Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Notices 53361

18The Commission requests that the CBOE

distribute a Notice to Members discussing all RAES

operations and policies that will apply to DJX. In

addition, the Commission expects CBOE, in the

near future, to codify RAES operations for OEX and

DJX in manner similar to that for SPX.

19The Commission notes that this reasoning

applies to an option contract based upon one-onehundredth of the DJIA and that the same reasoning

would not apply if the COE were to start trading

an options contract based upon one-tenth of the

DJIA. The Commission expects the CBOE to reset

the RAES eligible size and the firm quote limit

accordingly for an options contract based on onetenth of the DJIA.

20The current fine schedule for violations of the

firm quote program for OEX states that the fine for

third and subsequent violations is $3000 to $5000.

21The Commission believes it is reasonable under

the Act to amend Rule 8.16, RAES Eligibility in

Equity Options, to indicate that it does not apply

to DJIA options because DJX will now be covered

by the RAES eligibility rule for OEX.

22See supra note 4.

23See supra note 5.

24 15 U.S.C. 78s(b)(2).

25 17 CFR 200.30–3(a)(12).

Rule 24.17A, RAES Operations in DJX,

which will be the same for OEX except

for the maximum contract size eligible

for RAES. The maximum size for RAES

in DJX will be up to 100 contracts,

whereas the maximum size for OEX is

10 contracts. Similar to OEX, the

Exchange will have the authority to

choose which DJX series will be eligible

for RAES.18

As a general rule, the Commission

believes that customer limit orders in

the limit order book should receive

priority protection over other orders

when the quoted market touches the

limit order. Specifically, RAES orders

generally should not be executed by

market makers when customer limit

orders are also price eligible to interact

with the RAES orders. The Commission

believes that exceptions to this principle

are only appropriate in limited

circumstances where it is unlikely that

affected limit orders will receive an

inferior execution. The Commission has

previously approved CBOE rule changes

that afforded such an exception in two

highly liquid options classes, OEX

index options and IMB equity options.

After careful review, the Commission

has determined that it is appropriate to

allow DJX RAES orders to be

automatically executed notwithstanding

the possibility that customer limit

orders could be priced identically to the

prevailing disseminated best bid or

offer. The Commission notes that it is

basing this approval upon the fact that

the Exchange expects DJX to be a

heavily traded index product. As a

result, it is anticipated that most limit

orders will receive fair executions,

particularly since CBOE Rule 6.45

ensures that no transaction can take

place on the floor at a price equal to or

better than the price of the booked order

until the booked order has been filled.

The Commission expects the Exchange

to monitor the actual depth and

liquidity of the DJCX trading floor and

the treatment of customer orders on the

limit order book that are traded behind

RAES orders at the market.

The Commission also believes that

increasing the number of DJX contracts

eligible for RAES and to increase the

firm quote requirement for DJX is

consistent with the Act because options

on the DJIA are approximately one-tenth

the value of options on indexes

underlying other broad-based indexes.19

Therefore, increasing the RAES

eligibility and firm quote requirements

for DJX should enhance market maker

obligations and commitments in these

options, as well as help add depth and

liquidity to the market for DJX. In

addition, increasing the size of the

RAES eligibility for DJX will provide the

benefits of RAES execution to a larger

number of customer orders and reduce

the number of transactions to be

executed manually on the floor, which

could increase the efficiency of

executing non-RAES orders.

The Commission believes it is

consistent with the Act to amend the

Minor Rule Plan fine amount for

violations of the firm quote rule for both

OEX and DJX because the amended fine

schedule should still ensure adequate

and effective enforcement of the firm

quote program. The amended fine

amount for third and fourth violations

of the firm quote policy, which will be

$2500 20 is a reasonable amount in order

to help deter non-compliance with the

firm quote program, and there will now

be mandatory referral to the BCC for any

violations after the fourth violation. In

addition, the Commission notes that the

Exchange always has the authority to

commence a full disciplinary

proceeding under Exchange Rule 17.2

under its Minor Rule Plan program for

any violation of the firm quote program,

and that the CBOE stated that it will

exercise this authority in egregious

situations.21

The Commission finds good cause for

approving the proposed rule change

prior the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. The Commission

believes that accelerated approval of the

proposal is appropriate because it

believes the proposed changes to the

various trading rule should become

effective prior to the day that the CBOE

begins to trade options on the DJIA, in

order to ensure that all rules applicable

to trading DJIA options are in place

prior to when such trading commences.

