Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Notices 53365

7Note that under the proposed amendments,

Nasdaq still is required to keep confidential all nonpublic information and use such information only

for regulatory purposes.

8 17 CFR 300.30(a)(12).

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

factually inaccurate or incomplete. This

incomplete or inaccurate disclosure may

raise regulatory and listing qualification

issues (i.e., whether the issuer is in

compliance with all Nasdaq listing

requirements, as set out in the Rule

4300 and 4400 Series), which Nasdaq

staff would thoroughly investigate, i.e.,

when a Nasdaq-listed company issues a

press release making highly

questionable claims of significant

discovery. The Nasdaq company is

unable to immediately substantiate the

basis for the claims, which raises

serious concerns with Nasdaq as to the

accuracy of the company’s public

statement. Accordingly, Nasdaq staff

determines that additional information

from the issuer is required to evaluate

whether the company’s public statement

is accurate or requires further

clarification. The proposed amendments

permit Nasdaq, upon the request of

certain information, to halt trading so

that it may determine whether

continued trading is advisable once the

information is received and reviewed.

Nasdaq is proposing to amend IM–

4120–1 to clarify that all trading halts

initiated under Rule 4120—not just

those imposed to permit the

dissemination of material news—

generally last one half hour, but may

last longer if necessary to permit the

dissemination of material news or if the

original or an additional basis under

Rule 4120(a) exists for continuing the

halt. Furthermore, the statement in IM–

4120–1 that Nasdaq will keep denials of

rumors confidential is deleted to reflect

Nasdaq’s policy of issuing press releases

indicating that MarketWatch has

reviewed unusual trading activity, has

contacted the issuer, and is not

initiating a halt because it has not been

advised of a basis for doing so.7

The proposed amendments also

include minor conforming changes to

both Rule 4120 and IM–4120–1. For

example, the procedures for halting

trading have been consolidated into a

revised Rule 4120(b)(4) in light of the

inclusion of the additional bases for

initiating trading halts. References in

Rule 4120 and IM–4120–1 to the

‘‘Association’’ and ‘‘Market Regulation

Department’’ have been replaced with

references to ‘‘Nasdaq’’ and

‘‘MarketWatch Department’’

respectively, to reflect that Nasdaq has

authority for trading halts under the

Plan of Allocation and Delegation of

Functions by NASD to Subsidiaries.

Changes to Rule 4120(b)(2) reflect that

issuers may notify MarketWatch of

material news by facsimile, as well as by

telephone—which is stated in the

accompanying footnote to the rule but

not in the rule text. Finally, references

in Rules 6350(b) and 6430(b) to

operational trading halts for ITS/CAES

market makers have been changed to

reflect that Rule 4120 will authorize

Nasdaq to initiate trading halts for CQS

market makers, as well as ITS/CAES

market makers.

Nasdaq believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(6) of the

Act, in that it is designated to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, to remove

impediment 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. As noted above, the

proposed rule change will expand

Nasdaq’s authority to initiate regulatory

trading halts when it learns of

regulatory concerns (either through a

regulatory trading halt by another

market or incomplete or inaccurate

disclosure from the issuer), and thus

will prevent fraudulent practices and

protect investors. The proposed rule

changes also will broaden Nasdaq’s

authority to impose operational trading

halts in the over-the-counter markets

when market conditions so warrant, and

thus will remove impediments to and

perfect the mechanism of a free and

open market.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq 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, as amended.

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

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

published its reasons for so finding or

(ii) as to which the self-regulatory

organization 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

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 SR–NASD–97–60 and should be

submitted by November 3, 1997.

For the Commission, by the Division of the

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27049 Filed 10–10–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39198; File No. SR–NASD–

97–73]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval Proposed Rule

Changes by the National Association

of Securities Dealers, Inc. Relating to

Rule 4612, Primary Nasdaq Market

Maker Standards

October 3, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

September 30, 1997, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described
53366 Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Notices

2See Securities Exchange Act Release No. 38294

(February 14, 1997), 62 FR 8289 (February 24, 1997)

(order granting temporary accelerated approval of

File No. SR–NASD–97–07).

