of

investors or the public interest; (2)

impose any significant burden on

competition; or (3) have the effect of

limiting the access to or availability of

SelectNet. In particular, because no

operational aspect to SelectNet is being

modified by this proposal in any way

other than an expansion of the scope of

market participants that will have

access to the SelectNet, Nasdaq and the

NASD believe it is appropriate that the

proposal has become effective upon

filing pursuant to Rule 19b–4(e)(5). In

fact, because of the intermarket access

that will be fostered by the proposal,

Nasdaq and the NASD believe the

proposal will promote the protection of

investors and enhance competition.

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 many 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 the file

number in the caption above and should

be submitted by February 20, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2255 Filed 1–29–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38205; File No. SR–NASD–

96–42]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Granting Approval

to Proposed Rule Change Relating to

Transfer of Limited Partnership

Interests

January 24, 1997.

On November 15, 1996, NASD

Regulation, Inc., (‘‘NASD Regulation’’)

submitted to the Securities and

Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

allow members under certain

circumstances to petition the staff of

NASD Regulation for permission to

modify the standardized limited

partnership transfer forms.

The proposed rule change was

published for comment in the Federal

Register on December 17, 1996.3 No

comments were received on the

proposal. This order approves the

proposal.

Currently, all members of the National

Association of Securities Dealers, Inc.

(‘‘NASD’’) are required to use

standardized transfer, registration

confirmation, and distribution

allocation forms (‘‘Forms’’) when

transferring any limited partnership

security.4 After use of the Forms became

mandatory, transfer agents, member

firms, and securities attorneys raised a

number of questions concerning the

applicability of the Forms to certain

types of transfers. For example, it was

suggested that the distribution