Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices 53675

1 15 U.S.C. § 78s(b)(1).

2See Letter from Robert E. Aber, Vice President

and General Counsel, NASDAQ, to Katherine

England, Assistant Director, Division of Market

Regulation, Securities and Exchange Commission

(September 29, 1997).

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39218; File No. SR–NASD–

97–04]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

National Association of Securities

Dealers, Inc. Relating to Its Rules

Governing Excused Market Maker

Withdrawals and Market Maker

Reinstatements

October 8, 1997.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 notice is

hereby given that on January 24, 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. On

September 30, 1997, the NASD

submitted an amendment (‘‘Amendment

No. 1’’) to the proposed rule change to

make technical amendments to the text

of the proposed rule change.2 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 proposes to amend its

rules governing excused market maker

withdrawals and the voluntary

termination of market maker

registrations. The proposed rule changes

also would amend the NASD’s rules

governing the reinstatement of market

makers that have been ‘‘SOESed out of

the Box’’ or have accidentally

withdrawn from a security. The text of

the proposed rule changes are as

follows. (Additions are italicized;

deletions are bracketed.)

* * * * *

4619. Withdrawal of Quotations and

Passive Market Making

(a) A market maker that wishes to

withdraw quotations in a security or

have its quotations identified as the

quotations of a passive market maker

shall contact Nasdaq Market Operations

to obtain excused withdrawal status

prior to withdrawing its quotations or

identification as a passive market

maker. Withdrawals of quotations or

identifications of quotations as those of

a passive market maker shall be granted

by Nasdaq Market Operations only upon

satisfying one of the conditions

specified in this Rule.

(b) Excused withdrawal status based

on [physical] circumstances beyond the

market maker’s control may be granted

for up to five (5) business days, unless

extended by Nasdaq Market Operations.

Excused withdrawal status [or passive

market maker status] based on

demonstrated legal or regulatory

requirements, supported by appropriate

documentation and accompanied by a

representation that the condition

necessitating the withdrawal of

quotations is not permanent in nature,

may, upon written request, be granted

for not more than sixty (60) days (unless

such request is required to be made

pursuant to paragraph (d) below).

Excused withdrawal status based on

religious holidays may be granted only

if written notice is received by the

Association [five] one business day[s] in

advance and is approved by the

Association. Excused withdrawal status

based on vacation may be granted only

if:

(1) the written request for withdrawal

is received by the Association [twenty

(20)] one business day[s] in advance,

and is approved by the Association;

(2) the request includes a list of the

securities for which withdrawal is

requested; and

(3) the request is made by a market

maker with three (3) or fewer Nasdaq

level 3 terminals. Excused withdrawal

status may be granted to a market maker

that has withdrawn from an issue prior

to the public announcement of a merger

or acquisition and wishes to re-register

in the issue pursuant to the same-day

registration procedures contained in

Rule 4611, above, provided the market

maker has remained registered in one of

the affected issues. The withdrawal of

quotations because of pending news, a

sudden influx of orders or price

changes, or to effect transactions with

competitors shall not constitute

acceptable reasons for granting excused

withdrawal status.

(c)–(d) No changes.

(e) The Market Operations Review

Committee shall have jurisdiction over

proceedings brought by Market Makers

seeking review of the denial of an

excused withdrawal pursuant to this

Rule 4619, or the conditions imposed on

their reentry.

4620. Voluntary Termination of

Registration

(a) A market maker may voluntarily

terminate its registration in a security by

withdrawing its quotations from The

Nasdaq Stock Market. A market maker

that voluntarily terminates its

registration in a security may not reregister as a market maker in that

security for twenty (20) business days.

Withdrawal from SOES participation as

a market maker in a Nasdaq National

Market security shall constitute

termination of registration as a market

maker in that security for purposes of

this Rule; provided, however, that a

market maker that fails to maintain a

clearing arrangement with a registered

clearing agency or with a member of

such an agency and is withdrawn from

participation in the Automated

Confirmation Transaction System and

thereby terminates its registration as a

market maker in Nasdaq National

Market issues may register as a market

maker at any time after a clearing

arrangement has been reestablished and

the market maker has complied with

ACT participant requirements contained

in Rule 6100.