In addition, the Commission has

previously approved similar increases

in the number of options contracts

eligible for automatic execution on other

options exchanges 22 and has previously

approved the almost identical firm

quote program for OEX.23 Finally, the

Commission believes that the proposed

rule change does not raise any

significant regulatory issues.

It is therefore ordered, pursuant to

Section 19(b)(2) 24 that the proposed

rule change, as amended, is hereby

approved on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.25

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27048 Filed 10–10–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39196; File No. SR–NASD–

97–60]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc., Relating to Trading Halts

October 3, 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 August 20, 1997,

the National Association of Securities

Dealers, Inc. (‘‘NASD’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’) the proposed

rule change as described in Items I, II,

and III below, with 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

Nasdaq is proposing to amend NASD

Rule 4120 and IM–4120–1 to expand

Nasdaq’s trading halt authority and to

clarify procedures for initiating certain

trading halts. Below is the text of the

proposed rule change. Proposed new

language is underlined; proposed

deletions are in brackets.

4120. Trading Halts

(a) Authority to Initiate Trading Halts

In circumstances in which [the

Association] Nasdaq deems it necessary

to protect investors and the public
53362 Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Notices

*The current telephone number is 1–800–537–

6411, or from 6 p.m. to 8 a.m. Eastern Time, (301)

590–6413. The StockWatch fax number is (301)

590–6482.

* Notification may be provided to the [Market

Regulation] MarketWatch Department by telephone

1–800–537–3929, (301) 590–6411, or from 6 p.m. to

8 a.m. Eastern Time, (301) 590–6413. Information

communication orally should be confirmed

promptly in writing. The StockWatch fax number

is (301) 590–6482.

interest, [the Association] Nasdaq may,

pursuant to the procedures set forth in

paragraph (b):

(1) halt trading in the over-the-counter

market of a security listed on Nasdaq

[authorized for inclusion in Nasdaq

pending] to permit the dissemination of

material news;

(2) halt trading in the over-the-counter

market of a security listed on a national

securities exchange during a trading halt

imposed by such exchange to permit the

dissemination of material news; or

(3) halt trading by [ITS/CASES]: (i)

CQS market markers [of a] in a CQS

security [listed on a national securities

exchange and authorized for inclusion

in the ITS/CAES linkage during] when

a national securities exchange imposes

a trading halt [imposed by such

exchange] in that CQS security because

of an order imbalance or influx

(‘‘operational trading halt’’); or (ii)

Nasdaq market makers in a security

listed on Nasdaq, when the security is

a derivative or component of a CQS

security and a national securities

exchange imposes an operational

trading halt in that CQS security. [ITS/

CAES] CQS and Nasdaq market makers

may commence quotations and trading

at any time following initiation of

operational trading halts, without regard

to procedures for resuming trading set

forth in paragraph (b)[.]; or

(4) halt trading in an American

Depository Receipt (‘‘ADR’’) or other

security listed on Nasdaq, when the

Nasdaq-listed security or the securities

underlying the ADR is listed on or

registered with a national or foreign

securities exchange or market, and the

national or foreign securities exchange

or market, or regulatory authority

overseeing such exchange or market,

halts trading in such security for

regulatory reasons; or

(5) halt trading in a security listed on

Nasdaq when Nasdaq requests from the

issuer information relating to:

(i) material news;

(ii) the issuer’s ability to meet Nasdaq

listing qualification requirements, as set

forth in the Rule 4300 and 4400 Series;

or

(iii) any other information which is

necessary to protect investors and the

public interest.

(b) Procedure for Initiating a Trading

Halt

(1) [The Board of Governors requires

that] Nasdaq issuers are required to

notify [the Association]Nasdaq of the

release of any material news prior to the

release of such information to the press

as required by Rule 4310(c)(16) and

4320(d)(15).

