Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices 11237

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–5982 Filed 3–10–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38360; File No. SR–NASD–

97–15]

March 4, 1997.

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change and Amendment No. 1 by

the National Association of Securities

Dealers, Inc. Relating to Amendments

to the Corporate Financing Rule, The

Nasdaq Stock Market Rules, and Overthe-Counter Bulletin Board Rules To

Effect Compliance With SEC

Regulation M

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on March 3, 1997, the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

filed with the Securities and Exchange

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

the proposed rule change and

Amendment No. 1. The proposed rule

change and Amendment No. 1 are

described in Items I, II, and III below,

which Items have been prepared by the

NASD. The Commission is publishing

this notice to solicit comments on the

proposed rule change from interested

persons. For the reasons discussed

below, the Commission is granting

accelerated approval of the proposed

rule change and Amendment No. 1.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NASD is proposing to amend the

Corporate Financing Rule in Rule 2710,

The Nasdaq Rules, and the Over-theCounter Bulletin Board Rules of the

Association to effect compliance with

the Commission’s Regulation M. Below

is the text of the proposed rule change.

Proposed new language is in italics;

proposed deletions are in brackets.

2710. Corporate Financing Rule—

Underwriting Terms and Arrangements

(a) No change.

(b) Filing Requirements—(1) through

(10) No change.

(11) Request for Underwriting

Activity Report. Notwithstanding the

availability of an exemption from filing

under subparagraph (b)(7) of this Rule,

a member acting as a manager (or in a

similar capacity) of a distribution of a

publicly traded subject or reference

security that is subject to SEC Rule 101

shall submit a request to the Corporate

Financing Department for an

Underwriting Activity Report with

respect to the subject and/or reference

security in order to facilitate compliance

with SEC Rules 101, 103, or 104, and

other distribution-related Rules of the

Association. The request shall be

submitted at the time a registration

statement or similar offering document

is filed with the Department, the SEC,

or other regulatory agency or, if not filed

with any regulatory agency, at least two

(2) business days prior to the

commencement of the restricted period

under SEC Rule 101. The request shall

include a copy of the registration

statement or similar offering document

(if not previously submitted pursuant to

subparagraph (b)(5) of this Rule). If no

member is acting as managing

underwriter of such distribution, each

member that is a distribution participant

or an affiliated purchaser shall submit a

request for an Underwriting Activity

Report, unless another member has

assumed responsibility for compliance

with this subparagraph. For purposes of

this subparagraph, SEC Rules 100, 101,

103, and 104 are rules of the

Commission adopted under Regulation

M and the following terms shall have

the meanings as defined in SEC Rule

100: ‘‘distribution,’’ ‘‘distribution

participant,’’ ‘‘reference security,’’

‘‘restricted period,’’ and ‘‘subject

security.’’

(c) No change.

4000. The Nasdaq Stock Market

4200. Definitions

(a) For purposes of the Rule 4000

Series, unless the context requires

otherwise:

[(a)–(x)] (1)–(23)

[(y) ‘‘Penalty bid’’ means a stabilizing

bid that permits the managing

underwriter to reclaim a selling

concession granted to a syndicate

member in connection with the sale of

securities in an underwritten offering

when the syndicate member resells such

securities to the managing underwriter.]

[(z) ‘‘Pre-effective stabilizing bid’’

means a stabilizing bid entered prior to

the effective date of an offering.]

[(aa)] (24) ‘‘Reported security’’ means

an equity security for which quotations

are entered into the Consolidated

Quotations Service.

(25) ‘‘SEC Rule 100’’, ‘‘SEC Rule 101’’,

‘‘SEC Rule 103’’, and ‘‘SEC Rule 104’’

mean the rules adopted by the

Commission under Regulation M, and

any amendments thereto.

[(bb)] (26) ‘‘Solicitation expenses’’

means direct marketing expenses

incurred by a member in connection

with a limited partnership rollup

transaction, such as telephone calls,

broker/dealer fact sheets, members’ legal

and other fees related to the solicitation,

as well as direct solicitation

compensation to members.

[(cc)] (27) ‘‘Stabilizing bid’’ means [a

bid entered for the purpose of

supporting the price of a security to

facilitate an offering of such security as

permitted by SEC Rules 10b–6 and 10b–

7.] the terms ‘‘stabilizing’’ or to

‘‘stabilize’’ as defined in SEC Rule 100.

[(dd)] (28) ‘‘Transaction costs’’ means

costs incurred in connection with a

limited partnership rollup transaction,

including printing and mailing the

proxy, prospectus or other documents;

legal fees not related to the solicitation

of votes or tenders; financial advisory

fees; investment banking fees; appraisal

fees; accounting fees; independent

committee expenses; travel expenses;

and all other fees related to the

preparatory work of the transaction, but

not including costs that would have

otherwise been incurred by the subject

limited partnerships in the ordinary

course of business or solicitation

expenses.

(29) ‘‘Underwriting Activity Report’’ is

a report provided by the Corporate

Financing Department of NASD

Regulation, Inc. in connection with a

distribution of securities subject to SEC

Rule 101 pursuant to Rule 2710(b)(11)

and includes forms that are submitted

by members to comply with their

notification obligations under Rules

4614, 4619, and 4623.