(b) Notwithstanding the above, a

market maker that accidentally

withdraws as a market maker may be

reinstated if;

(1) the market maker notified Market

Operations of the accidental withdrawal

as soon as practicable under the

circumstances, but within at least one

hour of such withdrawal, and

immediately thereafter provided written

notification of the withdrawal and

reinstatement request;

(2) it is clear that the withdrawal was

inadvertent and the market maker was

not attempting to avoid its market

making obligations; and

(3) the market maker’s firm would not

exceed the following reinstatement

limitations:

(A) for firms that simultaneously

made markets in less than 250 stocks

during the previous calendar year, the

firm can receive no more than two (2)

reinstatements per year;

(B) for firms that simultaneously

made markets in more than 250 but less

than 500 stocks during the previous

calendar year, the firm can receive no

more than three (3) reinstatements per

year; and

(C) for firms that simultaneously

made markets in more than 500 stocks

during the previous calendar year, the

firm can receive no more than six (6)

reinstatements per year.

(c) Factors that the Association will

consider in granting a reinstatement

under paragraph (b) of this rule include,

but are not be limited to:

(1) the number of accidental

withdrawals by the market maker in the

past, as compared with market makers
53676 Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices

making markets in a comparable

number of stocks;

(2) the similarity between the symbol

of the stock that the market maker

intended to withdraw from and the

symbol of the stock that the market

maker actually withdrew from;

(3) (market conditions at the time of

the withdrawal;

(4) whether, given the market

conditions at the time of the

withdrawal, the withdrawal served to

reduce the exposure of the member’s

position in the security at the time of the

withdrawal to market risk; and

(5) the timeliness with which the

market maker notified Market

Operations of the error.

(d) The Market Operations Review

Committee shall have jurisdiction over

proceedings brought by Market Makers

seeking review of their denial of a

reinstatement pursuant to paragraph (b)

above.

* * * * *

4730. Participant Obligations in SOES

* * * * *

(b)(6) In the case of an NNM security,

a Market Maker will be suspended from

SOES if its bid or offer has been

decremented to zero due to SOES

executions and will be permitted a

standard grace period, the duration of

which will be established and published

by the Association, within which to take

action to restore a two-sided quotation

in the security for at least one normal

unit of trading. A Market Maker that

fails to re-enter a two-sided quotation in

a NNM security within the allotted time

will be deemed to have withdrawn as a

Market Maker (‘‘SOESed out of the

Box’’). except as provided below in this

subparagraph and in subparagraph (7)

[below], a Market Maker that withdraws

in an NNM security may not reenter

SOES as a Market Maker in that security

for twenty (20) business days.

(A) Notwithstanding the above, a

market maker can be reinstated if:

(i) the market maker makes a request

for reinstatement to Market Operations

as soon as practicable under the

circumstances, but within at least one

hour of having been SOESed out of the

Box, and immediately thereafter

provides written notification of the

reinstatement request;

(ii) it was a Primary Market Maker at

the time it was SOESed out of the Box;

(iii) the market maker’s firm would

not exceed the following reinstatement

limitations;

a. for firms that simultaneously made

markets in less than 250 stocks during

the previous calendar year, the firm can

receive no more than four (4)

reinstatements per year;

b. for firms that simultaneously made

markets in more than 250 but less than

500 stocks during the previous calendar

year, the firm can receive no more than

six (6) reinstatements per year;

c. for firms that simultaneously made

markets in more than 500 stocks during

the previous calendar year, the firm can

receive no more than twelve (12)

reinstatements per year; and

(iv) the designated Nasdaq officer

makes a determination that the

withdrawal was not an attempt by the

market maker to avoid its obligation to

make a continuous two-sided market. In

making this determination, the

designated Nasdaq officer will consider,

among other things:

a. whether the market conditions in

the issue included unusual volatility or

other unusual activity, and/or the

market conditions in other issues in

which the market maker made a market

at the time of the SOES exposure limit

exhaustion;

b. the frequency with which the firm

has been SOESed out of the Box in the

past;

c. Procedures the firm has adopted to

avoid being inadvertently SOESed out of

the Box; and

d. the length of time before the market

maker sought reinstatement.