3Specifically, a Nasdaq market maker was

deemed to be a Nasdaq Primary Market Maker if it

met two of three criteria: (1) The market maker

maintains the best bid or best offer as shown on

Nasdaq no less than 35% of the time; (2) a market

maker maintains a spread no greater than 102% of

the average dealer spread; and (3) no more than

50% of a market maker’s quotation changes occur

without a trade execution. In addition, if a

registered market maker meets only one of the

above criteria, it may nevertheless qualify if the

market maker accounts for volume at least 11⁄2 times

its proportionate share of overall volume in the

stock. 4 15 U.S.C. 78c(f).

in Items I, II, and III below, which Items

have been prepared by the Nasdaq Stock

Market, Inc. (‘‘Nasdaq’’). 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

Pursuant to the provisions of Section

19(b)(1) under the Act, Nasdaq, a wholly

owned subsidiary of the NASD, is

herewith filing a proposed rule change

to extend a suspension of the Primary

Nasdaq Market Maker qualification

criteria (‘‘PMM Standards’’) found in

Rule 4612 (a) and (b) of the NASD Rules

for all Nasdaq National Market

securities for six months or until such

earlier time when new PMM Standards

can be adopted and implemented.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Nasdaq 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. Nasdaq 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

Nasdaq is proposing to extend a

suspension of the existing PMM

Standards until April 1, 1998 or until

such earlier time that new PMM

Standards can be adopted and

implemented. The standards currently

contained in NASD Rule 4612 have

been suspended on a temporary basis

since February of this year.2 That

suspension will expire after October 1,

1997.

The suspension was necessary

because the previous numerical criteria

used to establish Primary Nasdaq

Market Maker status was rendered

significantly less relevant due to

implementation of the new SEC Order

Execution Rules (i.e., the Limit Order

Display Rule and amendments to the

Quote Rule). This is because the old

PMM standards were based primarily on

a market maker’s quotes in relation to

the inside quote and the quotes of other

market makers, and the ratio of

executions to quote changes.3 Because

the new SEC rules, implemented in

January of this year, incorporate

customer limit orders in a market

maker’s quote, a market maker’s

proprietary activity has become

indistinguishable from its customer

activity.

It was therefore determined that

developing new PMM standards would

be necessary. Nasdaq’s Quality of

Markets Committee and Nasdaq staff, in

consultation with Commission staff,

endeavored to develop new and

meaningful PMM Standards as

expeditiously as possible. The new

PMM Standards are intended to more

properly identify firms that are engaging

in responsible market maker activity

deserving of the benefits associated with

being designated a Primary Nasdaq

Market Maker, such as being exempt

from the short sale rule. A detailed and

comprehensive proposal was recently

approved by the Board of Directors of

The Nasdaq Stock market at its meeting

in September 1997, and Nasdaq expects

to submit new PMM Standards to the

Commission in the form of a proposed

rule change shortly.

Nasdaq believes this proposed rule

change is consistent with Section

15A(b)(6) of the Act in that it is

designed to prevent fraudulent and

manipulative acts and facilitates

transactions in securities. In particular,

this temporary extension should

provide market makers with certainty

regarding whether they are entitled to

an exemption under the rule which

should promote market efficiency and

enhance the orderliness of the market

during a transition period. It should also

help in reducing investor confusion at

this time and thereby promote efficient

and fair markets.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq 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, as amended.

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. 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 the file

number in the caption above and should

be submitted by November 4, 1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval of the

Proposed Rule Change

The Commission finds that the

NASD’s proposal is consistent with the

provisions of Section 15A(b)(6) of the

Act which requires, in part, that an

association have rules that are designed

to prevent fraudulent and manipulative

acts and practices, promote just and

equitable principals of trade, and in

general, to protect investors. In addition,

the Commission finds that accelerated

approval of this proposal will continue

to accommodate the new SEC Order

Execution Rules while Nasdaq seeks to

implement new standards applicable to

market makers. The Commission notes,

however, that while it is approving this

proposed rule change, that it anticipates

no delay in the filing of the proposed

rule change by the NASD with respect

to the newly developed PMM standards.

In approving this proposed rule

change, the Commission notes that it

has also considered the proposal’s

impact on efficiency, competition, and

capital formation.4

The Commission, therefore, finds

good cause for approving the proposed

rule change prior to the thirtieth day
Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Notices 53367

5 17 U.S.C. 78s(B)(2).

6 17 CFR 200.30–3(a)(12).