(2) Notification shall be provided

directly to [the Association’s Market

Regulation] Nasdaq’s MarketWatch

Department by telephone, facsimile, or

other compatible means of electronic

communication.* Information

communicated orally by authorized

representatives of a Nasdaq issuer

should be confirmed promptly in

writing.

(3) Upon receipt of [the] information

[the Association, after consultation with

the issuer,] from the issuer or other

source, Nasdaq will promptly evaluate

the information, estimate its potential

impact on the market and determine

whether a trading halt in the security is

appropriate.

[(4) Should the Association determine

that a trading halt pending the

dissemination of material news is

necessary and in the public interest, the

trading halt will become effective

simultaneously with appropriate notice

in the Nasdaq ‘‘NEWS’’ frame.

(5) Should a national securities

exchange notify the Association that it

has halted or will halt trading in a

security listed on that exchange pending

the dissemination of material news, the

Association may halt trading in such

security in the over-the-counter market.

The commencement of the trading halt

will be effective simultaneously with

appropriate notice in the Nasdaq

‘‘NEWS’’ frame.]

(4) Should Nasdaq determine that a

basis exists under Rule 4120(a)(1),

(a)(2), (a)(3), (a)(4), or (a)(5) for initiating

a trading halt, the commencement of the

trading halt will be effective

simultaneously with appropriate notice

in the Nasdaq ‘‘NEWS’’ frame.

[(6)] (5) Trading in a halted security

shall resume upon notice via the Nasdaq

‘‘NEWS’’ frame that a trading halt is no

longer in effect.

IM–4120–1. Disclosure of Material

Information

Rules 4310(c)(16) and 4320(d)(15)

require that, except in unusual

circumstances, Nasdaq issuers disclose

promptly to the public through the news

media any material information which

would reasonably be expected to effect

the value of their securities or influence

investors’ decisions and that Nasdaq

issuers notify [the Association] Nasdaq

of the release of any such information

prior to its release to the public through

the news media. [The Board of

Governors] Nasdaq recommends that

Nasdaq issuers provide such

notification at least ten minutes before

such release.* Under unusual

circumstances issuers [are] may not be

required to make public disclosure of

material events; for example, where it is

possible to maintain confidentiality of

those events and immediate public

disclosure would prejudice the ability of

the company to pursue its legitimate

corporate objectives. However, Nasdaq

issuers remain obligated to disclose this

information to [the Association] Nasdaq

upon request pursuant to Rules

4310(c)(15) or 4320(d)(14).

Whenever unusual market activity

takes place in a Nasdaq issuer’s

securities, the issuer normally should

determine whether [conditions

requiring corrective action exist and, if

so, should take whatever action is

appropriate] there is material

information or news which should be

disclosed. If rumors or unusual market

activity indicate that information on

impending developments has become

known to the investing public, or if

information from a source other than

the issuer becomes known to the

investing public, a clear public

announcement may be required as to the

state of negotiations or development of

issuer plans. Such an announcement

may be required, even though the issuer

may not have previously been advised

of such information or the matter has

not yet been presented to the issuer’s

Board of Directors for consideration. It

may also be appropriate, in certain

circumstances, to publicly deny false or

inaccurate rumors which are likely to

have, or have had, an effect on the

trading in its securities or would likely

have an influence on investment

decisions.

Trading Halts

A trading halt benefits current and

potential shareholders by halting all

trading in any Nasdaq securities until

there has been an opportunity for the

information to be disseminated to the

public. This decreases the possibility of

some investors acting on information

known to them but which is not known

to others. [A trading halt normally lasts

until one half hour after the appearance

of the news on wire services but it may

last longer if a determination is made

that the news has not been adequately

disseminated.] A trading halt provides

the public with an opportunity to

evaluate the information and consider it
Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Notices 53363

1The ‘‘third market’’ is the market for exchangelisted securities away from exchange markets.

