[Federal Register Volume 62, Number 4 (Tuesday, January 7, 1997)]
[Notices]
[Pages 1010-1012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-238]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38101; File No. SR-NASD-96-58]


Self-Regulatory Organizations; Notice and Order Granting 
Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc., Relating to an Interim 
Extension of the OTC Bulletin Board <Register> Service through March 
31, 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 December 
27, 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 and is 
simultaneously approving the proposal.

[[Page 1011]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    On June 1, 1990, the NASD, through a subsidiary corporation, 
initiated operation of the OTC Bulletin Board Service (``OTCBB 
Service'' or ``Service'') in accord with the Commission's approval of 
File No. SR-NASD-88-19, as amended.\1\ The OTCBB Service provides a 
real-time quotation medium that NASD member firms can elect to use to 
enter, update, and retrieve quotation information (including unpriced 
indications of interest) for securities traded over-the-counter that 
are neither listed on The Nasdaq Stock Market<SUP>SM nor on a 
registered national securities exchange (collectively referred to as 
``OTC Equities'').\2\
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    \1\ Securities Exchange Act Release No. 27975 (May 1, 1990), 55 
19124.
    \2\ With the Commission's approval of File No. SR-NASD-93-24, 
the universe of securities eligible for quotation in the OTCBB now 
includes certain equities listed on regional stock exchanges that do 
not quality for dissemination of transaction reports via the 
facilities of the Consolidated Tape Association.
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    Essentially, the Service supports NASD members' market making in 
OTC Equities through authorized Nasdaq Workstation II<SUP>TM authorized 
devices. Real-time access to quotation information captured in the 
Service is available to subscribers of Level 2/3 Nasdaq service as well 
as subscribers of vendor-sponsored services that now carry OTCBB 
Service data. The Service is currently operating under an interim 
approval that expires on December 31, 1996.\3\
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    \3\ Securities Exchange Act Release No. 37387 (June 28, 1996), 
61 FR 36098.
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    The NASD hereby files this proposed rule change, pursuant to 
Section 19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain 
authorization for an interim extension of the Service through March 31, 
1997. During this interval, there will be no material change in the 
OTCBB Service's operational features, absent Commission approval of a 
corresponding Rule 19b-4 filing.

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.

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

1. Purpose
    The purpose of this filing is to ensure continuity in the operation 
of the OTCBB Service while the Commission considers an earlier NASD 
rule filing (File No. SR-NASD-92-7) that requested permanent approval 
of the Service.\4\ For the month ending November, 1996, the Service 
reflected the market making positions of 411 NASD member firms 
displaying quotations/indications of interest in approximately 5,700 
OTC Equities.
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    \4\ Securities Exchange Act Release No. 30766 (June 1, 1992), 57 
FR 24281. See also Securities Exchange Act Release No. 34956 
(November 9, 1994), 59 FR 59808 providing notice of Amendment No. 1 
to the proposed rule change.
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    During the proposed extension, unregistered foreign securities and 
American Depositary Receipts (collectively, ``Foreign Equity 
Securities'') will remain subject to the twice-daily, update limitation 
that traces back to the Commission's original approval of the OTCBB 
Service's operation. As a result, all priced bids/offers displayed in 
the Service for unregistered Foreign Equity Securities will remain 
indicative.
    In conjunction with the launch of the Service in 1990, the NASD 
implemented a filing requirement (currently under NASD Rule 6740) and 
review procedures to verify member firms' compliance with Rule 15c2-11 
under the Act. During the proposed extension, this review process will 
continue to be an important component of the NASD's self-regulatory 
oversight of broker-dealers' market making in OTC Equities. The NASD 
also expects to work closely with the Commission staff in developing 
further enhancements to the Service, including those related to the 
market structure requirements mandated by the Securities Enforcement 
Remedies and Penny Stock Reform Act of 1990 (``Reform Act'') 
particularly Section 17B of the Act.\5\ The NASD notes that 
implementation of the Reform Act entails Commission rulemaking in 
several areas, including the development of mechanisms for gathering 
and disseminating reliable quotation/transaction information for 
``penny stocks.''
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    \5\ On November 24, 1992, the NASD filed an application with the 
Commission for interim designation of the Service as an automated 
quotation system for penny stocks, pursuant to Section 17B(b) of the 
Act. On December 30, 1992, the Commission granted Qualifying 
Electronic Quotation System (``QEQS'') status for the Service for 
purposes of certain penny stock rules that became effective on 
January 1, 1993. On August 26, 1993, the Commission granted the 
NASD's request for an extension of QEQS status until such time as 
the OTCBB meets the statutory requirements of Section 17B(b)(2).
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2. Statutory Basis
    The NASD believes that this proposed rule change is consistent with 
Sections 11A(a)(1), 15A(b)(6) and (11), and Section 17B of the Act. 
Section 11A(a)(1) sets forth the Congressional findings and policy 
goals respecting operational enhancements to the securities markets. 
Basically, the Congress found that new data processing and 
communications techniques should be applied to improve the efficiency 
of market operations, broaden the distribution of market information, 
and foster competition among market participants. Section 15A(b)(6) 
requires, among other things, that the NASD's rules promote just and 
equitable principles of trade, facilitate securities transactions, and 
protect public investors. Subsection (11) thereunder authorizes the 
NASD to adopt rules governing the form and content of quotations for 
securities traded over-the-counter for the purposes of producing fair 
and informative quotations, preventing misleading quotations, and 
promoting orderly procedures for collecting and disseminating 
quotations. Finally, Section 17B contains Congressional findings and 
directives respecting the collection and distribution of quotation 
information on low-priced equity securities that are neither Nasdaq nor 
exchange-listed.
    The NASD believes that extension of the Service through March 31, 
1997 is fully consistent with the foregoing provisions of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD believes that the 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The NASD requests that the Commission find good cause, pursuant to 
Section 19(b)(2) of the Act, for

