68330 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Notices

11 15 U.S.C. § 78s(b)(2).

12 17 CFR 200.30–3(a)(12).

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

2See letter from Robert E. Aber, Vice President

and General Counsel, Nasdaq, to Katherine

England, Assistant Director, SEC, dated Dec. 11,

1997 (‘‘Amendment No. 1’’). The Exchange initially

submitted the proposal on December 4, 1997.

However, at the Commission’s request, the

Exchange filed Amendment No. 1 to the proposed

rule change on December 12, 1997. Amendment No.

1 corrects a typographical error in the SOES tiersize classification criteria used by the Nasdaq.

Amendment No. 1 also clarifies that, despite the

typographical error, the correct criteria set out in

NASD Rules 4613(a)(2) and 4710(g) was used by

Nasdaq in reclassifying the SOES tier sizes. The

correction was also made in the Notice to Members

97–90.

3The classification criteria are set forth in NASD

Rule 4613(a)(2) and the footnote to NASD Rule

4710(g). 4 15 U.S.C. § 78o–3.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (SR–CBOE–97–

36), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–34060 Filed 12–30–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39482; File No. SR–NASD–

97–86]

Self—Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to Small Order

Execution System Tier Classification

December 22, 1997.

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

Securities Exchange Act of 1934

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

December 12, 1997, the National

Association of Securities Dealers

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

Securities and Exchange Commission

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

rule change as described in Items I, II,

and III below, which Items have been

prepared by the self-regulatory

organization.2 The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NASD is submitting this filing to

effectuate The Nasdaq Stock Market,

Inc.’s (‘‘Nasdaq’’) periodic

reclassification of Nasdaq National

Market (‘‘NNM’’) securities into

appropriate tier sizes for purposes of

determining the maximum size order for

a particular security eligible for

execution through Nasdaq’s Small Order

Execution System (‘‘SOES’’).

Specifically, under the proposal, 544

NNM securities will be reclassified into

a different SOES tier size effective

January 1, 1998. Since the NASD’s

proposal is an interpretation of existing

NASD rules, there are no language

changes.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for the Proposed Rule

Change

In its filing with the Commission, the

NASD included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments it received on the proposed

rule change. The text of these statements

and a copy of the Notice-to-Members

may be examined at the places specified

in Item IV below. The NASD has

prepared summaries, set forth in

Sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the rule change is to

effectuate Nasdaq’s periodic

reclassification of NNM securities into

appropriate tier sizes for purposes of

determining the maximum size order for

a particular security eligible for

execution through SOES. Nasdaq

periodically reviews the SOES tier size

applicable to each NNM security to

determine if the trading characteristics

of the issue have changed so as to

warrant a tier size adjustment. Such a

review was conducted using data as of

September 30, 1997, pursuant to the

following established criteria.3

NNM securities with an average daily nonblock volume of 3,000 shares or more a day,

a bid price less than or equal to $100, and

three or more market makers are subject to

a minimum quotation size requirement of

1,000 shares and a maximum SOES order

size of 1,000 shares;

NNM securities with an average daily nonblock volume of 1,000 shares or more a day,

a bid price less than or equal to $150, and

two or more market makers are subject to a

minimum quotation size requirement of 500

shares and a maximum SOES order size of

500 shares; and

NNM securities with an average daily nonblock volume of less than 1,000 shares a day,

a bid price less than or equal to $250, and

two or more market makers are subject to a

minimum quotation size requirement of 200

shares and a maximum SOES order size of

200 shares.

Pursuant to the application of this

classification criteria, 544 NNM

securities will be reclassified effective

January 1, 1998. These 544 NNM

securities are set out in the NASD’s

Notice to Members 97–90 (December,

1997).

In ranking NNM securities pursuant

to the established classification criteria,

Nasdaq followed the changes dictated

by the criteria with three exceptions.

First, an issue was not moved more than

one tier size level. For example, if an

issue was previously categorized in the

1,000-share tier size, it would not be

permitted to move to the 200-share tier

even if the reclassification criteria

showed that such a move was

warranted. In adopting this policy,

Nasdaq was attempting to maintain

adequate public investor access to the

market for issues in which the tier size

level decreased and help ensure the

ongoing participation of market makers

in SOES for issues in which the tier size

level increased. Second, for securities

priced below $1 where the reranking

called for a reduction in tier size, the

tier size was not reduced. Third, for the

top 50 Nasdaq securities based on

market capitalization, the SOES tier

sizes were not reduced regardless of

whether the reranking called for a tiersize reduction.

2. Statutory Basis

The NASD believes the proposed rule

change is consistent with Section

15A(b)(6) of the Act.4 Section 15A(b)(6)

requires that the rules of a national

securities association be designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, to remove impediments to

and perfect the mechanism of a free and

open market and a national market

system and, in general, to protect

investors and the public interest.