2 ITS/CAES is the NASD’s link to the Intermarket

Trading System (‘‘ITS’’), which is a system that

enables ITS/CAES market makers to trade certain

exchange-listed securities—known as SEC Rule

19c–3 securities—by allowing such market makers

to direct agency and principal orders to, and receive

orders from, other ITS members. SEC Rule 19c–3

prohibits off-board trading restrictions from

applying to securities that: (1) were not traded on

an exchange before April 26, 1979; or (2) were

traded on an exchange on April 26, 1979, but

ceased to be traded on an exchange for any period

of time thereafter. (The Computer Assisted

Execution System (‘‘CAES’’) is the NASD’s

automated system that allows members to direct

principal and agency orders in exchange-listed

securities to CAES for automated execution in the

third market). Thus, pursuant to the ITS Plan,

trading in ITS/CAES is limited to SEC Rule 19c–3

securities and excludes those securities not subject

to SEC Rule 19c–3.

in making investment decisions. It also

alerts the marketplace to the fact that

news has been released.

[The Association’s Market Regulation]

Nasdaq’s Market Watch Department

monitors real time trading in all Nasdaq

series during the trading day for price

and volume activity. In the event of

certain price and volume movements,

the [Market Regulation] Market Watch

Department may contact an issuer and

its market makers in order to ascertain

the cause of the unusual market activity.

The [Market Regulation] Market Watch

Department treats the information

provided by the issuer and other sources

in a highly confidential manner, and

uses it to assess market activity and

assist in maintaining fair and orderly

markets. A Nasdaq listing includes an

obligation to disclose to the [Market

Regulation] Market Watch Department

information that the issuer is not

otherwise disclosing to the investing

public or the financial community. On

occasion, changes in market activity

prior to the issuer’s release of material

information may indicate that the

information has become known to the

investing pubic. Changes in market

activity also may occur when there is a

release of material information by a

source other than the issuer, such as

when a Nasdaq issuer is subject to an

unsolicited take-over bid by another

company. Depending on the nature of

the event and the issuer’s views

regarding the business advisability of

disclosing the information, the [Market

Regulation] Market Watch Department

may work with the issuer to accomplish

a timely release of the information.

Furthermore, depending on the

materiality of the information and the

anticipated [a] effect of the information

on the price of the issuer’s securities,

the [Market Regulation] Market Watch

Department may advise the issuer that

a temporary trading halt is appropriate

to allow for full dissemination of the

information and to maintain an orderly

market. The institution of a temporary

trading halt pending the release of

information is not a reflection on the

value of the securities halted. Such

trading halts are instituted, among other

reasons, to insure that material

information is fairly and adequately

disseminated to the investing public

and the marketplace, and to provide

investors with the opportunity to

evaluate the information in making

investment decisions. A trading halt

normally lasts one half hour but may

last longer if a determination is made

that news has not been adequately

disseminated or that the original or an

additional basis under Rule 4120 exists

for continuing the trading halt.

The [Market Regulation] Market

Watch Department is required to keep

non-public information[, including

denial of rumors,] confidential and to

use such information only for regulatory

purposes.

Material information which would

reasonably be expected to affect the

value of the securities of an issuer or

influence investors’ decisions would

include information regarding issuer

events of an unusual and/or

nonrecurrent nature. The following list

of events, while not an exhaustive

summary of all situations in which

disclosure to [the Association] Nasdaq

should be considered, may be helpful in

determining whether information is

material. It should also be noted that

every development that might be

reported to [the Association] Nasdaq in

these areas would not necessarily be

deemed to warrant a trading halt.

• A merger, acquisition or joint

venture;

• A stock split or stock dividend;

• Earnings and dividends of an

unusual nature;

• The acquisition or loss of a

significant contract;

• A significant new product or

discovery;

• A change in control or a significant

change in management;

• A call of securities for redemption;

• The public or private sale of a

significant amount of additional

securities;

• The purchase or sale of a significant

asset;

• A significant labor dispute.

• Establishment of a program to make

purchases of the issuer’s own shares;

• A tender offer for another issuer’s

securities; and

• An event requiring the filing of a

current report under the Act.

