66160 Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices

1On 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. See Letter from

Robert E. Aber, Vice President and General Counsel,

The Nasdaq Stock Market, Inc. (‘‘Nasdaq’’), to

Katherine England, Assistant Director, Division of

Market Regulation, Commission, dated September

30, 1997.

2 15 U.S.C. 78s(b)(1).

3 17 CFR 240.19b–4.

4 ‘‘SOES’’ refers to Nasdaq’s Small Order

Execution System.

5Securities Exchange Act Release No. 39218

(October 8, 1997) 62 FR 53675 (October 15, 1997).

6Letter from Robert E. Aber, Vice President and

General Counsel, Nasdaq, to Katherine England,

Assistant Director, Division of Market Regulation,

Commission, dated December 3, 1997

(‘‘Amendment No. 2’’). In Amendment No. 2, the

NASD made certain technical changes to NASD

Rules 4620 and 4730 as well as clarified certain

issues involving NASD Rule 4730. These points are

discussed in detail below.

7See NASD Rule 4613.

8NASD Rule 4730(b)(6).

9To avoid being ‘‘SOESed out of the Box,’’

members can elect not to have their quote size

decremented (‘‘no dec’’) upon the execution of

SOES orders, provided the market maker’s quote

size is equal to or greater than the applicable SOES

tier size (i.e., the maximum SOES order size). See

NASD Rule 4730; see also Nasdaq Subscriber

Bulletin, vol. 15, July 1997, at page 2. In the

alternative, the market maker may use Nasdaq’s

auto-refresh feature, which automatically updates a

market maker’s quote after its quote size has been

decremented. NASD Rule 4730(b)(2).

10See NASD Rule 4730(b)(7).

11See 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.

12The factors were (1) the timeliness of the

market maker’s call to Market Operations; (2) the

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32821 Filed 12–16–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39423; File No. SR–NASD–

97–04]

Self-Regulatory Organizations; Order

Approving Proposed Rule Changes

and Amendment No. 1 Thereto by the

National Association of Securities

Dealers, Inc. and Notice of Filing and

Order Granting Accelerated Approval

to Amendment No. 2 Thereto

Regarding Excused Market Maker

Withdrawals and Reinstatements

December 10, 1997.

On January 24, 1997, the National

Association of Securities Dealers, Inc.

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

the Securities and Exchange

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

proposed rule changes 1 pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Exchange

Act’’) 2 and Rule 19b–4 thereunder.3 The

proposal amends NASD Rule 4619

(excused market maker withdrawals),

NASD Rule 4620 (voluntary termination

of market maker registrations), and

NASD Rule 4730 (reinstatement of

market makers that have been ‘‘SOESed

out of the Box’’ 4 or that accidentally

withdrew from a security). Notice of the

proposed rule changes, including the

substance of the proposal and

Amendment No. 1 thereto, was

published for comment in the Federal

Register.5 No comments were received.

On December 3, 1997, the NASD filed

with the Commission Amendment No.

2.6 The Commission is hereby

approving the proposed rule changes,

including Amendment No. 1 thereto. In

addition, the Commission is publishing

this notice to solicit comments from

interested persons on Amendment No.

2; the Commission hereby approves that

amendment.

I. Description of Rule Changes

To ensure that market makers are

complying with their obligation to

maintain continuous, firm, two-sided

quotations,7 NASD Rule 4620 provides

that a market maker that voluntarily

terminates its registration in a security

may not re-register as a market maker in

that security for 20 business days. This

rule is commonly referred to as the ‘‘20-

Day Rule.’’ With respect to SOES,

withdrawal from participation as a

market maker in a Nasdaq National

Market (‘‘NNM’’) security constitutes

termination of registration as a market

maker in that security for purposes of

NASD Rule 4620. NASD Rule

4730(b)(6), an SOES rule, provides that

for NNM securities a market maker will

be suspended from SOES if its bid or

offer has been decremented to zero due

to SOES executions. If this occurs, the

market maker will be permitted a

standard grace period (i.e., five minutes)

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 reenter a twosided quotation in an NNM security

within the allotted time will be deemed

to have withdrawn as a market maker.