(B) If a market maker has exhausted

the reinstatement limitations in

subparagraph (b)(6)(A)(iii) above, the

designated Nasdaq officer may grant a

reinstatement request if he or she finds

that such reinstatement is necessary for

the protection of investors or the

maintenance of fair and orderly markets

and determines that the withdrawal was

not an attempt by the market maker to

avoid its obligation to make a

continuous two-sided market in

instances where:

(i) a member firm experiences a

documented problem or failure

impacting the operation or utilization of

any automated system operated by or on

behalf of the firm (chronic system

failures within the control of the

member will not constitute a problem or

failure impacting a firm’s automated

system) or involving an automated

system operated by Nasdaq;

(ii) the market maker is a manager or

co-manager of a secondary offering from

the time the secondary offering is

announced until ten days after the

offering is complete; or

(iii) absent the reinstatement, the

number of market makers in a

particular issue is equal to two (2) or

less or has otherwise declined by 50%

or more from the number that existed at

the end of the prior calendar quarter,

except that if a market maker has a

regular pattern of being frequently

SOESed out of the Box, it may not be

reinstated notwithstanding the number

of market makers in the issue.

* * * * *

(b)(8) [The Rule 9700 Series of the

Code of Procedure] The Market

Operations Review Committee shall

[apply to] have jurisdiction over

proceedings brought by Market Makers

seeking review of [(A)] their removal

from SOES pursuant to subparagraphs

(6) or (7) above [, (B) the denial of an

excused withdrawal pursuant to Rule

4619, or (C) the conditions imposed on

their reentry].

* * * * *

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

In order to ensure that markt makers

are complying with their obligation to

make continuous, firm two-sided

markets, NASD Rule 4620 provides that

market makers who voluntarily

withdraw from an issue cannot reregister in that issue for 20 business

days. This rule is commonly referred to

as the ‘‘20-day Rule.’’ A corollary rule

to the ‘‘20-day Rule’’ is NASD Rule

4730(b)(6), a Small Order Execution

System (‘‘SOES’’) rule that provides that

a market maker in a Nasdaq National

Market (‘‘NNM’’) security will be

deemed to have voluntarily withdrawn

from a stock, and therefore be subject to

the 20-Day Rule, if it has failed to

restore a two-sided quotation within

five minutes after its bid or offer has

been completely decremented due to a

SOES execution. When a market maker

is deregistered from a stock because it

failed to restore its quotation, it is

referred to as being ‘‘SOESed out of the

Box.’’ To avoid being ‘‘SOESed out of

the Box,’’ members can do one of two

things: (a) Elect to not have their quote

size decremented upon the execution of

SOES orders, provided the market

maker’s quote size is equal to or greater

than the applicable SOES tier size; or (b)
Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices 53677

3See Appendix to Report Pursuant to Section

21(a) of the Securities Exchange Act of 1934

Regarding the NASD and The Nasdaq Stock Market

(‘‘21(a) Report’’), SEC, August 8, 1996, at p. 91–95.

4 Id. at p. 94.

utilize Nasdaq’s autorefresh feature that

automatically updates a market maker’s

quote after its quote size has been

decremented.

Notwithstanding the 20-day Rule,

NASD Rule 4619 affords market makers

the ability to obtain an ‘‘excused’’

market maker withdrawal in certain

limited circumstances. Market makers

receiving ‘‘excused’’ withdrawals are

not subject to the 20-Day Rule and can

re-enter their quotes once the

circumstances justifying the withdrawal

no longer exist. For example the rule

currently allows excused withdrawals

for: (1) The duration of ‘‘cooling off’’

periods mandated by certain rules under

Regulation M of the Exchange Act

(formerly Exchange Act Rule 10b–6); (2)

physical circumstances beyond the

market maker’s control; (3) religious

holidays (provided the request is

submitted 5 business days in advance of

the holiday); (4) vacations (provided the

request is received 20 business days in

advance of the vacation and is made by

a market maker with 3 or less Nasdaq

terminals); (5) involuntary failures to

maintain clearing arrangements; and (6)

other legal requirements, (e.g., the

market maker is in possession of

material non-public information).

The handling of excused withdrawal

requests and the reinstatement of market

makers who have been ‘‘SOESed out of

the Box’’ was criticized in the SEC’s

21(a) Report on the NASD and The

Nasdaq Stock Market.3 In sum, the SEC

found that the NASD had improperly

granted waivers of the 20-Day Rule for

market makers that were ‘‘SOESed out

of the Box’’ and that the NASD had not

followed its own rules when granting

excused withdrawals (e.g., excused

withdrawals for vacations were granted

with less than 20-days advance notice).