(b) For purposes of Rules 4614, 4619,

and 4623, the following terms shall have

the meanings as defined in SEC Rule

100: ‘‘affiliated purchaser,’’

‘‘distribution,’’ ‘‘distribution

participant,’’ ‘‘independent bid,’’ ‘‘net

purchases,’’ ‘‘passive market maker,’’

‘‘penalty bid,’’ ‘‘reference security,’’

‘‘restricted period,’’ ‘‘subject security,’’

and ‘‘syndicate covering transaction’’.

4600. Nasdaq Market Maker

Requirements

4614. Stabilizing Bids

(a) [Eligibility.]

[A market maker may enter a

stabilizing bid in Nasdaq, which bid

will be identified with the appropriate

identifier on the Nasdaq quotation

display.]

Market Maker Obligation/Identifier

A market maker that intends to

stabilize the price of a Nasdaq security

that is a subject of reference security

under SEC Rule 101 shall submit a

request to Nasdaq Market Operations
11238 Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices

for the entry of a one-sided bid that is

identified on Nasdaq as a stabilizing bid

in compliance with the standards set

forth in this Rule and SEC Rules 101

and 104.

(b) Eligibility

Only one market maker in an issue

may enter a stabilizing bid.

(c) Limitations on Stabilizing Bids

(1) A stabilizing bid [will] shall not be

[displayed] entered in Nasdaq unless at

least one other market maker in

addition to the market maker entering

the stabilizing bid is registered as a

market maker in the [issue] security and

enter[s]ing quotations that are

considered an independent bid under

SEC Rule 104.

([b]2) [Character.]

[A stabilizing bid, pre-effective

stabilizing bid, or a penalty bid may be

entered in Nasdaq.] A stabilizing bid

must be available for all freely tradeable

outstanding securities of the same class

being offered.

(3) A market maker shall not enter a

stabilizing bid at the same time that it

is quoting any other bid or offer in the

security.

([c]d) [Notice] Submission of Request

to Association

(1) A market maker that wishes to

enter a stabilizing bid shall [so notify

the] submit a request to Nasdaq Market

Operations [in writing prior to the first

day on which the stabilizing bid is to

appear in Nasdaq] for the entry in the

Nasdaq quotation display of a one-sided

bid identified as a stabilizing bid. The

market maker shall confirm its request

in writing no later than the end of the

day on which the stabilizing bid is

entered by submitting an Underwriting

Activity Report to Nasdaq Market

Operations that includes the

information required by subparagraph

(d)(2). [and the fact that the market

maker is a manager of the distribution.]

(2) In lieu of submitting the

Underwriting Activity Report as set forth

in subparagraph (d)(1), [T] the market

maker may provide written [notice]

confirmation to Nasdaq Market

Operations that shall include:

(A) the [name] identity of the security

and its Nasdaq symbol;

(B) [the date on which the security’s

registration will become effective, if it is

already included in Nasdaq] the

contemplated effective date of the

offering and the date when the offering

will be priced;

[(C) whether the stabilizing bid will

be a penalty bid or a penalty-free bid]

(C) the date and time that an

identifier should be included on the

Nasdaq quotation display; and

(D) a copy of the cover page of the

preliminary or final prospectus [or shelf

registration statement] or similar

offering document, unless the

Association determines otherwise.

[(2) In the case of a pre-effective

stabilizing bid, the notice shall include

(A) the name of the security and its

Nasdaq symbol; (B) the contemplated

effective date of the offering; (C)

whether it is contemplated that the preeffective stabilizing bid will be

converted to a stabilizing bid and, if so,

whether the stabilizing bid will be a

penalty bid or a penalty-free bid; and

(D) a copy of the preliminary

prospectus, unless the Association

determines otherwise.]

[(3) A market maker that has provided

the written notice prescribed above

shall also contact Nasdaq Market

Operations for authorization on the day

the market maker wishes to enter the

stabilizing bid.]

[(d) Dual Bids in the Same Issue. A

market maker shall not enter a

stabilizing bid at the same time that it

is quoting any other bid or offer in the

issue.]

[(e) Volume Reporting for Stabilizing

Bids. A market maker entering a

stabilizing bid shall report all purchases

made on the stabilizing bid and enter

‘‘zero volume’’ for sales during the

period in which the stabilizing bid is in

effect.]

4619. Withdrawal of Quotations and

Passive Market Making

(a)–(c) No change.

(d) Excused withdrawal status or

passive market maker status may be

granted to a market maker that is a

distribution participant (or, in the case

of excused withdrawal status, an

affiliated purchaser) in order to comply

with SEC Rules [10b–6] 101, [or Rule

10–6A] 103, or 104 under the Act on the

following conditions:

(1) A [market maker] member acting

as a manager (or in a similar capacity)

of a distribution of a Nasdaq security

that is a subject or reference security

under SEC Rule 101 and any member

that is a distribution participant or that

is an affiliated purchaser in such a

distribution that does not have a

manager shall [: (A)] provide written

notice to Nasdaq Market Operations [of

the prospective distribution] no later

than the business day prior to the first

entire trading session of the one-day or

five-day restricted period under SEC

Rule 101, unless later notification is

necessary under the specific

circumstances.