Unless the market maker’s withdrawal

is ‘‘excused,’’ that market maker may

not reenter SOES as a market maker in

that security for twenty (20) business

days.8 When a market maker is

deregistered from a security because it

failed to restore its quotation, it is

referred to as being ‘‘SOESed out of the

Box.’’ 9

Notwithstanding NASD Rules 4620

and 4730(b)(6), NASD Rule 4619

permits market makers to obtain an

‘‘excused’’ withdrawal in certain limited

circumstances. Under NASD Rule 4619,

a market maker may withdraw

quotations in a security without being

subject to the 20-Day Rule or NASD

Rule 4730(b)(6) (for SOES market

makers). A market maker that

withdraws from a security for a reason

permitted by NASD Rule 4619 may reenter its quotes once the circumstances

justifying the withdrawal no longer

exist.10 The rule currently allows

excused withdrawals for:

(1) Physical circumstances beyond the

market maker’s control (NASD Rule

4619(b));

(2) Demonstrated legal or regulatory

requirements (e.g., the market maker is

in possession of material non-public

information regarding the issue) (NASD

Rule 4619(b));

(3) Religious holidays (provided the

request is submitted five business days

in advance of the holiday) (NASD Rule

4619(b));

(4) Vacations (provided the request is

received 20 business days in advance of

the vacation and is made by a market

maker with three or fewer Nasdaq level

3 terminals) (NASD Rule 4619(b));

(5) 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

that issue pursuant to applicable NASD

rules;

(6) Involuntary failures to maintain

clearing arrangements (NASD Rule

4619(c)); and

(7) The duration of the ‘‘cooling off’’

periods mandated by certain rules under

Regulation M under the Exchange Act

(NASD Rule 4619(d)).

The SEC criticized the NASD’s

handling of excused withdrawal

requests and the reinstatement of market

makers that had been ‘‘SOESed out of

the Box’’ in the SEC’s 21(a) Report on

the NASD and The Nasdaq Stock

Market.11 The SEC found, among other

things, 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. Until 1995, the

21(a) Report found, the practice of

Nasdaq Market Operations was to grant

SOES withdrawal waivers as a matter of

course without inquiring into the

reasons for the withdrawals. A market

maker merely had to request the waive

and Nasdaq Market Operations granted

it. Beginning in 1995, Nasdaq Market

Operations started to make some inquiry

into the reasons for the SOES

withdrawals, granting waivers based

upon an examination of four factors.12
Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices 66161

volatility of the stock; (3) the liquidity of the market

and the number of market makers in the stock; and

(4) the number of Nasdaq terminals at the market

makers to which the orders could be routed (which

was relevant in cases where the market maker

requested an excused withdrawal due to

mechanical or electronic failure of a Nasdaq

terminal).

13See, e.g., NASD Rule 4619(b)(3), which states

in part: ‘‘[t]he 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.’’

14For example, market makers were granted

waivers after their SOES exposure was exhausted

because they were away from their desks, working

another order, or covering other trades’ stocks.

Appendix 21(a) Report at A–78 and note 217.

15Appendix to 21(a) Report at A–78.

16 Id., note 220.

17As discussed below, the proposal also adds a

new paragraph (e) to Rule 4619 to give the MORC

jurisdiction over proceedings to review denials of

excused withdrawals or conditions imposed on

reentry under Rule 4619.

18 In Amendment No. 2, the NASD states that the

Primary Market Maker standards currently

contained in NASD Rule 4612 have been suspended

on a temporary basis since February of this year.

(See Securities Exchange Act Release Nos. 38294

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

39198 (October 3, 1997) 62 FR 53365 (October 14,

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 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. Because the new SEC rules, implemented

in January of this year, are designed to incorporate

customer limit orders in a market maker’s quote, a

market maker’s proprietary activity has become

indistinguishable from its customer activity.) As a

result, all market makers are deemed Primary

Market Makers until new standards can be

implemented. Accordingly, all market makers

similarly will be deemed to be in satisfaction of the

Primary Market Maker provision in Rule

4730(b)(6)(A), until such time that new standards

are imposed. (Footnotes incorporated into text.)

These factors, however, are not

generally relevant to the permissible

reasons, as articulated in the NASD’s

rules, for granting excused withdrawal

status.13 Nor were these factors included

in any filing made by the NASD with

the Commission pursuant to Section

19(b) of the Exchange Act, as

amendments or interpretations of its

rules. The NASD’s willingness to grant

waivers for reasons other than those

listed in the applicable rules,14 allowed

market makers to avoid suspension

penalties.

