Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices 58589

27 15 U.S.C. 78o–3(b)(6).

28 15 U.S.C. 78o–3(b)(7).

29 15 U.S.C. 78o–3(b)(8).

30 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42958

(June 20, 2000), 65 FR 39457.

4A non-Nasdaq security is any equity security

that is neither included in the Nasdaq Stock Market

nor traded on a national securities exchange. See

NASD Rule 6710(c).

5Currently, if three firm quotations are displayed,

a broker-dealer is not required to call the three

market makers to verify the firm quotations that are

displayed on the screen. A broker-dealer need note

on the order ticket only the identity of the brokerdealers and the firm quotations displayed.

6The proposed rule change defines the term interdealer quotation system as any system of general

circulation to brokers or dealers that regularly

disseminates quotations of identified brokers or

dealers.

2. Statutory Basis

NASD Regulation believes that the

proposal is consistent with the

provisions of Section 15A(b)(6) of the

Act,27 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. NASD

Regulation believes that the proposed

rule change is consistent with Section

15A(b)(7) of the Act,28 in that it is

intended to safeguard the interests of

investors while establishing fair and

reasonable rules for its members and

persons associated with its members.

NASD Regulation also believes that the

proposed rule change is consistent with

Section 15A(b)(8) of the Act,29 in that it

furthers the statutory goals of providing

a fair procedure for disciplining

members and associated persons.

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.

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–00–39 and should be

submitted by October 20, 2000.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.30

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–25022 Filed 9–28–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43319; File No. SR–NASD–

00–20]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the National Association of Securities

Dealers, Inc. To Amend the Three

Quote Rule for Transactions in NonNasdaq Securities

September 21, 2000.

I. Introduction

On April 13, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’), through its subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’), filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4 2

thereunder, a proposed rule change that

amends the Three Quote Rule for

transactions in non-Nasdaq securities

and its corresponding recordkeeping

provision. The proposal was published

for comment in the Federal Register on

June 25, 2000.3 The Commission

received no comments on the proposal.

This order approves NASD Regulations’

proposed rule change.

II. Description of the Proposal

NASD Regulation has proposed three

amendments to the NASD’s rules.

First NASD Regulation has proposed

to amend NASD Rule 2320(g)—

commonly known as the ‘‘Three Quote

Rule’’—to relieve members of the

current obligation to obtain three quotes

for a transaction in a non-Nasdaq

security 4 when there are two or more

priced quotations for that security

displayed in an inter-dealer quotation

system (such as the OTC Bulletin Board

(‘‘OTCBB’’) or the Electronic Quotation

Service operated by Pink Sheets LLC

(‘‘Pink Sheets’’)) that permits quotation

updates on a real-time basis.

Currently, the rule requires members

that execute a transaction in a nonNasdaq security on behalf of a customer

to contact and obtain quotations from

three dealers (or all dealers if three or

less) to determine the best inter-dealer

market for that security.5 The intent of

the Three Quote Rule is to help ensure

that members fulfill their

responsibilities to customers to provide

best execution for transactions in nonNasdaq security, particularly illiquid

securities with non-transparent prices.

NASD Regulation now believes that

the existing Three Quote Rule often

hinders, rather than furthers, investor

protection by causing significant delays

in obtaining executions of customer

orders. Therefore, NASD Regulation is

proposing that Rule 2320(g) be amended

to require that members obtain

quotations from three dealers (or all

dealers if three or less) only when there

are fewer than two priced quotations

displayed in an inter-dealer quotation

system that permits quotation updates

on a real-time basis (such as the OTCBB

or the Pink Sheets).6

Second, NASD Regulation has

proposed to amend one of its

recordkeeping requirements for

members to correspond with the

proposed amendment to the Three

Quote Rule. Currently, NASD Rule

58590 Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices

7At present, NASD Regulation has such data with

respect to the OTCBB but does not have access to

historical quotation data with respect to the Pink

Sheets. NASD Regulation recently submitted to the

Commission a proposed rule change (SR–NASD–

00–42) that would require NASD members that

publish quotations in the Pink Sheets (or any

similar automated quotation system) to record and

maintain priced quotations and unpriced

indications of interest data and to report such

quotation data to NASD Regulation upon request.

8The proposed rule change defines the term

quotation medium as any inter-dealer quotation

system or any publication or electronic

communications network or other device that is

used by brokers or dealers to make known to others

their interest in transactions in any security,

including offers to buy or sell at a stated price or

otherwise, or invitations of offers to buy or sell.