[[Page 1012]]

approving the proposed rule change prior to the 30th day after its 
publication in the Federal Register to avoid any interruption of the 
Service. The current authorization for the Service extends through 
December 31, 1996. Hence, it is imperative that the Commission approve 
the instant filing on or before that date. Otherwise, the NASD will be 
required to suspend operation of the Service pending Commission action 
on the proposed extension.
    The NASD believes that accelerated approval is appropriate to 
ensure continuity in the Service's operation pending a determination on 
permanent status for the Service, as requested in File No. SR-NASD-92-
7. Continued operation of the Service will ensure the availability of 
an electronic quotation medium to support member firms' market-making 
in approximately 5,700 OTC Equities and the widespread dissemination of 
quotation information on these securities. The Service's operation also 
expedites price discovery and facilitates the execution of customer 
orders at the best available price. From a regulatory standpoint, the 
NASD's capture of quotation data from participating market makers 
supplements the transactional data now reported by member firms 
pursuant to NASD Rule 6600.

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 Room. Copies of the 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-58 and should be 
submitted by January 28, 1997.

V. Commission's Findings and Order Granting Accelerated Approval

    The Commission finds that approval of the proposed rule change is 
consistent with the Act and the rules and regulations thereunder, and 
in particular with the requirements of Section 15A(b)(11) of the Act, 
which provides that the rule of the NASD relating to quotations must be 
designed to produce fair and informative quotations, prevent fictitious 
or misleading quotations and promote orderly procedures for collecting, 
distributing, and publishing quotations.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publishing notice. The 
Commission finds that approval of this proposed rule change to continue 
operation of the pilot program is appropriate. The Commission has 
solicited and continues to solicit comments from the OTCBB Service. An 
extension of the pilot program will provide the Commission with 
sufficient time to consider the issues raised by the various interested 
parties.
    Accelerated approval of the NASD's proposal is appropriate to 
ensure continuity in the Service's operation as an electronic quotation 
medium that supports NASD members' market making in OTC Equities and 
that facilitates price discovery and the execution of customers' orders 
at the best available price. Additionally, continued operation of the 
Service will materially assist the NASD's surveillance of trading in 
OTC Equities that are quoted in the Service, including certain non-Tape 
B securities that are listed on regional exchanges and quoted in the 
Service.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change be, and hereby is, approved for an 
interim period through March 31, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-238 Filed 1-6-97; 8:45 am]
BILLING CODE 8010-01-M