[Federal Register Volume 62, Number 242 (Wednesday, December 17, 1997)]
[Notices]
[Pages 66160-66163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32822]


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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.
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    \1\ 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. 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.
    \5\ Securities Exchange Act Release No. 39218 (October 8, 1997) 
62 FR 53675 (October 15, 1997).
    \6\ Letter 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.
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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 two-sided 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\
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    \7\ See NASD Rule 4613.
    \8\ NASD Rule 4730(b)(6).
    \9\ To 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).
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    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 re-enter its quotes once the circumstances justifying the 
withdrawal no longer exist.\10\ The rule currently allows excused 
withdrawals for:
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    \10\ See NASD Rule 4730(b)(7).
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    (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\

[[Page 66161]]

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.
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    \11\ See 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.
    \12\ The factors were (1) the timeliness of the market maker's 
call to Market Operations; (2) the 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).
    \13\ See, 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.''
    \14\ For 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.
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    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\

    \15\ Appendix to 21(a) Report at A-78.
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    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\
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    \16\ Id., note 220.
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    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\
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    \17\ As 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.
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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\
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    \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.)
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    (3) The reinstatement would not result in the market maker's firm 
exceeding certain limitations on the

[[Page 66162]]

number of reinstatements per year; \19\ and
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    \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.
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    (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\
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    \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.
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    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.
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    \21\ See Appendix to 21(a) Report at A-78.
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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.
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    \22\ Id. A-76-79.
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    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

[[Page 66163]]

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, two-sided 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.
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    \23\ See Securities Exchange Act Release No. 39218, supra note 
5.
    \24\ This list coincides with the list of officers similarly 
appointed for adjudicating erroneous trades pursuant to NASD Rule 
11890.
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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\

    \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).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32822 Filed 12-16-97; 8:45 am]
BILLING CODE 8010-01-M