Federal Register / Vol. 62, No. 179 / Tuesday, September 16, 1997 / Notices 48689

2Schedule A, Section 1(a) requires NASD

members to pay an amount equal to the greater of

$1,200.00 or the total of: (i) 0.125% of the annual

gross revenue from state and municipal securities

transactions; (ii) 0.125% of annual gross revenue

from other over-the-counter securities transactions;

(iii) 0.125% of the annual gross revenue from U.S.

Government securities transactions, and; (iv) with

respect to members whose books, records, and

financial operations are examined by the NASD,

0.125% of annual gross revenue from securities

transactions executed on an exchange.

3 15 U.S.C. 78o–3(b)(5) (1994).

4 15 U.S.C. 78s(b)(3)(A)(ii) (1994).

5 17 CFR 240.19b–4 (1997).

6 17 CFR 200.30–3(a)(12) (1997).

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

2 17 CFR 240.19b–4.

(3) Portion of assessment > $50,000 —

5% additional

(4) Portion of assessment > $100,000 —

3% [4%] additional.

* * * * *

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 Regulation,

Inc. (‘‘NASD Regulation’’) 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

Pursuant to Article VI of the NASD

By-Laws, the NASD requires its

members to pay an annual assessment

fee, as defined by Schedule A, Section

1. NASD members are required under

Section 1(a) of Schedule A to pay an

amount equal to the greater of $1,200.00

or the total of a specified percentage of

their annual gross income from

securities transactions.2 NASD members

also receive, pursuant to Section 1(c) of

Schedule A, a credit against the annual

assessment on their gross income

imposed under Section 1(a) of Schedule.

A. The Section 1(c) of Schedule A

credit to members is calculated by a

tiered discount structure that is

intended to address, to some extent, the

regulatory subsidy provided by larger

NASD firms.

The proposed rule change would

amend Section 1(c) of Schedule A to

decrease the credit allowed to members

against the annual assessment on their

gross income by an average of

approximately 10%. This reduction in

credit allowed to members will result in

approximately $2.8 million of

additional revenue in 1997 for the

NASD. This action, based on the current

forecast for operating costs and other

revenues, should allow the NASD to

fund its operating needs and achieve a

balanced budget for 1997. The need for

this discount rate change results from

various factors, including a shortfall in

the members’ 1996 reported gross

revenues subject to this assessment, as

well as incremental costs associated

with various computer and technology

related initiatives and various personnel

programs.

2. Statutory Basis

The NASD believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(5) of the

Act,3 which require that the rules of the

Association provide for the equitable

allocation of reasonable dues, fees, and

other charges in that the proposed rule

reasonably provides for an equitable

reduction in the tiered discount

structure applied to the gross revenue

assessment.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD does not believe that the

proposed rule change will 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 foregoing rule change establishes

or changes a due, fee, or other charge

and, therefore, has become effective on

August 22, 1997, pursuant to Section

19(b)(3)(A)(ii) of the Act 4 and

subparagraph (e) of Rule 19b–4 5

thereunder. At any time within 60 days

of the filing of such rule change, the

Commission may summarily abrogate

the rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes 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, 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 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–97–62 and should be

submitted by October 7, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24444 Filed 9–15–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39043; File No. SR–NASD–

97–10]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 1 to the Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to the

Distribution of Information Concerning

the Availability of the NASD’s Public

Disclosure Program

September 10, 1997.

I. Introduction

On February 11, 1997, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) 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

proposal to adopt NASD Rule 2280,

‘‘Investor Education and Protection,’’

which will require certain NASD

members to provide customers with the

following items of information in
48690 Federal Register / Vol. 62, No. 179 / Tuesday, September 16, 1997 / Notices

3See Securities Exchange Act Release No. 39291

(February 14, 1997), 62 FR 8477.

4See Letter from Daniel D. McConnell, Executive

Vice President, PFS Investments, Inc., to Jonathan

G. Katz, Secretary, SEC (May 14, 1997) (‘‘PFS

Letter’’); Letter from Michael A. Kerley, Vice

President and Chief Legal Officer, MML Investors

Services, Inc., to Jonathan G. Katz, Secretary, SEC

(March 14, 1997) (‘‘MML Letter’’).

5See Letter from Craig L. Landauer, NASDR, to

Katherine A. England, Assistant Director, Division

of Market Regulation (‘‘Division’’), SEC (July 31,

1997) (‘‘Amendment No. 1’’). Amendment No. 1

exempts from the requirements of the proposal

NASD members that do not carry customer

accounts and do not hold customer funds or

securities.

6See GAO, NASD Telephone Hotline:

Enhancements Could Help Investors Be Better

Informed About Brokers’ Disciplinary Records

(August 1996) (‘‘GAO Report’’).

7 Id. at 18.

8See Amendment No. 1, supra note 5.

9See PFS Letter and MML Letter, supra note 4.

10See MML Letter, supra note 4.

11See Letter from Craig L. Landauer, Associate

General Counsel, NASDR, to Katherine A. England,

Assistant Director, Division, SEC (June 18, 1997)

(‘‘June 18 Letter’’).

