[Federal Register Volume 65, Number 192 (Tuesday, October 3, 2000)]
[Notices]
[Pages 59036-59038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25295]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43346; File No. SR-NASD-00-33]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the National Association of Securities 
Dealers, Inc. to Amend NASD Rule 3340 to Prohibit Publication of 
Quotations or Indications of Interest in a Security During a Trading 
Halt

September 26, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 7, 2000, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its wholly owned subsidiary, 
NASD Regulation, Inc. (``NASD Regulation''), filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by NASD Regulation. On August 2, 2000, NASD Regulation amended the 
proposal.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See August 2, 2000 letter from Kathleen A. O'Mara, Assistant 
General Counsel, NASD Regulation to Katherine A. England, Assistant 
Director, Division of Market Regulation, SEC (``Amendment No. 1''). 
Amendment No. 1 broadened the scope of the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation proposes to amend NASD Rule 3340 to prohibit the 
publication by members of quotations or indications of interest for a 
security during a trading halt. The text of the proposed rule change is 
below. Proposed new language is in italics. Proposed deletions are in 
brackets.
3340. Prohibition on Transactions, Publication of Quotations, or 
Publication of Indications of Interest During Trading Halts
    No member or person associated with a member shall, directly or 
indirectly, effect any transaction or publish a quotation, a priced bid 
and/or offer, an unpriced indication of interest (including ``bid 
wanted'' and ``offer wanted'' and name only indications), or a bid or 
offer, accompanied by a modifier to reflect unsolicited customer 
interest, in [a] any security as to which a trading halt is currently 
in effect.
* * * * *

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 
change. 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.

[[Page 59037]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to expressly prohibit 
members from publishing quotations or indications of interest in a 
security during a trading halt. Currently, NASD Rule 3340 prohibits 
members from effecting a transaction in a security during a trading 
halt, but does not expressly state that members are prohibited from 
publishing quotations or indications of interest.\4\ However, NASD 
Rules 3310 \5\ and 3320,\6\ respectively, state that members are 
required to enter only bona fide quotations and honor such quotations 
if presented with an order. Thus, if during a trading halt, a member 
that is publishing a quotation for a security is presented with a 
liability order for such security, the member would be faced with the 
choice of either honoring its quote and violating the rule prohibiting 
transactions in a security during a trading halt, or complying with the 
trading halt rule but violating the Firm Quote Rule. In addition, the 
entry of quotations or indications of interest while there is a trading 
halt in a security could be potentially misleading. To prevent this 
from happening, NASD Regulation is proposing that NASD Rule 3340 be 
amended to expressly state that members are prohibited from publishing 
quotations or indications of interest during a trading halt.
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    \4\ The Commission may impose trading suspensions in the United 
States securities markets under Section 12(k) of the Act. See 15 
U.S.C. 781(k).
    NASD Rule 4120 provides that Nasdaq may halt trading: (1) in the 
over-the-counter market of a security listed on Nasdaq to permit the 
dissemination of material news; or (2) 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) by (i) Consolidated Quotation System 
(``CQS'') market makers in a CQS security because of an order 
imbalance or influx (``operational trade 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; 
or (4) in an American Depository Receipt (``ADR'') or other security 
listed on Nasdaq, when the Nasdaq-listed security or the security 
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) 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 NASD Rule 4300 and 4400 
Series; or (iii) any other information which is necessary to protect 
investors and the public interest. See also Securities Exchange Act 
Release No. 42806 (May 22, 2000), 65 FR 34518 (May 30, 2000) (SR-
NASD-99-33), which establishes Nasdaq's trade and quote halt 
authority in certain specific circumstances in securities included 
in the OTC Bulletin Board Service (``OTCBB''), and Notice to Members 
99-69 soliciting comments on whether NASD Regulation should have 
authority to halt trading in non-Nasdaq, non-OTCBB, over-the-counter 
securities under certain circumstances.
    \5\ NASD Rule 3310 states that: [n]o member shall publish or 
circulate, or cause to be published or circulated, any notice, 
circular, advertisement, newspaper article, investment service, or 
communication of any kind which purports . . . to quote the bid 
price or asked price for any security, unless such member believes 
that such quotation represents a bona fide bid for, or offer of, 
such security * * *.
    NASD Rule IM-3310 states, among other things, that: [i]t would 
be inconsistent with the above provisions for a member, for itself 
or for any other person, to publish or circulate or to cause to be 
published or circulated, by any means whatsoever, any quotation for 
any security without having reasonable cause to believe that such 
quotation is a bona fide quotation, is not fictitious and is not 
published or circulated or caused to be published or circulated for 
any fraudulent, deceptive or manipulative purpose. IM-3310 also 
provides: ``[f]or the purposes of this interpretation, the term 
`quotation' shall include any bid or offer or any formula, such as 
`bid wanted' or `offer wanted,' designed to induce any person to 
make or submit any bid or offer.''
    \6\ NASD Rule 3320 (``Firm Quote Rule'') states that: [n]o 
member shall make an offer to buy from or sell to any person any 
security at a stated price unless such member is prepared to 
purchase or sell, as the case may be, at such price and under such 
conditions as are stated at the time of such offer to buy or sell.
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2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act,\7\ 
which requires, among other things, that the Association's rules must 
be designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The NASD believes that, 
under the proposed rule change, preventing the publication of 
quotations or indications of interest during a trading halt will 
prevent members from seeking to trade at a time when they cannot 
execute a trade. Thus, the proposal is designed to protect investors 
and to insure the integrity of quotations by preventing fictitious or 
misleading quotations.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation 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.
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    \7\ 15 U.S.C. 78o-3(b)(6).
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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 publishes its reasons for so finding or (ii) as to 
which the NASD consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-00-33 and 
should be submitted by October 24, 2000.


[[Page 59038]]


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority. \8\
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    \8\ 17 CFR 2000.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-25295 Filed 10-2-00; 8:45 am]
BILLING CODE 8010-01-M