9 In approving this rule, the Commission has

considered its impact on efficiency, competition,

and capital formation. See 15 U.S.C. 78c(f).

10 15 U.S.C. 78o–3(b)(6) and (b)(9).

11See Securities Exchange Act Release No. 25637

(May 2, 1988), 53 FR 16488 (May 9, 1988).

12See supra note 7.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3110(b)(2) requires that members, for

each transaction in a non-Nasdaq

security, indicate on the order ticket the

name of each dealer contacted and each

quotation received with respect to that

security, in order to determine the best

inter-dealer market. NASD Regulation

has proposed to eliminate this

obligation when two or more priced

quotations for that security are

displayed in an inter-dealer quotation

system if: (1) the system permits

quotation updates on a real-time basis,

and (ii) NASD Regulation has access to

the quotation data.7

Third, NASD Regulation has proposed

to add a new provision to Rule 2320(g)

that will require members that display

quotations for a given non-Nasdaq

security in two or more quotation

mediums that permit quotation updates

on a real-time basis to provide the same

priced quotation in each medium.8

III. Discussion

A. General

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act and the regulations thereunder

applicable to the NASD.9 In particular,

the Commission believes that the

proposal is consistent with Sections

15A(b)(6) and 15A(b)(9) of the Act.10

Section 15A(b)(6) requires, among other

things, 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 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)(9)

requires that the rules of the association

not impose any burden on competition

not necessary or appropriate in

furtherance of the purposes of the Act.

B. Amendment to Three Quote Rule and

Corresponding Recordkeeping Provision

The Commission approved the NASD

proposal that instituted the Three Quote

Rule in 1988.11 The Three Quote Rule

was an amendment to the NASD’s

interpretation relating to best execution

of retail transactions in non-Nasdaq

securities. The Rule’s purpose is to

assure that NASD members fulfill their

duty to provide customers with best

execution for transactions in nonNasdaq securities, especially illiquid

securities with non-transparent prices.

Currently, the Three Quote Rule

requires members to obtain quotes from

three dealers before executing a

transaction in a non-Nasdaq security on

behalf of a customer. Under NASD Rule

3110(b)(2), the companion

recordkeeping rule, members are

required to indicate on the order ticket

for each transaction in a non-Nasdaq

security the names of the dealers

contacted and the prices of the

quotations. NASD Regulation’s current

proposal would exempt from the Three

Quote Rule transactions involving a

non-Nasdaq security when there are two

or more priced quotations for that

security displayed in an inter-dealer

quotation system that permits quotation

updates on a real-time basis. A

corresponding amendment to NASD

Rule 3110(b)(2) would eliminate the

requirement to indicate on the order

ticket for a transaction in a non-Nasdaq

security the dealers contacted and

quotations received, provided there are

two or more priced quotations for that

security displayed in an inter-dealer

quotation system and NASD Regulation

has access to the historical quotation

information.12

In light of the significant

technological advances that have

occurred in the markets for non-Nasdaq

securities since adoption of the Three

Quote Rule, the Commission believes it

is reasonable and consistent with the

Act to limit the Rule’s applicability to

those situations when fewer than two

priced quotes for a non-Nasdaq security

are posted in an inter-dealer quotation

medium. The Commission also finds

that, in light of the proposed

amendment to the Three Quote Rule,

the corresponding amendment to the

recordkeeping provisions of NASD Rule

3110(b)(2) is reasonable and consistent

with the purposes of the Act. The

Commission notes that, whether or not

a transaction in a non-Nasdaq security

is subject to the Three Quote Rule, the

member executing the transaction must

satisfy its duty of best execution.

C. Requirement to Post Same Quotation

in Different Mediums

Currently, an NASD member may

display different priced quotations for

the same non-Nasdaq security in

different quotation mediums. The

Commission believes that this practice

can be confusing to market participants

and, in particular, to public investors.

Requiring that members display

consistent priced quotations in multiple

quotation mediums will enhance the

ability of market participants to

ascertain the best inter-dealer market for

a non-Nasdaq security. The Commission

finds that the proposed amendment

implementing this requirement is

consistent with the purposes of the Act.

IV. Conclusion

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–NASD–00–

20) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary

[FR Doc. 00–25025 Filed 9–28–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43318; File No. SR–NASD–

00–54]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by National

Association of Securities Dealers, Inc.

on Use of the .T Modifier for Extended

Hours Trades in Listed Securities

September 21, 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

September 1, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly owned subsidiary the Nasdaq

Stock Market, Inc. (‘‘Nasdaq’’), 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