[Federal Register Volume 62, Number 4 (Tuesday, January 7, 1997)]
[Notices]
[Pages 1009-1010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-236]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38097; File No. SR-NASD-96-45]


Self-Regulatory Organizations; Notice and Immediate Effectiveness 
of Proposed Rule Change by National Association of Securities Dealers, 
Inc., Relating to Small Order Execution System Tier Size 
Classifications

December 30, 1996.
    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 December 
18, 1996, 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 submitting this filing to effectuate The Nasdaq Stock 
Market, Inc.'s (``Nasdaq'') periodic reclassification of Nasdaq Market 
(``NNM'') securities into appropriate tier sizes for purposes of 
determining the maximum size order for a particular security eligible 
for execution through Nasdaq's Small Order Execution System (``SOES'') 
and the minimum quote size requirements for Nasdaq market makers in NNM 
securities. Specifically, under the proposal, 762 NNM securities will 
be reclassified into a different SOES tier size effective January 2, 
1997. Since the NASD's proposal is an interpretation of existing NASD 
rules, there are no language changes.

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.

[[Page 1010]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the rule change is to effectuate Nasdaq's periodic 
reclassification of NNM securities into appropriate tier sizes for 
purposes of determining the maximum size order for a particular 
security eligible for execution through SOES and the minimum quote size 
requirements for Nasdaq market in NNM securities. Nasdaq periodically 
reviews the SOES tier size applicable to each NNM security to determine 
if the trading characteristics of the issue have changed so as to 
warrant a tier size adjustment. Such a review was conducted using data 
as of September 30, 1996, pursuant to the following established 
criteria: \1\

    \1\ The classification criteria are set forth in NASD Rule 
4613(a)(2) and the footnote to NASD Rule 4710(g).
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    NNM securities with an average daily non-block volume of 3,000 
shares or more a day, a bid price less than or equal to $100, and 
three or more market makers are subject to a minimum quotation size 
requirement of 1,000 shares and a maximum SOES order size of 1,000 
shares;
    NNM securities with an average daily non-block volume of 1,000 
shares or more a day, a bid price less than or equal to $150, and 
two or more market makers are subject to a minimum quotation size 
requirement of 500 shares and a maximum SOES order size of 500 
shares; and
    NNM securities with an average daily non-block volume of less 
than 1,000 shares a day, a bid price less than or equal to $250, and 
less than two market makers are subject to a minimum quotation size 
requirement of 200 shares and a maximum SOES order size of 200 
shares.


    Pursuant to the application of this classification criteria, 762 
NNM securities will be reclassified effective January 2, 1997. These 
762 NNM securities are set out in the NASD's Notice To Members 96-88 
(December, 1996).
    In ranking NNM securities pursuant to the established 
classification criteria, Nasdaq followed the changes dictated by the 
criteria with three exceptions. First an issue was not moved more than 
one tier size level. For example, if an issue was previously 
categorized in the 1,000-share tier size, it would not be permitted to 
move to the 200-share tier even if the reclassification criteria showed 
that such a move was warranted. In adopting this policy, Nasdaq was 
attempting to maintain adequate public investor access to the market 
for issues in which the tier size level decreased and help ensure the 
ongoing participation of market makers in SOES for issues in which the 
tier size level increased. Second, for securities priced below $1 where 
the reranking called for a reduction in tier size, the tier size was 
not reduced. Third, for the top 50 Nasdaq securities based on market 
capitalization, the SOES tier sizes were not reduced regardless of 
whether the reranking called for a tier-size reduction.
    The NASD believes that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act. Section 15A(b)(6) requires, among other 
things, that the rules of the NASD governing the operation of The 
Nasdaq Stock Market be designed to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market. The NASD believes that the reassignment of NNM 
securities within SOES tier size levels and minimum quotation size 
levels will further these ends by providing an efficient mechanism for 
small, retail investors to execute their orders on Nasdaq and by 
providing investors with the assurance that they can effect trades up 
to a certain size at the best prices quoted on Nasdaq.

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 the reranking of NNM securities into 
appropriate SOES tier sizes was done pursuant to the NASD's stated 
policy and practice with respect to the administration and enforcement 
of two existing NASD rules. Further, in the SOES Tier Size Order, the 
Commission requested that the NASD provide this information as an 
interpretation of an existing NASD rule under Section 19(b)(3)(A) of 
the Act.

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, 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 No. SR-NASD-96-45 and should 
be submitted by January 28, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\
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    \2\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-236 Filed 1-6-97; 8:45 am]
BILLING CODE 8010-01-M