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

2The requirement in Rule 2710(b)(13) will expire

no later than January 1, 2000.

after the date of publication of filing

thereof in the Federal Register.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,5 that the

proposed rule change, SR–NASD–97–

73, be, and hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27050 Filed 10–10–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39197; File No. SR–NASD–

97–68]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by National Association

of Securities Dealers, Inc. Relating to

Syndicate Covering Transactions and

Members’ Obligations To Obtain an

Underwriting Activity Report

October 3, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

September 8, 1997, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the prposed rule change and on

September 17, 1997, the NASD filed

Amendment No. 1. The proposed rule

change and Amendment No. 1 are

described in Items I, II, and III below,

which Items have been prepared by

NASD Regulation, Inc. (‘‘NASD

Regulation’’). The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons. For the reasons

discussed below, the Commission is

granting accelerated approval of the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing to

amend NASD Rules 2710, 4624, and

6540. Below is the text of the proposed

rule change. Proposed new language is

in italics; proposed deletions are in

brackets.

2700. Securities Distributions

2710. Corporate Financing Rule—

Underwriting Terms and Arrangements

(a) Definitions

No change.

(b) Filing Requirements

(1) through (10)

No Change.

(11) Request for Underwriting Activity

Report

Notwithstanding the availability of an

exemption from filing under

subparagraph (b)(7) of this Rule, a

member acting as a manager (or in a

similar capacity) of a distribution of a

publicly traded subject security or

reference security that is subject to SEC

Rule 101 or an ‘‘actively-traded’’

security under SEC Rule 101 (except for

a security listed on a national securities

exchange) shall submit a request to the

Corporate Financing Department for an

Underwriting Activity Report with

respect to the subject and/or reference

security in order to facilitate compliance

with SEC Rules 101, 103, or 104, and

other distribution-related Rules of the

Association. The request shall be

submitted at the time a registration

statement or similar offering document

is filed with the Department, the SEC,

or other regulatory agency, or, if not

filed with any regulatory agency, at least

two (2) business days prior to the

commencement of the restricted period

under Sec Rule 101. The request shall

include a copy of the registration

statement or similar offering document

(if not previously submitted pursuant to

subparagraph (b)(5) of this Rule). If no

member is acting as managing

underwriting of such distribution, each

member that is a distribution participant

or an affiliated purchaser shall submit a

request for an Underwriting Activity

Report, unless another member has

assumted responsibility for compliance

with this subparagraph. For purposes of

subparagraphs (b) (11) and (12), SEC

Rules 100, 101, 103, and 104 are rules

of the Commission adopted under

Regulation M and the following terms

shall have the meanings as defined in

SEC Rule 100: A distribution, A

distribution participant, A reference

security, A restricted period, and A

subject security.

(12) Submission of Pricing Information

A member acting as a manager (or in

a similar capacity) of a distribution

[subject to subparagraph (b)(11)] of

securities that are listed on a national

securities exchange and considered a

subject security or reference security

that is subject to SEC Rule 101 or an

‘‘actively-traded’’ security under SEC

Rule 101 or a distribution of any other

securities that are considered ‘‘activelytraded’’ under SEC Rule 101 shall

provide written notice to the Market

Regulation Department of NASD

Regulation, Inc., no later than the close

of business the day the offering

terminates, that includes the date and

time of the pricing of the offering, the

offering price, and the time the offering

terminated, which notice may be

submitted on the Underwriting Actvity

Report.

(13) Information on Syndicate Covering

Transactions

A member acting as a manager (or in

a similar capacity) of a distribution of

a publicly traded subject security or

reference security that is subject to SEC

Rule 101 or an ‘‘actively-traded’’

security under SEC Rule 101 shall, no

later than thirty (30) days after the

effective date of the offering, maintain

information as required by the

Corporate Financing Department of

NASD Regulation, Inc. on the amount of

the syndicate short position in a manner

consistent with SEC Rule 17a–2.2

(c) Underwriting Compensation and

Arrangements

No change.

4000. The NASDAQ Stock Market

4624. Penalty Bids and Syndicate

Covering Transactions

(a) A market maker acting as a

manager (or in a similar capacity) of a

distribution of a Nasdaq security that is

a subject or reference security under

SEC Rule 101 shall provide written

notice to the Corporate Financing

Department of NASD Regulation, Inc. of

its intention to impose a penalty bid on

syndicate members or to conduct

syndicate covering transactions

pursuant to SEC Rule 104 prior to

imposing the penalty bid or engaging in

the first syndicate covering transaction.

A market maker that intends to impose

a penalty bid on syndicate members

may request that its quotation be

identified as a penalty bid on Nasdaq

pursuant to paragraph (c) below.

(b) The notice required by paragraph

(a) shall include:

(1) The identity of the security and its

Nasdaq symbol;

(2) The date the member is intending

to impose the penalty bid and/or

conduct syndicate covering

transactions[; and