Specifically, the NASD believes that the

reassignment of NNM securities within

SOES tier size levels will further these

ends by providing an efficient

mechanism for small, retail investors to

execute their orders on Nasdaq and by

providing investors with the assurance

that they can effect trades up to a certain

size at the best prices quoted on Nasdaq.
Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Notices 68331

5 15 U.S.C. 78s(b)(3)(A).

6 17 CFR 240.19b–4(e).

7 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2The proposal was originally filed with the

Commission on November 18, 1997, but was

withdrawn on December 1, 1997. See Letter from

Alden S. Adkins, Vice President and General

Counsel, NASD Regulation, to Richard C. Strasser,

Assistant Director, Division of Market Regulation,

Commission. (File No. SR–NASD–97–84). On

December 22, 1997, the NASD filed Amendment

No. 1 with the Commission. See Letter from Alden

S. Adkins, Vice President and General Counsel,

NASD Regulation, to Richard C. Strasser, Assistant

Director, Division of Market Regulation,

Commission. In addition, several minor technical

corrections authorized by NASD Regulation are

included in this Notice. Telephone conversation

between David A. Spotts, Office of the General

Counsel, NASD Regulation, and Elaine M. Darroch,

Office of Market Supervision, Division of Market

Regulation, Commission (December 4, 1997).

3 15 U.S.C. § 78s(b)(3)(A)(i).

4 17 CFR 240.19b–4(e)(i).

5Securities Exchange Act Release No. 38812 (July

3, 1997), 62 FR 37105 (July 10, 1997) (File No. SR–

NASD–97–29).

B. Self-Regulatory Organization’s

Statement on Competition

The proposed rule change does not

impose any burden on competition that

is not necessary or appropriate in

furtherance of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Association has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change constitutes

a stated policy, practice, or

interpretation with respect to the

meaning, administration, or

enforcement of an existing rule and,

therefore, has become effective pursuant

to Section 19(b)(3)(A)(i) of the Act 5 and

subparagraph (e) of Rule 19b–4

thereunder.6

At any time within sixty days of the

filing of such proposed rule change, the

Commission may summarily abrogate

such rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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 at

the Commission’s Public Reference

Room. Copies of such filing also will be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to File No.

SR–NASD–97–86 and should be

submitted by January 21, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–33993 Filed 12–30–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

(Release No. 34–39478; File No. SR–NASD–

97–85)

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc., Relating to NASD Rule

2460 Concerning Payments for Market

Making

December 22, 1997.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’),1 notice is hereby

given that on December 1, 1997, the

National Association of Securities

Dealers, Inc. (‘‘NASD’’), through its

wholly owned subsidiary, NASD

Regulation, Inc. (‘‘NASD Regulation’’)

filed with the Securities and Exchange

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

the proposed rule change as described

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

have been prepared by NASD

Regulation.2 The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation, pursuant to Section

19(b)(3)(A)(i) of the Act 3 and Rule 19b–

4(e)(i) under the Act,4 is proposing this

interpretation of NASD Rule 2460

concerning payments for market

making. The text of the letter setting

forth the interpretation is attached as

Exhibit 1.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NASD Regulation included statements

concerning the purpose of, and basis for,

the proposed rule change and discussed

any comments it received on the

proposed rule filing. The text of these

statements may be examined at the

places specified in Item IV below.

NASD Regulation 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

NASD Regulation is proposing to

issue a staff interpretation of NASD Rule

2460 to clarify the position of NASD

Regulation with respect to the

application of the rule to certain

member broker-dealers that participate

in a Freddie Mac Interdealer Cash

Market Trading Initiative, as described

below.

NASD Rule 2460—Payments for Market

Making

On July 3, 1997, the SEC approved

NASD Rule 2460 (‘‘Rule’’),5 which

explicitly prohibits an NASD member or

person associated with a member from

accepting any payment or other

consideration from issuers or the

issuers’ affiliates or promoters, directly

or indirectly, for: (1) publishing a

quotation, (2) acting as a market maker,

or (3) submitting an application in

connection therewith. The rule was

intended, among other things, to assure

that members act in an independent

capacity when publishing a quotation or

making a market in an issuer’s

securities.

NASD Regulation originally proposed

this new rule and requested comment

from members and the public in Notice

to Members 96–83 (‘‘NTM 96–83’’) in

December 1996. As stated in NTM 96–

83, it has been a longstanding policy

and position of the NASD that a brokerdealer is prohibited from receiving

compensation or other payments from

an issuer for listing, quoting, or making

a market in an issuer’s securities or for

covering the member’s out-of-pocket