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.15

The Commission also found that the

NASD did not place administration of

the excused withdrawal rule with its

enforcement or regulatory staff, but

rather with its market and trading

services staff. The Commission noted

that the excused withdrawal rule

‘‘should be administered from a

regulatory standpoint.’’16

Accordingly, to ensure that market

makers are not able to avoid or

circumvent their market making

obligations through inappropriate

excused maket maker withdrawals or

inappropriate market maker

reinstatements, the NASD submitted

this rule proposal. As detailed below,

the proposal makes changes in the

following areas:

(1) Bases for excused withdrawals;

(2) Market maker reinstatements upon

being ‘‘SOESed out of the Box’’ or after

accidental market maker withdrawals;

and

(3) The jurisdiction of the Market

Operations Review Committee

(‘‘MORC’’) over excused market maker

withdrawals and reinstatements.

By modifying the rules to reflect better

the operational realities of the

marketplace, as well as establishing

more objective standards for the

reinstatement of market makers that

either have been ‘‘SOESed out of the

Box’’ or have accidentally withdrawn

from a security, the NASD believes that

the proposed modifications are

responsive to the deficiencies noted in

the Commission’s 21(a) Report.

A. Bases For Excused Withdrawal

The proposed changes to NASD Rule

4619 are intended to bring the rule more

in line with the realities of the

marketplace. NASD Rule 4619(b)

presently provides that excused

withdrawal status may be granted for a

variety of reasons provided that certain

conditions, with are discussed above,

are satisfied. While the NASD continues

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 Commission’s

21(a) Report, the NASD contends that

the present excused withdrawal rule is

not broad enough to encompass all of

the legitimate reasons for granting an

excused withdrawal. The NASD also

believes that the time parameters for

advance notice of vacations and

religious holidays are unnecessarily

long.

Accordingly, the NASD proposes a

number of amendments to NASD Rule

4619(b). First, excused withdrawals may

be granted for ‘‘circumstances’’ beyond

the market maker’s control instead of for

just ‘‘physical circumstances’’ beyond

its control as is currently the case. 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

(currently 20 days) and religious

holidays (currently five days) 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

acknowledges that counsel to market

makers often do not want to disclose the

specific legal basis for their clients’

withdrawal requests, 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.17

B. Reinstatement of Market Makers

Upon Being ‘‘SOESed Out of the Box’’

and for Accidental Withdrawals

1. Reinstatements Upon Being ‘‘SOESed

Out of the Box’’

The proposed rule changes to NASD

Rule 4730 are designed to ensure that a

market maker is not reinstated without

the required 20 day suspension unless

the market maker withdrew for an

excused reason. Specifically, the

proposed changes to NASD Rule 4730

provide that a market maker can be

reinstated under only one of two

circumstances: (1) pursuant to NASD

Rule 4730(b)(7), the market maker

obtains an excused withdrawal pursuant

to NASD Rule 4619; or (2) the market

maker satisfies criteria set forth in

NASD Rule 4730(b)(6). Under NASD

Rule 4730(b)(6), a market maker can be

reinstated after being SOESed out of the

Box with respect to a particular security

if:

(1) The market maker notifies Nasdaq

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) It was a Primary Market Maker at

the time it was SOESed out of the

Box; 18

(3) The reinstatement would not

result in the market maker’s firm

exceeding certain limitations on the
66162 Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices

19 In particular, under the proposal, including

minor modifications made by Amendment No. 2,

firms that simultaneously made markets in less than

250 securities during the previous calendar year

could receive no more than four reinstatements per

year. Firms that simultaneously made markets in

more than 250 but less than 500 securities during

the previous calendar year could receive no more

than six reinstatements per year. Firms that

simultaneously made markets in 500 or more

securities during the previous calendar year could

receive no more than 12 reinstatements per year.