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 amendments to

Rule 4120 to expand its existing trading

halt authority. Rule 4120 currently sets

out the bases on which Nasdaq may

initiate trading halts. In addition to the

existing bases, the proposed

amendments authorize Nasdaq to: halt

trading in the third market of a CQS

security when a national securities

exchange halts trading in such security

for operational reasons; halt trading in

a Nasdaq-listed security that is a

derivative or component of a CQS

security, when a national securities

exchange halts trading in the underlying

CQS security for operational reasons;

halt trading in an American Depository

Receipt (‘‘ADR’’) or other Nasdaq-listed

security when a national or foreign

securities exchange or regulatory entity

imposes a regulatory trading halt in the

security underlying the ADR or the

Nasdaq-listed security; and halt trading

when Nasdaq requests from an issuer

information relating to material news or

the issuer’s compliance with Nasdaq

listing qualification requirements.

Additionally, the proposed amendments

clarify that the procedures in the rule

permit Nasdaq to initiate trading halts

when material information emanates

from a source other than the issuer.

First, the proposed amendments

expand Nasdaq’s existing authority to

initiate a trading halt in the third market

of an exchange-listed security when the

primary market initiates an operational

trading halt in such security.1 Rule

4120(a)(3) currently authorizes Nasdaq

to impose an operational trading halt in

a security listed on a national securities

exchange and traded through the ITS/

CAES linkage.2 Under the current rule,

Nasdaq may initiate a trading halt when

there is an order imbalance or influx in
53364 Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Notices

3The Consolidated Quotation System (‘‘CQS’’) is

a service that provides quotations of all

participating exchange specialists and market

makers on all securities listed on the New York

Stock Exchange and the American Stock Exchange,

and selected securities listed on the regional stock

exchanges.

4Thus, the proposed amendments would give

Nasdaq expanded authority to initiate operational

trading halts in the third market of SEC Rule 19c–

3 securities, as well as those securities not subject

to SEC Rule 19c–3.

5The proposed change to Rule 4120(a)(1)

specifies that trading in a Nasdaq-listed security

may be halted ‘‘to permit’’ the dissemination of

material news. (Rule 4120(a)(1) currently provides

that trading in a Nasdaq-listed security may be

halted ‘‘pending’’ the dissemination of material

news.) The rule is being amended to specifically

authorize Nasdaq to halt trading when material

news technically is not ‘‘pending’’ but a trading halt

is necessary to protect investors and maintain an

orderly market. For example, there are instances

where Nasdaq is not advised of pending material

news, material news is disseminated partially, and

Nasdaq learns of such news, and Nasdaq quickly

determines that a halt is necessary to permit

complete dissemination of the material news.

Additionally, the amendments to Rule 4120(a)(1)

will bring it into parity with the language in Rule

4120(a)(2).

6 If the company initiating the unsolicited takeover bid is a Nasdaq issuer, that company—in

certain circumstances—may not be required to

report the take-over bid to Nasdaq if such

information is not material to the company. Thus,

even if the company initiating the bid is listed on

Nasdaq, Nasdaq may not be apprized of such

information by either the Nasdaq company which

is initiating the unsolicited take-over or the Nasdaq

company which is the target of the unsolicited takeover.

the security and the primary market

halts trading to resolve operational

issues. The proposed amendments

expand Nasdaq’s authority and permit

Nasdaq to halt trading in all securities

traded in the third market (i.e., CQS

securities) 3—not just those securities

traded through the ITS/CAES linkage—

when a national securities exchange

initiates an operational trading halt in

the CQS security.4

In addition, the amendments

authorize Nasdaq to halt trading in a

security which is listed on Nasdaq and

which also is a derivative or component

of a CQS security (such as convertible

bond, warrant, or unit), when a national

securities exchange imposes an

operational trading halt in the CQS

security, i.e., when a national securities

exchange halts trading in a CQS security

for an order imbalance. Currently, the

Nasdaq-listed derivative security would

not be halted in conjunction with the

operational trading halt in the CQS

security, thus making it difficult for

market makers in the Nasdaq-listed

security to price accurately the

derivative security due to the lack of

current pricing information in the

underlying CQS security. That is,

because the primary market is

temporarily closed, price discovery is

not occurring in that venue, and market

makers must attempt to determine

pricing independent of the primary

market or may wait until the primary

market reopens to price their issues. The

proposed amendments, however, would

allow Nasdaq to halt trading in the

Nasdaq-listed security, such as a

Nasdaq-traded convertible bond whose

value is tied closely to an exchangelisted security, when a national

exchange initiates an operational

trading halt in a CQS security. Similar

to the current provisions of Rule

4120(a)(3), the proposed amendments

permit CQS and Nasdaq market makers

to commence quotations and trading at

any time following the initiation of the

operational trading halt. Nasdaq

believes that the proposed amendments

foster orderly markets and investor

protection because they allow Nasdaq to

halt trading—based on a national

securities exchange’s operational

trading halt—to allow market makers in

related issues to assess the situation and

determine the appropriate pricing of the

security.