[and the fact that the market maker is

a manager of the distribution, the

Nasdaq security or securities that are

subject to SEC Rule 10b–6 no later than

5 business days following the filing of

a registration statement with the

Association pursuant to Rule 2710, or,

if the member is not required to file the

registration statement with the

Association, no later than 5 business

days following the filing of offering

documents with the appropriate

regulatory authority; and, (B) no later

than noon Eastern Time on the business

day prior to the beginning of the cooling

off period:]

[(i)] (A) [request] The notice required

by subparagraph (d)(1) of this Rule shall

be provided by submitting a completed

Underwriting Activity Report that

includes a request on behalf of each

market maker that is a distribution

participant or an affiliated purchaser to

withdraw[al of] the market maker[s’]’s

quotations, or [identification of] that

includes a request on behalf of each

market maker that is a distribution

participant that its [the market makers’]

quotations be identified as those of a

passive market maker [by providing

written notice to Nasdaq Market

Operations of the identity of the market

makers that are distribution

participants], and includes the

contemplated date and time of the

commencement of the [cooling off

period] restricted period. [and the

identity of the market makers that

intend to act as passive market makers;

and]

[(ii)] (B) The managing underwriter

shall advise [the] each market maker

that [they have] it has been identified as

a distribution participant[s] or an

affiliated purchaser to Nasdaq Market

Operations and that [their] its

quotations will be automatically

withdrawn or identified as passive

market maker quotations, [upon the

request made by the manager] unless

[they submit to] a market maker that is

a distribution participant notifies [the

Association the notice specified in]

Nasdaq Market Operations as required

by subparagraph [(3)] (d)(2), below.

[(2) If the security is being distributed

pursuant to an offering for which no

registration statement or offering

document is required to be filed, each

market maker that is a distribution

participant shall, no later than noon

Eastern Time on the business day prior

to the beginning of the cooling off

period, provide written notice to Nasdaq

Market Operations of its participation in

the distribution, the contemplated date

and time of the commencement of the

cooling off period, the Nasdaq security

or securities that are subject to SEC Rule

10b–6, and request withdrawal of its

quotations or identification as a passive

market maker.]
Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices 11239

1Securities Exchange Act Release No. 38067

(December 20, 1996), 62 FR 520 (January 3, 1997).

([3] 2) A market maker that has been

identified to Nasdaq Market Operations

as a distribution participant shall

[provide written notice to] promptly

notify Nasdaq Market Operations and

the manager of its intention not to

participate in the prospective

distribution or not to act as a passive

market maker [no later than 4:00 p.m.

Eastern Time on the business day prior

to the beginning of the cooling off

period] in order to avoid having its

quotations withdrawn or identified as

the quotations of a passive market

maker, or in order to have its excused

withdrawal status rescinded.

(3) If a market maker that is a

distribution participant withdraws its

quotations in a Nasdaq security in order

to comply with the net purchases

limitation of SEC Rule 103 or with any

other provision of SEC Rules 101, 103,

or 104 and promptly notifies Nasdaq

Market Operations of its action, the

withdrawal shall be deemed an excused

withdrawal. Nothing in this

subparagraph shall prohibit the

Association from taking such action as

is necessary under the circumstances

against a member and its associated

persons for failure to contact Nasdaq

Market Operations to obtain an excused

withdrawal as required by

subparagraphs (a) and (d) of this Rule.

(4) [In the event the manager of a

distribution is not a market maker, each

market maker that is a distribution

participant shall comply with paragraph

(d)(1) unless another market maker has

assumed responsibility for compliance.]

The quotations of a passive market

maker shall be identified on Nasdaq as

those of a passive market maker.

[For purposes of this Rule, the term

‘‘cooling off period’’ refers to the

periods specified in SEC Rule 10b–

6(a)(4)(xi), the terms ‘‘distribution’’ and

‘‘distribution participant’’ refers to these

terms as defined in SEC Rule 10b–

6(c)(5) and (c)(6) and the term ‘‘passive

market maker’’ refers to this term as

defined in SEC Rule 10b–6A(T).]

* * * * *

4623. Penalty Bids and Syndicate

Covering Transactions

(a) A market maker acting as a

manager (or in a similar capacity) of a

distribution of a Nasdaq security that is

a subject or reference security under

SEC Rule 101 shall provide written

notice to the Corporate Financing

Department of NASD Regulation, Inc. of

its intention to impose a penalty bid on

syndicate members or to conduct

syndicate covering transactions

pursuant to SEC Rule 104 prior to

imposing the penalty bid or engaging in

the first syndicate covering transaction.

A market maker that intends to impose

a penalty bid on syndicate members

may request that its quotation be

identified as a penalty bid on Nasdaq

pursuant to paragraph (c) below.

(b) The notice required by paragraph

(a) shall include:

(1) the identity of the security and its

Nasdaq symbol;

(2) the date the member is intending

to impose the penalty bid and/or

conduct syndicate covering

transactions; and

(3) the amount of the syndicate short

position, in the case of syndicate

covering transactions.