12 15 U.S.C. 78o–3(b)(6) (1988).

13 15 U.S.C. 78o–3(i) (1988 & Supp. 1992). In

approving the rule, the Commission has considered

the proposed rule’s impact on efficiency,

competition, and capital formation. 15 U.S.C. 78c(f).

14Telephone conversation among John Ramsey,

NASDR, and Craig Landauer, Associate General

Counsel, NASDR, and Katherine England, Assistant

Director, Division, Commission, and Yvonne

Fraticelli, Attorney, Division, Commission, on

September 9, 1997.

writing not less than once every

calendar year: (1) The NASD Regulation

(‘‘NASDR’’) Public Disclosure Program

(‘‘Program’’) hotline number; (2) the

NASDR web site address; and (3) a

statement regarding the availability to

the customer of an investor brochure

that includes information describing the

Program.

The proposed rule change was

published for comment in the Federal

Register on February 25, 1997.3 Two

comment letters were received regarding

the proposal.4 On July 31, 1997, the

NASD amended its proposal.5 This

order approves the NASD’s proposal, as

amended.

II. Description of the Proposal

Under the NASDR’s Program, NASDR

provides certain information regarding

the disciplinary history of NASD

members and their associated persons in

response to written inquiries, electronic

inquiries or telephonic inquiries via

NASDR’s toll-free telephone listing. At

the request of the Honorable Edward J.

Markey, the General Accounting Office

(‘‘GAO’’) in 1995 reviewed the

effectiveness of the toll-free telephone

information service that the NASDR

uses to disseminate information under

the Program. In its report reviewing the

Program, the GAO recommended that

NASDR publicize and educate investors

about the availability of information

through the Program.6 Specifically, the

GAO recommended that NASDR

‘‘explore other ways of publicizing the

hotline to a wider audience of investors,

such as including the hotline number on

account-opening documents or account

statements, and making disciplinaryrelated information directly available to

investors through the Internet.’’ 7

NASD Rule 2280(a) will require

NASD members that carry customer

accounts to provide customers with the

following items of information in

writing not less than once every

calendar year: (1) The NASDR Program

hotline number; (2) the NASDR web site

address; and (3) a statement regarding

the availability to the customer of an

investor brochure that includes

information describing the Program.

NASD members may include the

required information on customer

account statements or in another type of

publication. Under NASD Rule 2280(b),

members that do not carry customer

accounts and do not hold customer

funds or securities are exempt from the

requirements of NASD Rule 2280(a).8

III. Summary of Comments

Two comment letters were received

regarding the filing.9 Both commenters

are introducing brokers that do not carry

customer accounts or hold customer

funds or securities. The commenters

stated that because they do not provide

customer account statements or

correspond directly with their

customers, compliance with the

proposal would require a special annual

mailing that would impose significant

costs on their firms. In particular, MML

argued that it would spend

approximately $1 million annually to

comply with the proposal.10 In response

to the commenters’ concerns, the NASD

indicated that it would advise the

commenters that they could comply

with the proposal by providing

information about the Program to the

customer at the time of the customer’s

purchase.11 Amendment No. 1, which

exempts from the rule brokers that do

not carry customer accounts and do not

hold customer funds or securities,

supersedes the NASD’s June 18 Letter.

IV. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to the NASD, and, in

particular, with the requirements of

Section 15A(b)(6) 12 and 15A(i).13

Section 15A(b)(6) requires, in part, that

the rules of a national securities

association be designed to prevent

fraudulent and manipulative acts and

practices and to protect investors and

the public interest. Section 15A(i)

requires the NASD to: (1) Establish and

maintain a toll-free telephone listing to

receiving inquiries regarding

disciplinary actions involving the

NASD’s members and their associated

persons; and (2) promptly respond to

such inquiries in writing. By requiring

broker-dealers that carry customer

accounts to provide customers, at least

once each calendar year, with written

information regarding the NASDR

Program hotline number, the NASDR’s

web site address, and a statement

regarding the availability of an investor

brochure describing the Program, the

proposal will help to publicize the

availability of the NASDR’s Program

and may increase investor use of the

Program. As a result of increased

investor use of the Program, a greater

number of investors will obtain

information about the disciplinary

histories of NASD members and their

associated persons. This information

will help investors determine whether

to conduct, or to continue to conduct,

business with a NASD member or

associated person of the member.

The Commission finds that

Amendment No. 1 to the proposal is

reasonable and consistent with the Act.

Amendment No. 1 exempts from the

proposal brokers that do not carry

customer accounts and do not hold

customer funds or securities. The

Commission believes that it is

reasonable to exempt such brokers from

the proposal because, according to the

commenters, the proposal’s

requirements would impose significant

costs on such brokers. In addition, the

Commission understands that the

customers of brokers that do not carry

customer accounts and do not hold

customer funds or securities will receive

the information required under the

proposal from a clearing broker or from

the broker that carries the customer’s

account.14

The Commission finds good cause for

approving Amendment No. 1 the

proposal prior to the 30th day after the

date of publication of notice of filing

thereof in the Federal Register.