Notwithstanding a market maker’s exhaustion of

these numerical limitations, in certain instances the

designated Nasdaq officer may grant a reinstatement

request if he or she finds that such action is

necessary for the protection of investors or the

maintenance of fair and orderly markets. In

addition to making these findings, the designated

officer also must determine 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 (1) a member firm experiences

a documented problem or failure (other than a

chronic failure within the firm’s control) impacting

the operation or use of any automated system

operated by or for the firm or involving an

automated system operated by Nasdaq; (2) the

market maker is a manager or co-manager of a

secondary offering from the time the offering is

announced until ten days after it is complete; or (3)

absent the reinstatement, the number of market

makers in a particular issue is less than or equal to

two or has otherwise declined by 50% or more from

the number that existed at the end of the prior

calendar quarter. 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.

20 In particular, firms that simultaneously made

markets in less than 250 securities during the

previous calendar year could receive no more than

two reinstatements per year. Firms that

simultaneously made markets in 250 or more but

less than 500 securities could receive no more than

three reinstatements per year. Firms that

simultaneously made markets 500 or more

securities could receive no more than six

reinstatements per year. See minor modifications

made by Amendment No. 2.

21See Appendix to 21(a) Report at A–78.

22 Id. A–76–79.

number of reinstatements per year; 19

and

(4) 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 in

the past, procedures adopted by the firm

to avoid being SOESed out of the Box

inadvertently, and the length of time

before the firm sought reinstatement.

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.

2. Reinstatements for Accidental

Withdrawals

There have been instances in the past

when a market maker accidentally

withdrew from a security because

someone associated with the firm

inadvertently typed the wrong symbol

for the security or made a similar

mistake. The NASD believes that it

would be appropriate for the market

maker to be reinstated in such

circumstances, but NASD rules

currently do not provide that market

makers can be reinstated in these

instances. As a result, the NASD

proposal amends NASD Rule 4620 to

permit reinstatements in such instances

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

accidentally withdraws as a market

maker may be reinstated if:

(1) The market maker notifies Nasdaq

Market Operations of the accidental

withdrawal within one hour of such

withdrawal, and immediately thereafter

provides written notification of the

withdrawal and request for

reinstatement;

(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 specific reinstatement

limitations per year.20

If the above conditions are satisfied,

Nasdaq will consider the following

factors, among others, in deciding

whether to grant a reinstatement in a

given case:

(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 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 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.

C. 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

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 its

authority over such matters to the

MORC. Accordingly, the NASD

proposes to amend its Rules 4619, 4620,

and 4730, to effectuate the transfer of

jurisdiction over these matters from the

Qualifications Committee to the MORC.

Under the recently revised NASD

Delegation Plan, the MORC’s

compositional and quorum

requirements now provide for member

diversity, as well as non-industry and

public participation. Further, NASD

Regulation is to receive weekly reports

of MORC determinations; 21 it cannot,

however, overturn MORC decisions.

II. Discussion

It is a fundamental premise of the

dealer market that market makers stand

willing to buy and sell securities at all

times. Permitting market makers to

evade this responsibility could reduce

liquidity in the market and threaten the

ability of investors to execute trades.22

The Commission finds that proposed

rule changes, by helping to ensure that

market makers stand willing to buy and

sell securities at all times, are consistent

with the Exchange Act and in particular

with Sections 15A(b)(6), 15A(b)(7),

15A(b)(9), 15A(b)(11) and 11A(a)(1)(C)

of the Exchange 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, and

processing information with respect to,

and facilitating transactions in

securities. Section 15A(b)(6) also

requires that the rules of a national

securities association be designed 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)(7)

requires that the rules of the association

provide that its members shall be

appropriately disciplined for violations

of the rules of association. 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 Exchange Act. Section

15A(b)(11) requires the NASD, as an

association, to adopt rules governing the

form and content of quotations relating
Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices 66163

23See Securities Exchange Act Release No. 39218,

supra note 5.

24This list coincides with the list of officers

similarly appointed for adjudicating erroneous

trades pursuant to NASD Rule 11890.

25 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. The

proposed rule change likely will enhance the

efficiency and fairness of the process by which

market maker withdrawals are handled by Nasdaq.

It likely also will enhance the competition between

market makers by strengthening enforcement of

their requirement to display continually two-sided

quotes. These rule changes should also lead to more

accurate quotes being disseminated to the public.

The net effect of approving the proposed rule

change will be positive. 15 U.S.C. 78c(f).

26 17 CFR 200.30–3(a)(12).