As a result, the SEC stated in its 21(a)

Report that:

[t]he NASD’s failure to enforce its excused

withdrawal rules has fostered an

environment that allowed market makers to

avoid their responsibilities to maintain

continuous quotes in the securities in which

they made markets. Market makers were able

to withdraw voluntarily from SOES beyond

the permitted five-minute window, or

otherwise withdraw from the market during

periods of volatility without substantial risk

that the NASD will enforce a twenty-day

suspension.4

Accordingly, in order to ensure that

market makers are not able to avoid or

circumvent their market making

obligations through inappropriate

excused market maker withdrawals or

inappropriate market maker

reinstatements, the NASD and Nasdaq

are submitting this rule proposal. As

detailed below, the proposed changes

are in three general areas: (1) Market

maker reinstatements upon being

‘‘SOESed out of the Box’’ or after

accidental market maker withdrawals;

(2) bases for excused withdrawals; and

(3) the jurisdiction of the Market

Operations Review Committee

(‘‘MORC’’) over excused market maker

withdrawals and market maker

reinstatements. In sum, by establishing

more objective standards for the

reinstatement of market makers who

have been ‘‘SOESed out of the Box’’ or

accidentally withdraw from a stock and

modifying the rules to better reflect the

operational realities of the marketplace,

the NASD and Nasdaq believe the

proposed modifications are responsive

to the deficiencies noted in the SEC’s

21(a) Report. Following are the specific

rule changes proposed by the NASD and

Nasdaq.

1. Reinstatement of Market Makers

Upon Being ‘‘SOESed Out of the Box’’

and for Accidental Withdrawals

a. Reinstatements Upon Being ‘‘SOESed

Out of the Box’’

The proposed rule change is designed

to ensure that market maker

reinstatements will only be made when

it is clear that a market maker was not

attempting to avoid its market making

obligations. Specifically, the proposed

changes to Rule 4730 provides that a

market maker can be reinstated only if:

(1) The market maker notifies Market

Operations to request reinstatement

within one hour of being ‘‘SOESed out

of the Box,’’ and immediately thereafter

provides written notification of the

request; (2) a designated Nasdaq officer

determines that the withdrawal was not

an attempt by the market maker to avoid

its obligations to make a continuous

two-sided market, taking into account

factors including market conditions at

the time, the frequency with which the

firm has been SOESed out of the Box,

procedures adopted by the firm to avoid

doing so inadvertently, and the length of

time before the firm sought

reinstatement; (3) it was a Primary

Market Maker at the time it was SOESed

out of the Box; and (4) the reinstatement

would not result in the market maker’s

firm exceeding certain limitations on

the number of reinstatements per year.

In particular, under the proposal, firms

that simultaneously made markets in

less than 250 stocks during the previous

calendar year could receive no more

than four reinstatement per year; firms

that simultaneously made markets in

more than 250 but less than 500 stocks

during the previous calendar year could

receive one more than six

reinstatements per year; and firms that

simultaneously made markets in more

than 500 stocks during the previous

calendar year could receive no more

than twelve reinstatements per year.

Decisions to reinstate a market maker

would be made by Nasdaq Market

Operations staff and appeals of such

decisions would be considered by the

MORC.

Finally, notwithstanding the

numerical limitations and requirements

set forth above, in instances where a

member firm experiences a documented

technological constrain or failure

involving either is own automated

system or an automated system operated

by Nasdaq, the market maker is a

manager or co-manager of a secondary

offering that is about to occur or has just

occurred, or there has been a significant

decline in the number of market makers

in a particular issue, the NASFD and

Nasdaq propose that Nasdaq should

have the authority to reinstate a market

maker that has been ‘‘SOESed out of the

Box’’ if such reinstatement is necessary

to protect investors or the integrity of

the market. Specifically, before any such

reinstatement could occur, Nasdaq staff

would have to make a finding that the

reinstatement is necessary for the

protection of investors or the

maintenance of fair and orderly markets

and determine that the withdrawal was

not an attempt by the market maker to

avoid its obligation to make a

continuous two-sided market.

b. Reinstatements for Accidental

Withdrawals

There have been instances in the past

where market makers have accidentally

withdrawn from a stock because they

inadvertently typed the wrong stock

symbol. Because the rules currently do

not provide that market makers can be

reinstated in these instances, Nasdaq

and the NASD propose that Rule 4620

be amended to permit such

reinstatements provided the withdrawal

was clearly accidental and did not

reflect an attempt by the market maker

to avoid its market making obligations.