(c) Notwithstanding paragraph (a), a

market maker may request that its

quotation be identified as a penalty bid

on Nasdaq display by providing notice

to Nasdaq Market Operations, which

notice shall include the date and time

that the penalty bid identifier should be

entered on Nasdaq and, if not in writing,

shall be confirmed in writing no later

than the end of the day on which the

penalty bid identifier is entered on

Nasdaq.

(d) The written notice required by

paragraphs (a) and (c) of this Rule may

be submitted on the Underwriting

Activity Report by including the

information required by subparagraphs

(b)(1) and (b)(2) or paragraph (c).

6500. OTC Bulletin Board Service

6540. Requirements Applicable to

Market Makers

(a) No change.

(b) No change.

(1) Permissible Quotation Entries

(A)–(C) No change.

(D) Any member that intends to be a

distribution participant in a distribution

of securities subject to SEC Rule 101, or

is an affiliated purchaser in such

distribution, and is entering quotations

in an OTCBB–eligible security that is the

subject or reference security of such

distribution shall, unless another

member has assumed responsibility for

compliance with this paragraph:

(i) provide written notice to Nasdaq

Market Operations prior to the pricing

of the distribution that includes the

intended date and time of the pricing of

the offering;

(ii) Withdraw all quotations in the

OTCBB–eligible security to comply with

the applicable restricted period under

SEC Rule 101 and not enter a stabilizing

bid pursuant to SEC Rule 104 in the

OCTBB; and

(iii) provide written notice to the

Corporate Financing Department of

NASD Regulation, Inc. of its intention to

impose a penalty bid or to conduct

syndicate covering transactions

pursuant to SEC Rule 104 prior to

imposing the penalty bid or engaging in

the first syndicate covering transaction.

Such notice shall include information

as to the date the penalty bid or first

syndicate covering transaction will

occur and the amount of the syndicate

short position.

(E) The written notice required by

subparagraphs (b)(1)(D)(i) and (iii) of

this rule may be submitted on the

Underwriting Activity Report provided

by the Corporate Financing Department

of NASD Regulation, Inc. by including

the information required by those

subparagraphs.

(F) For purposes of subparagraph (D),

SEC Rules 100, 101, 103 and 104 are

rules of the Commission adopted under

Regulation M and the following terms

shall have the meanings as defined in

SEC Rule 100: ‘‘affiliated purchaser,’’

‘‘distribution,’’ ‘‘distribution

participant,’’ ‘‘penalty bid,’’ ‘‘reference

security,’’ ‘‘restricted period,’’

‘‘stabilizing,’’ ‘‘subject security,’’ and

‘‘syndicate covering transaction.’’

* * * * *

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, Inc. (‘‘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 test of these

statements may be examined at the

places specified in Item III 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

(a) On December 20, 1996, the

Commission approved new Regulation

M to replace Rules 10b–6, 10b–6A, 10b–

7, 10b–8 and 10b–21 under the Act (the

‘‘trading practice rules’’).1 Regulation M,

which consists of SEC Rules 100

through 105, governs the activities of

underwriters, issuers, selling securityholders, their respective affiliated

purchasers, and others that have an

interest in the outcome of an offering of

securities. New Regulation M will be

effective March 4, 1997, with the
11240 Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices

exception that the Commission’s

recordkeeping requirements related to

penalty bids and syndicate covering

transactions will become effective April

1, 1997.

The NASD is proposing to amend the

rules of The Nasdaq Stock Market

(‘‘Nasdaq’’), the Over-the-Counter

Bulletin Board (‘‘OTCBB’’), and the

Corporate Financing Rule (NASD Rule

2710) (collectively ‘‘NASD rules’’) to

clarify certain of the provisions and to

implement the requirements of

Regulation M in SEC Rules 101, 103,

and 104 as they apply to members of the

Association. In general, the amendments

to the NASD rules establish a new

requirement for members to obtain an

Underwriting Activity Report from the

Corporate Financing Department of

NASD Regulation with respect to a

proposed distribution subject to SEC

Rule 101; modify current Nasdaq

requirements with respect to the entry

of stabilizing and penalty bids and

requests for excused withdrawal of

quotations or designation of quotations

as those of a passive market maker; and

establish new requirements for

notification with respect to penalty bids

and syndicate covering transactions for

Nasdaq and OTCBB securities.

General

The NASD is proposing to amend the

Nasdaq Rules to eliminate the

requirement that members submit their

request to enter a stabilizing or penalty

bid, for an excused withdrawal of

quotations, or for the identification of

quotations as those of a passive market

maker on the day prior to the requested

action. Further, in connection with

stabilizing and penalty bids, the

proposed rule change replaces the

current requirement for written

notification with a requirement for

notification followed by written

confirmation. These changes are made

in order to permit the Association to

respond to the quicker timetable that is

increasingly characteristic of securities

distributions and to, particularly,

provide members the maximum

flexibility required for shelf offerings.

In addition, the proposed rule change

amends Nasdaq and OTCBB Rules to

distinguish between the obligations of

members that are distribution

participants and members that are

affiliated purchasers (as those terms are

defined in SEC Rule 100 adopted under

Regulation M). While a member that is

a distribution participant may stabilize

the price of a security and engage in

passive market making, a member that

is considered an affiliated purchaser to

the issuer is not permitted to conduct

these market-related activities during a

distribution.