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, distributing, and publishing

quotations. Section 11A(a)(1)(C)

provides that, among other things, it is

in the public interest to 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.

The Commission believes that the

proposed amendments will help to

ensure 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 Nasdaq has

determined 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. As a result, the

proposed rule changes should increase

market makers’ compliance with their

obligation to make continuous, twosided markets and promote quote

competition among market makers.

Such competition among market makers

should, in turn, enhance the integrity of

the Nasdaq market, the best execution of

customer orders, and the price

discovery process for Nasdaq securities.

Thus, the proposed changes to NASD

Rules 4620 (reinstatement for accidental

withdrawal) and 4730 (reinstatement

upon being SOESed out of the Box) are

consistent with the Exchange Act and in

particular with the following sections of

that Act:

(1) Section 15A(b)(6) because they are

designed to prevent market makers from

failing to meet their market making

obligations;

(2) Section 15A(b)(11), because they

are designed to produce fair and

informative quotations and prevent

fictitious or misleading quotations by

eliminating opportunities for market

makers to back away from what

otherwise may be effectively fictitious

quotes; and

(3) Section 11A(a)(1)(C)(i)–(iii),

because they are in the public interest

and appropriate for the protection of

investors and the maintenance of fair

and orderly markets; they assure fair

competition among brokers and dealers

by encouraging fair and accurate

quotations, economically efficient

executions based on these fair and

accurate quotations; and they improve

the availability to brokers, dealers, and

investors of information concerning

these fair and accurate quotations.

Further, the proposed changes to NASD

Rule 4619 relating to the advance notice

market makers must provide before

withdrawing quotations in securities for

an excused reason, as well as expanding

those excused purposes, are consistent

with the Exchange Act, and in particular

with Section 15A(b)(9), because they do

not impose any burden on competition

not necessary or appropriate in

furtherance of the purposes of the

Exchange Act, but merely add

additional legitimate reasons for

granting an excused withdrawal and

make the time provisions of NASD Rule

4619 more fair and reasonable. Finally,

the proposal to amend NASD Rules

4619, 4620, and 4730 to grant the MORC

jurisdiction over proceedings brought by

market makers seeking review of a:

(1) Denial of a reinstatement pursuant

to NASD Rule 4619 or the conditions

imposed on a reentry;

(2) Denial of a reinstatement pursuant

to NASD Rule 4620(b); or

(3) Removal from SOES pursuant to

NASD Rule 4730(6) or (7)

is consistent with the Exchange Act. In

particular, these amendments are

consistent with Exchange Act Section

15A(b)(7) in that they will help to

ensure that NASD members are

appropriately disciplined for violations

of the rules of the association.

Finally, the Commission finds good

cause for approving Amendment No. 2

to the proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof.

The NASD’s proposal, along with

Amendment No. 1 thereto, was

published in the Federal Register for

the full statutory period.23 In

Amendment No. 2, the NASD merely

makes a technical correction to NASD

Rules 4620(b)(3)(B) and

4730(b)(6)(A)(iii)(b) and (c) to replace

‘‘more than 250’’ with ‘‘250 or more’’

and to replace ‘‘more than 500’’ with

‘‘500 or more.’’ In Amendment No. 2,

the NASD also notes that the Primary

Market Maker criterion in NASD Rule

4730(b)(6)(A) currently applies to all

Nasdaq market makers. (See note 18).

Finally, the NASD notes that the Nasdaq

officers referred to in NASD Rule

4730(b)(6) are those senior officers

specifically designated by the President

of The Nasdaq Stock Market, Inc., for

this purpose.24 The list is maintained by

the NASD Corporate Secretary’s Office,

and is part of the procedures of Nasdaq

Market Operations. Consequently, lack

of prior notice of these changes will not

disadvantage any market participant.

Based on the above, the Commission

finds that there is good cause, consistent

with the Exchange Act, to accelerate

approval of Amendment No. 2.

III. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

2. Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying at

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, DC 20549. 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 No. SR–NASD–97–

04 and should be submitted by January

7, 1998.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Exchange Act,

that the proposed rule change (SR–

NASD–97–04) be, and hereby is,

approved.25

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.26

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32822 Filed 12–16–97; 8:45 am]

BILLING CODE 8010–01–M