Specifically, under the proposal, a

market maker that accidently withdraws

as a market maker may be reinstated if:

(1) The market maker notifies Market

Operations of the accidental withdrawal

within one hour of such withdrawal,

and immediately thereafter provides

written notification of the withdrawal

and request; (2) it is clear that the

withdrawal was inadvertent and the

market maker was not attempting to
53678 Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices

avoid its market making obligations; and

(3) the market maker’s firm would not

exceed specific reinstatement

limitations per year. In particular, firms

that simultaneously make markets in

less than 250 stocks during the previous

calendar year could receive no more

than two reinstatements per year. Firms

that simultaneously made markets in

more than 250 but less than 500 stocks

could receive no more than three

reinstatements per year. Firms that

simultaneously make markets in more

than 500 stocks could receive no more

than six reinstatements per year.

In addition, factors that would be

considered in granting a reinstatement

include: (1) The number of accidental

withdrawals by the market maker in the

past as compared to other market

makers making markets in a comparable

number of stocks; (2) the similarity

between the symbol of the stock

intended to be withdrawn and the

symbol of the stock actually withdrawn;

(3) market conditions; (4) whether the

withdrawal served to reduce the market

maker’s exposure to market risk; and (5)

the timeliness with which the market

maker notified Nasdaq Market

Operations of the error. Determinations

initially would be made by Nasdaq

Market Operations staff and be subject

to review by the MORC.

2. Bases for Excused Withdrawals

Rule 4619(b) presently provides that

excused withdrawal status may be

granted for a variety of reasons provided

that certain conditions are satisfied.

Specifically, as noted above, excused

withdrawal status may be granted for:

(1) The duration of ‘‘cooling off’’ periods

mandated by Regulation M; (2) physical

circumstances beyond the market

maker’s control; (3) religious holidays

(provided the request is submitted 5

business days in advance of the

holiday); (4) vacations (provided the

request is received 20 business days in

advance of the vacation and is made by

a market maker with 3 or less Nasdaq

terminals); (5) involuntary failures to

maintain clearing arrangements; and (6)

other legal requirements (e.g., the

market maker is in possession of

material non-public information). While

the NASD and Nasdaq continue to

believe that it is critical for the

maintenance of the integrity of the

market for Nasdaq to grant excused

withdrawals only when warranted,

particularly in light of the SEC’s 21(a)

Report, the NASD and Nasdaq

nevertheless believe that the present

excused withdrawal rule is not drafted

broadly enough to encompass all of the

legitimate reasons for an excused

withdrawal. The NASD and Nasdaq also

believe that the time parameters for

advance notice of vacations and

religious holidays are unnecessary.

Accordingly, the NASD and Nasdaq

propose the following amendments to

Rule 4619(b). First, excused

withdrawals may be granted for

‘‘circumstances’’ beyond the market

maker’s control, not just ‘‘physical

circumstances’’ beyond its control. With

this amendment, unpredictable events,

such as jury duty, bomb threats, the

birth of a child, or a sudden illness,

could be used as a basis for an excused

withdrawal. Second, requests for

excused withdrawals based on vacations

and religious holidays may be submitted

one business day in advance of the

proposed withdrawal. Requests for

excused withdrawals based on legal or

regulatory requirements will continue to

be made in writing, although Nasdaq

recognizes that counsel to market

makers often do not want to disclose the

specific legal basis for their withdrawal

request, particularly when the basis for

the withdrawal is that the market maker

is in possession of material, non-public

information. In this connection, Nasdaq

would continue its current practice of

apprising NASD Regulation, Inc. of all

such requests.

3. Jurisdiction of the MORC Over

Excused Market Maker Withdrawals and

Market Maker Reinstatements

Presently, appeals of Nasdaq staff

determinations concerning excused

withdrawal requests and market Maker

reinstatements are within the purview

of the NASD’s Qualifications

Committee’s jurisdiction pursuant to

NASD Rule 4730(b)(8). Pursuant to the

Plan of Allocation and Delegation of

Functions by NASD to Subsidiaries,

however, The Board of Directors of

Nasdaq has delegated the MORC

jurisdiction over such matters.

Accordingly, the NASD proposes to

amend Rules 4619, 4620, and 4730, to

effectuate the transfer of jurisdiction

over these matters from the

Qualifications Committee to the MORC.