The proposed rule change also

clarifies that the requirements for

stabilizing, excused withdrawal, passive

market making, penalty bids, and

syndicate covering transactions in a

Nasdaq or OTCBB security apply

regardless of whether a Nasdaq or

OTCBB security is the subject of the

distribution or is a reference security (as

those terms are defined in SEC Rule 100

adopted under Regulation M). Similarly,

the requirement that a member request

an Underwriting Activity Report, as

discussed below, from the Corporate

Financing Department of NASD

Regulation applies regardless of whether

a publicly traded security is a subject or

reference security under SEC Rule 101.

Thus, a member that is a distribution

participant or an affiliated purchaser in

a private placement of a security that is

convertible to a publicly traded security

will be required to request an

Underwriting Activity Report with

respect to the reference security.

Moreover, if the reference security is

listed on Nasdaq the member will be

obligated to comply with the provisions

of Rules 4614, 4619, and 4623 or if the

reference security is quoted in the

OTCBB, the member will be obligated to

comply with the provisions of Rule

6540. The same analysis would apply if

the privately placed security is the same

security as that traded in the public

markets.

Amendments to the Nasdaq Rules

Definitions

The proposed rule change would

reorganize Rule 4200 of the NASD Rules

applicable to Nasdaq into two

paragraphs, with the result that the

current definitions in paragraphs (a)

through (dd) would be consecutively

numbered as subparagraphs of

paragraph (a). In addition, the

Association is proposing to adopt a

definition as new subparagraph (a)(25)

of Rule 4200 that would clarify that

references in the Nasdaq Rules to SEC

Rule 100, SEC Rule 101, SEC Rule 103,

and SEC Rule 104 means those rules

adopted by the SEC under Regulation

M, and any amendments thereto.

The definition of ‘‘penalty bid’’ in

current paragraph (2) to Rule 4200 is

proposed to be deleted because SEC

Rule 100 adopted under Regulation M

contains a definition of penalty bid.

Moreover, for purposes of Rule 4614, a

penalty bid will no longer be treated as

a form of stabilizing bid by the NASD.

The definition of ‘‘stabilizing bid’’ in

renumbered subparagraph (a)(27) is

proposed to be amended to refer to the

definition of ‘‘stabilizing’’ in SEC Rule

100 adopted under Regulation M.

Unlike SEC Rule 104 adopted under

Regulation M, the Association’s rules

have differentiated between a preeffective stabilizing bid and a stabilizing

bid entered after the pricing and

effectiveness of an offering. The

Association is deleting the definition of

pre-effective stabilizing bid as

unnecessary and confusing.

Moreover, the NASD is proposing to

adopt, for purposes of the Nasdaq Rules,

a definition of the term ‘‘Underwriting

Activity Report’’ in subparagraph (a)(29)

of Rule 4200 to reference the report to

be provided by the Corporate Financing

Department of NASD Regulation to the

managing underwriter of a distribution

of a publicly traded subject or reference

security that is subject to SEC Rule 101.

The requirement that members obtain

the Report is proposed to be adopted in

Rule 2710(b)(11). The Report will

provide members participating in the

offering with information on whether

the security meets the average daily

trading volume (‘‘ADTV’’) and public

float value requirements for the one-day

or five-day restricted periods under SEC

Rule 101 and whether the ADTV of the

market makers participating in the

offering meet the requirements of SEC

Rule 103 for passive market making. In

addition, the Report permits a member

to provide the requisite notifications to

the NASD with respect to the member’s

request for excused withdrawal of

quotations from Nasdaq and designation

of Nasdaq quotations as those of a

passive market maker, as well as

information on the member’s request to

stabilize and, under Nasdaq and OTCBB

Rules, impose a penalty bid or conduct

syndicate covering transactions. Thus,

the Report permits the Association to

provide information to the underwriting

syndicate to facilitate compliance with

SEC Rules 101 and 103 and can be used

by members to submit information to

the Association to comply with the

member’s obligations under Nasdaq and

OTCBB Rules and SEC Rules 101, 103

and 104.

Finally, the Association is proposing

to adopt new paragraph (b) or Rule 4200

to incorporate the definitions of

important terms from SEC Rule 100

adopted under Regulation M for

purposes of the Nasdaq Rules, including

affiliated purchase, distribution,

distribution participant, independent

bid, net purchases, passive market

maker, penalty bid, reference security,

restricted period, subject security, and

syndicate covering transaction.

Incorporating the SEC’s definitions of

these terms will avoid the need for the
Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices 11241

Association to amend its rules as these

terms are amended by the SEC.

Stabilizing Bids

SEC Rule 104 adopted under

Regulation M replaces Rule 10b–7 under

the Act to regulate stabilization

activities during a distribution. The new

rule retains the requirement that only

one stabilizing bid is permitted in any

market at the same price at the same

time, that the market be notified of the

intent to enter a stabilizing bid, and that

the stabilizing bid be disclosed. Rule

4614 of the Nasdaq Rules currently

includes provisions that meet the

requirements of prior SEC Rule 10b–7

and new Rule 104. However, the NASD

is proposing to amend Rule 4614 to

clarify certain of its provisions, delete

obsolete provisions, and modify the

procedural requirements for notification

and the information required to be

submitted to Nasdaq in order for a

market maker to enter a stabilizing bid.