Specifically, the Commission finds that

Amendment No. 1 strengthens the

NASD’s proposal by ensuring that the

proposal does not impose prohibitive

expenses on broker-dealers that do not

carry customer accounts and do not

hold customer funds or securities.

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.
Federal Register / Vol. 62, No. 179 / Tuesday, September 16, 1997 / Notices 48691

15 15 U.S.C. 78s(b)(2).

16 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 38574

(May 5, 1997).

4 62 FR 25984 (May 12, 1997).

5See NYSE Rule 104.10(5)(i).

6A plus tick is a price above the price of the last

preceding sale.

7A minus tick is a price below the price of the

last preceding sale.

8Long sales on zero-minus ticks would not be

deemed ‘‘to establish or increase a position.’’

Rather, such sales are deemed liquidating

transactions and are addressed by NYSE Rule

104.10(6). See Securities Exchange Act Release No.

31797 (January 29, 1993) 58 FR 7277 (February 5,

1993) (approval order permitting specialists to

‘‘reliquify’’ a dealer position by selling long on a

zero-minus tick or by purchasing to cover a short

position on a zero-plus tick without Floor Official

approval).

9 15 U.S.C. 78f.

10 15 U.S.C. 78(c).

11 15 U.S.C. 78k and 17 CFR 240.11b–1(a)(2).

1. 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 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–97–10 and should be

submitted by October 7, 1997.

It therefore is ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (SR–NASD–97–

10), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24542 Filed 9–15–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39036; File No. SR–NYSE–

97–10]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the New York Stock Exchange, Inc.

Relating to Amendments to Rule

104.10(5) Relating to Specialists

Establishing a Position in Specialty

Stocks

September 9. 1997.

I. Introduction

On March 25, 1997, the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) 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 the proposed rule change

to permit specialists to engage in certain

types of transactions by removing

existing restrictions that currently limit

the ability of specialists to engage in

such transactions when establishing or

increasing a position in their specialty

stocks.3 Notice of filing appeared in the

Federal Register on May 12, 1997.4 No

comment letters were received

concerning the proposed rule change.

This order approves the NYSE’s

proposal.

II. Description of the Proposal

The NYSE, pursuant to Rule 19b–4 of

the Act, proposes to amend NYSE Rule

104.10(5)(i) to remove certain

restrictions on specialists’ ability to

establish or increase their positions in

their specialty stocks.

Purpose

NYSE Rule 104 governs specialists’

dealings in their specialty stocks. In

particular, NYSE Rule 104.10(5)(i)

describes certain types of transactions to

establish or increase a specialist’s

position which are not to be effected

unless they are ‘‘reasonably necessary to

render the specialist’s position adequate

to’’ the needs of the market.

Additionally, these types of transactions

require floor official approval unless

they are conducted in ‘‘less active

markets’’ where such transactions are an

essential part of a proper course of

dealings and where the amount of stock

involved and the price change, if any,

are normal in relation to the market.5

Currently, such restrictions apply

equally to transactions that are

beneficial to the market by being against

the market trend. The Exchange is

proposing to apply these restrictions

only to those transactions that are

disadvantageous to the market by being

with the market trend.

Specifically, the revision to NYSE

Rule 104.10(5)(i)(B) would continue to

prohibit a specialist from establishing or

increasing his or her long position by

purchasing more than 50% of the stock

offered for sale in the market on a zeroplus tick (i.e., at a price equal to the last

sale and above the previous different

price sale).6 There would no longer,

however, exist an express restriction on

purchasing stock on a zero-minus tick to

establish or increase a position. The

NYSE believes that purchases on zerominus ticks are against the market trend

and are perceived as being beneficial to

the market.7

Paragraph (C) of NYSE Rule

104.10(5)(i) would be deleted to permit

a specialist to establish or increase his

or her short position by selling stock to

the bid without restriction on a zeroplus tick. The NYSE believes that these

transactions are beneficial to the market

by being against the market trend in

nature. Short sales on zero-minus ticks

will continue to be prohibited pursuant

to SEC Rule 10a–1 under the Act and

Exchange Rule 440B.8

The proposed amendments are

intended to enhance the specialist’s

ability to deal for his or her own

account to provide support to the

market. Under the proposed rule

change, specialists will, to a greater

degree, be able to counter the market

trend in a stock through effecting

proprietary transactions that are against

the market trend. The NYSE believes

that in today’s markets, characterized by

increased volatility and institutional

activity, the use of dealer capital in this

fashion can add liquidity in a manner

beneficial to the market.

III. Commission Findings and

Conclusions

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, with

Section 6(b)(5) of the Act.9 The

Commission believes the proposal is

consistent with the Section 6(b)(5)

requirements that the rules of an

exchange be designed to promote just

and equitable principals of trade,

remove impediments to and perfect the

mechanism of a free and open market,

and, in general, protect investors and

the public interest, promote efficiency,

competition and capital formation.10

The Commission also believes that the

proposal is consistent with Section

11(b) of the Act and Rule 11b–1

thereunder,11 which allow exchanges to

promulgate rules relating to specialists

in order to maintain fair and orderly

markets.

Both the Act and NYSE Rules reflect

the crucial role played by specialists in