Second, Rule 4120 is being amended

to authorize Nasdaq to halt trading in an

ADR or other security listed on Nasdaq,

when a national or foreign securities

exchange or regulatory authority, for

regulatory reasons, imposes a trading

halt in the security underlying the ADR

or the dually-listed (Nasdaq) security.

There are times when another exchange,

market, or regulatory entity—such as a

Canadian commission or European

market center with which a Nasdaq

company’s securities are registered or

listed—implements a regulatory trading

halt. These trading halts sometimes

occur because the issuer is delinquent

in making a required filing with the

national or foreign securities exchange

or regulatory entity, or the market or

regulatory entity halts trading in the

company’s stock for a violation of that

entity’s rules or regulations. For

example, an issuer, which is registered

as a reporting company with a Canadian

regulatory commission and which also

is a Nasdaq-listed company or has its

ADRs listed on Nasdaq, becomes

delinquent in its filings with the

Canadian commission. The Canadian

commission subsequently initiates a

trading half in the issuer’s securities.

Currently, trading would continue on

Nasdaq even though regulatory concerns

prompted another regulatory entity to

halt trading in the issuer’s securities,

because the issuer is in compliance with

Nasdaq filing requirements. Under the

proposed amendments, however,

Nasdaq could halt trading.

Specifically, the amendments

authorize Nasdaq to halt trading in an

ADR or other Nasdaq-listed security,

when the Nasdaq-listed security

underlying the ADR is listed on or

registered with a national or foreign

securities exchange or market and

trading is halted in the security for

regulatory reasons by such exchange or

market, or regulatory authority

overseeing such exchange or market.

Thus, the amendments ensure investor

protection because they allow Nasdaq to

take coordinated action when another

market or regulatory authority identifies

a regulatory basis for halting trading in

an issue.

Third, Rule 4120(a)(1) currently

permits Nasdaq to halt trading in a

Nasdaq-listed security to permit the

dissemination of material news, and

Rules 4120(b)(1)–(3) set out the

procedures for doing so.5 Specifically,

Rule 4120(b)(1) requires Nasdaq issuers

to inform Nasdaq of any material news

prior to the release of such information,

and Rule 4120(b)(3) authorizes Nasdaq

to evaluate information provided by the

issuer to determine if trading should be

halted prior to the release of such

information. Rule 4120(b)(3) does not

specifically set out procedures for

initiating a trading halt when Nasdaq is

advised of material news about a

particular Nasdaq issuer and such news

emanates from a source other than that

issuer. For instance, a Nasdaq issuer

may be subject to an unsolicited takeover bid by another company, of which

the Nasdaq-listed company is unaware.

In such instance, the acquiring issuer

might disseminate news about the

unsolicited take-over bid to the public;

thus, Nasdaq may learn of information

warranting a trading halt from a source

other than the Nasdaq issuer, such as a

news headline.6 The proposed

amendments to Rule 4120(b)(3) and IM–

4120–1 clarify that Nasdaq may halt

trading when Nasdaq learns of material

news about an issuer, regardless of

whether the news emanates from the

particular issuer or from another source.

Furthermore, proposed amendments to

Rule 4120(b)(3) reflect that Nasdaq may

halt trading without first consulting the

issuer about material news because it

may not be practicable or possible for

Nasdaq to do so, such as when material

news is released (without consultation

with Nasdaq) by a source other than the

issuer.

Next, the proposed amendments

permit Nasdaq to halt trading when

Nasdaq requests information from an

issuer relating material news or

qualification matters. For example,

Nasdaq may be advised of material news

about an issuer which appears to be
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