The NASD is proposing to amend

Rule 4614 of the Nasdaq Rules by

adding new paragraph (a) that requires

a market maker that intends to stabilize

the price of a Nasdaq security in

compliance with SEC Rule 104 to

submit a request to Nasdaq Market

Operations to enter a one-sided bid

identified on Nasdaq as a stabilizing

bid. Paragraph (b) retains the

requirement that only one market maker

in an issue may enter a stabilizing bid.

Several provisions that impose

limitations on stabilizing bids have been

organized under a new heading in

paragraph (c).

The notice provisions in renumbered

subparagraph (d)(1) have been revised to

permit submission to Nasdaq Market

Operations of a market maker’s request

to enter a stabilizing bid at any time.

Currently, Rule 4614 requires that

Nasdaq Market Operations be notified

on the day prior to the first day on

which the stabilizing bid is to appear.

This requirement is no longer necessary.

Since a one-sided bid identified as a

stabilizing bid can only be entered on

Nasdaq by the staff of Nasdaq Market

Operations, there is no need to set a

particular time period for providing

notification. System changes now

permit the staff of Nasdaq Market

Operations to enter a stabilizing bid

with the appropriate identifier with

only a short period of notification prior

to the opening of the market or any

other time during the trading session for

the entry of the bid requested by the

member. Moreover, a member may

determine, and is permitted by SEC

Rule 104, to enter a stabilizing bid at

any time during a trading session. Thus,

it is the obligation of the member to

provide the staff sufficient time to enter

its one-sided stabilizing bid on Nasdaq

and the staff of Nasdaq Market

Operations will enter a member’s

stabilizing bid as soon as possible after

receipt of the request from the member.

The Association is also proposing to

delete the requirement in subparagraph

(d)(1) of Rule 4614 that the request for

entry of a stabilizing bid be in writing

and replace it by a requirement that the

request be confirmed in writing by the

end of the day of which the stabilizing

bid is entered. In light of the speed at

which many secondary offerings and

shelf distributions are priced and

distributed and the volatility of the

market, the Association believes it

important that members be provided the

ability to move quickly in response to

changing market conditions and the

requirements of such offerings. The

information required to be provided to

the staff of Nasdaq Market Operations

by subparagraph (d)(2) is easily

conveyed in a conversation by

telephone.

Subparagraph (d)(1) of Rule 4614 is

also proposed to be amended to permit

a member to provide its written request

by submitting an Underwriting Activity

Report provided by the Corporate

Financing Department of NASD

Regulation, with the requisite

information included in the Report that

is set forth in subparagraph (d)(2). In

lieu of the Underwriting Activity

Report, a member is also permitted

under subparagraph (d)(2) to provide

written notice to Nasdaq Market

Operations that contains the

information related to its request to

stabilize the price of a security. The

information required to be included in

the Underwriting Activity Report or in

a separate request has been revised in

order to clarify and simplify the

requirements. Thus, the requirement to

provide a copy of the preliminary

prospectus has been replaced with a

requirement to provide the cover page of

the prospectus, because only the

information on the cover page is

necessary to Nasdaq Market Operations

staff and is easily transmitted by fax to

the Association.

Excused Withdrawals and Passive

Market Making

Market makers are not permitted by

the Nasdaq Rules to withdraw their

market making quotations unless the

withdrawal is excused. In the absence of

obtaining an excused withdrawal, a

member is prohibited by Nasdaq Rules

from acting as a market maker in the

security for 20 business days. Rule 4619

of the Nasdaq Rules regulates requests

for excused withdrawals of quotations

by market makers and the request by

market makers for identification of their

quotations as those of a passive market

maker.

SEC Rule 101 adopted under

Regulation M has replaced the current

‘‘cooling-off’’ periods of Rule 10b–6 that

are triggered by the anticipated

commencement of the distribution with

a three-tier ‘‘restricted period’’ that is

calculated from the time of pricing the

subject security. Actively-traded

securities, i.e., securities with an ADTV

of at least $1 million and a public float

value of at least $150 million, are no

longer subject to any restricted period.

Securities with an ADTV of at least

$100,000, with a public float value of at

least $25 million, are subject to a

restricted period of one business day

prior to the date on which the subject

security’s price is determined and all

other securities that do not meet the

ADTV and public float value tests are

subject to a restricted period of five

business days.

SEC Rule 103 adopted under

Regulation M, which replaces Rule 10–

6A under the Act, permits ‘‘passive’’

market making activity in Nasdaq stocks

in connection with fixed-price offerings

that are underwritten on a firmcommitment basis and permits all

Nasdaq stocks to qualify for passive

market making. The new SEC rule also

allows passive market making

throughout the restricted period, in

contrast to Rule 10b–6A, which

prohibited passive market making upon

the commencement of offers and sales.