The NASD believes that the proposed

rule changes are consistent with

Sections 15A(b)(6), 15A(b)(9),

15A(b)(11) 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 15A(b)(9) provides that the rules

of the Association may not impose any

burden on competition not necessary or

appropriate in furtherance of the

purposes of the Act. Section 15A(b)(11)

empowers the NASD to adopt rules

governing the form and content relating

to securities in the Nasdaq market. Such

rules must be designed to produce fair

and informative quotations, prevent

fictitious and misleading quotations,

and promote orderly procedures for

collecting and distributing quotations.

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.

In particular, by ensuring that market

makers will only be relieved of their

market making obligations for legitimate

reasons and that waivers of the ‘‘20-day

rule’’ will only be made when it is

absolutely clear that the market maker

receiving the waiver was not attempting

to avoid its market making obligations

when it withdrew or was withdrawn

from the security, the NASD and Nasdaq

believe the proposed rule change will

help to ensure that market makers are

abiding by their obligations to make

continuous, two-sided markets and

promote quote competition among

market makers. Such competition

among market makers will, in turn,

enhance the integrity of the Nasdaq

market, the best execution of customer

orders, and the price discovery process

for Nasdaq securities.

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

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
Federal Register / Vol. 62, No. 199 / Wednesday, October 15, 1997 / Notices 53679

5 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. 38372

(March 7, 1997), 62 FR 13421 (March 21, 1997)

(notice of filing and immediate effectiveness of File

No. SR–NYSE–97–04).

4 15 U.S.C. 78f(b)(5).

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the NASD 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 File

Number SR–NASD–97–04, and should

be submitted by November 5, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27281 Filed 10–14–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39206; File No. SR–NYSE–

97–27]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the New York Stock

Exchange, Inc. Relating to Extension

of the Pilot for Allocation Policy and

Procedures

October 6, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on

September 19, 1997, the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

change as described in Items I, II and III

below, which Items have been prepared

by the self-regulatory organization. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

grant accelerated approval to the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change extends the

effectiveness of the pilot program

relating to the Exchange’s Allocation

Policy and Procedures until November

28, 1997. The text of the proposed rule

change is available at the Office of the

Secretary, the NYSE, and at the

Commission.

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

self-regulatory organization 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 III below.

The self-regulatory organization 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 the proposed rule

change is to extend the effectiveness of

a pilot program relating to the

Exchange’s Allocation Policy and

Procedures. The Exchange’s Allocation

Policy and Procedures are intended: (1)

To ensure that securities are allocated in

an equitable and fair manner and that

all specialist units have a fair

opportunity for allocations based on

established criteria and procedures; (2)

to provide an incentive for ongoing

enhancement of performance by

specialist units; (3) to provide the best

possible match between specialist unit

and security and (4) to contribute to the

strength of the specialist system.

The Exchange recently implemented,

on a pilot basis, a revised Allocation

Policy and Procedures to amend the

procedures by which the Exchange

selects a specialist for newly listed

companies.3 The Exchange’s pilot

program, which expires October 7, 1997,

provides listing companies with two

options, either: (1) To have their

specialist unit selected by the

Allocation Committee according to

existing allocation criteria, with

company input permitted in the form of

a ‘‘generic letter’’ which may describe

desired general characteristics of a

specialist unit, but may not mention

particular units or describe

characteristics that would be applicable

to a readily identifiable specialist unit;

or (2) to make the final selection of a

specialist unit from among three to five

units selected by the Allocation

Committee, with a generic letter from

the company describing desired

specialist unit characteristics permitted,

as in (1) above. In the case of both

options, if a generic letter is submitted,

the letter would be distributed to all

specialist units along with allocation

data sheets (‘‘green sheets’’).

The Exchanges proposes to extend the

Allocation Policy and Procedure pilot

program until November 28, 1997 to

continue to study its effects.

2. Statutory Basis

The NYSE believes the proposed rule

change is consistent with the

requirements of Section 6(b)(5) of the

Act 4 that an Exchange have rules that

are designed to promote just and

equitable principles of trade, 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. The Exchange believes

that extending the effectiveness of the

Allocation Policy and Procedures until

November 28, 1997 is consistent with

these objectives in that they enable the

Exchange to further enhance the process

by which stocks are allocated between

specialist units to ensure fairness and

equal opportunity in the process.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.