The NASD is proposing to revise Rule

4619 in subparagraph (d)(1) to: (1)

Distinguish between the obligations of a

member that is a distribution participant

and a member that is an affiliated

purchaser; (2) clarify that the primary

obligation to obtain excused withdrawal

and/or identification of quotations as

those of a passive market maker is

imposed on the managing underwriter

of the distribution, regardless of

whether the managing underwriter is

also a Nasdaq market maker in the

security; (3) clarify that the rule applies

regardless of whether the Nasdaq

security is a subject or reference

security; (4) replace the cooling-off

periods of Rule 10b–6 with the one-day

and five-day restricted periods of SEC

Rule 101; and (5) clarify that passive

market making quotations must be

identified on Nasdaq.

In addition, the amendments to

subparagraph (d)(1) of Rule 4619

provide that notification to Nasdaq

Market Operations must occur no later

than the business day prior to the first

entire trading session of the one-day or

five-day restricted period under SEC
11242 Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices

2See definition of ‘‘business day’’ in SEC Rule

100 for purposes of calculating the restricted period

under SEC Rule 101. The term ‘‘business day’’ for

purposes of the Nasdaq Rules refers to a calendar

day on which trading occurs on Nasdaq.

Rule 101 of Regulation M. This

amendment deletes the provision that

previously required notification to

Nasdaq Market Operations by noon

Eastern Time on the business day prior

to the beginning of the cooling-off

period. It is anticipated that members

will provide notification as follows: If a

one-day restricted period commences at

the close of Nasdaq at 4:00 p.m. (ET) on

Monday, notice should be provided to

Nasdaq Market Operations with respect

to excused withdrawal or passive

market making status for Tuesday by

6:00 p.m. on Monday, with the offering

being priced and sold after 4:00 p.m.

(ET) on Tuesday. The five-day restricted

period is calculated in a similar

manner.2 The provision permits

notification to be received later than the

day prior to the first entire trading

session of the restricted period if such

later notification is necessary under the

specific circumstances, so long as the

Association will be able to maintain its

regulatory program to provide

surveillance of excused withdrawals

and passive market making.

Subparagraph (d)(1) of Rule 4619

continues to require that a member

submit in writing its request for excused

withdrawal or identification of

quotations as those of a passive market

maker. The request is required under

subparagraph (d)(1)(A) to be submitted

in the form of the Underwriting Activity

Report that is obtained from the

Corporate Financing Department of

NASD Regulation pursuant to a

proposed rule change to Rule

2710(b)(11). As set forth above, the

Underwriting Activity Report will be

issued to the managing underwriter of

every distribution of a publicly traded

subject or reference security that is

subject to SEC Rule 101 and will

provide ADTV information that will

facilitate compliance by the

underwriting syndicate with the

restricted periods of SEC Rule 101 and

the passive market making requirements

of SEC Rule 103.

Subparagraph (d)(1)(A) of Rule 4619

requires that the Underwriting Activity

Report that was previously provided to

the managing underwriter by the

Corporate Financing Department be

submitted to Nasdaq Market Operations

and include the managing underwriter’s

request on behalf of each market maker

that is a distribution participant or an

affiliated purchaser that the quotations

of the market maker be withdrawn.

Alternatively, with respect to

distribution participants, the managing

underwriter may request that the

quotations of the market maker be

identified as those of a passive market

maker.

Subparagraph (d)(1)(B) of Rule 4614

will continue to require that the

managing underwriter then advise each

market maker that is a distribution

participant or affiliated purchaser that

its quotations will be automatically

withdrawn. In addition, market makers

that are distribution participants must

be advised if their quotations will be

identified as those of a passive market

maker. A market maker that is a

distribution participant has the option

to notify Nasdaq Market Operations,

pursuant to subparagraph (d)(2), that it

does not intend to be a participant in

the distribution or does not intend to

engage in passive market making.

Subparagraph (a) of Rule 4619

requires that the market maker request

withdrawal of its quotations for any

purpose, including compliance with

Regulation M, through Nasdaq Market

Operations. The action of a market

maker to withdraw its quotations from

Nasdaq is treated as unexcused and is

subject to the 20-day penalty. In

considering a member’s obligations to

comply with new Regulation M, the

Association has determined that it

should revise its procedures and rules to

facilitate members’ compliance with the

restricted periods, and restrictions on

stabilizing and passive market making—

without the member being subject to the

20-day penalty for taking an action

intended to ensure compliance with its

regulatory obligations.

The NASD is, therefore, proposing to

adopt new subparagraph (d)(3) of Rule

4619 to permit the Association to treat

as an excused withdrawal the action of

a market maker to withdraw its

quotations, if the withdrawal is

necessary to ensure compliance with its

obligations as a stabilizer, passive

market maker, or to comply with the

restricted periods of SEC Rule 101.

Thus, this provision will permit a

member that exceeds its ‘‘net

purchases’’ limitation as a passive

market maker to immediately withdraw

its quotations. In addition, the provision

would permit a member to immediately

withdraw a stabilizing bid and would

treat as an excused withdrawal the

immediate withdrawal of quotations to

comply with the one or five-day

restricted periods of Regulation M.

Finally, the provision also requires that

the market maker immediately notify

Nasdaq Market Operations of its action.

In order, however, to ensure that

members understand that they remain

obligated to request withdrawal of their

quotations through Nasdaq Market

Operations and should only rely on this

provision in an unanticipated situation,

the provision clarifies that the granting

of such an excused withdrawal does not

prevent the Association from taking

such action as is necessary (including,

initiating a disciplinary action) against

the member and its associated persons

for failure to comply with the

requirement of Rule 4619 to withdraw

quotations through Nasdaq Market

Operations.

Penalty Bids and Syndicate Covering

Transactions

New SEC Rule 104 adopted under

Regulation M requires that the primary

market for a security be notified on any

penalty bid or syndicate covering

transaction in connection with an

offering of securities. Paragraph (a) of

new Rule 4623 of the Nasdaq Rules

would require submission of this

notification to the Corporate Financing

Department of NASD Regulation with

respect to a Nasdaq security prior to

imposing the penalty bid or engaging in

the first syndicate covering transaction.

The written notification is required

under paragraph (b) to include the

identity of the security and its Nasdaq

symbol, the date and time the member

is intending to impose the penalty bid

and/or conduct syndicate covering

transactions, and a statement of the

amount of the syndicate short position.

If the SEC delays effectiveness of the

notification requirements for penalty

bids and syndicate covering transactions

to a future date, the effectiveness of this

provision will also be delayed until that

date.

Although not required by SEC Rule

104, a market maker has the option to

request that Nasdaq Market Operations

include an identifier with respect to a

penalty bid in order to advise the

market of the member’s exercise of its

contractual right. Where a member

requests that its quotations be identified

as a penalty bid, paragraph (c) under

Rule 4623 requires that the member

must provide notification to Nasdaq

Market Operations (not the Corporate

Financing Department) and, if the notice

is not in writing, must confirm the

notice in writing no later than the end

of the day on which the penalty bid

identifier is entered in Nasdaq. The

requirements of this provision will be

effective March 4, 1997.

Finally, paragraph (d) under Rule

4623 permits, but does not require, a

member to provide the notification

required under paragraphs (a) and (c) by

submitting an Underwriting Activity

Report that includes the requisite

information.
Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices 11243

Amendments to OTCBB Rules

The OTCBB system does not include

a feature that permits the entry of an

identifier in connection with a

member’s quotations in the system.

Therefore, a member that is a

distribution participant or an affiliated

purchaser with respect to an OTCBBeligible security in which it is entering

quotations cannot engage in stabilizing

transactions in that security in the

OTCBB and cannot request

identification of its post-offering bid as

a penalty bid.

The NASD is proposing to amend

subparagraph (b)(1) of rule 6540 of the

OTCBB Rules to require that a member

that is to be a distribution participant or

is an affiliated purchaser in a

distribution of OTCBB-eligible

securities subject to SEC Rule 101 must

provide written notice to Nasdaq Market

Operations prior to the pricing of the

offering that includes the intended date

and time of pricing of the offering—

unless another member assumes

responsibility for the member’s

compliance. In addition, the member

must withdraw its quotations to comply

with the restricted periods of Regulation

M, and is prohibited from entering a

stabilizing bid in the OTCBB.

Moreover, similar to the new

requirements in Rule 4623 with respect

to Nasdaq securities, the member is

required under rule 6540 to provide

written notice to the Corporate

Financing Department of NASD

Regulation of its intention to impose a

penalty bid or engage in syndicate

covering transactions prior to imposing

the penalty bid or engaging in the first

syndicate covering transactions. In the

latter case, the member is required to

provide advice on the amount of the

syndicate short position. If the SEC

delays effectiveness of the notification

requirements to a future date, the

notification regarding penalty bids and

syndicate covering transactions under

rule 6540 will also be delayed until that

date.

Finally, the NASD is proposing that

members be permitted, but not required,

to provide the notice to Nasdaq Market

Operations or the Corporate Financing

Department, as required by the new

provisions, by submitting an

Underwriting Activity Report that

includes the requisite information.

Amendments to the Corporate

Financing Rule

As set forth above, a member that is

a market maker in a distribution of a

Nasdaq security that is a subject or

reference security under SEC Rule 101

adopted under Regulation M, is required

to request excused withdrawal of its

quotations or identification of its

quotations as those of a passive market

maker by submitting information in an

Underwriting Activity Report that is

provided by the Corporate Financing

Department of NASD Regulation.

Moreover, a member has the option to

use the Underwriting Activity Report to

request the entry of a stabilizing bid for

a Nasdaq security, or to provide advice

of the member’s intention to enter a

penalty bid or to engage in syndicate

covering transactions for a Nasdaq or

OTCBB security, or to request an

identifier be associated with the

member’s penalty bid in Nasdaq. The

Underwriting Activity Report has

previously been used, with the title of

‘‘Passive Market Making Report,’’ by the

Corporate financing Department to

provide information to Nasdaq market

makers as to whether the security met

the price and float requirements for the

two-day or nine-day cooling-off periods

under rule 10b–6 and whether the

ADTV of the market makers

participating in the offering met the

requirement for passive market making

under Rule 10b–6A.

The NASD is proposing to expand the

use of the Underwriting Activity Report

to permit the Association to provide

information to members (not just

Nasdaq market makers) to assist them in

complying with the restricted periods of

SEC Rule 101. Thus, the Association

intends to calculate the ADTV for each

subject and reference security that is

publicly traded prior to an offering to

determine, and to so advise the

managing underwriter, whether the

security qualifies under SEC Rule 101 as

a actively-traded security or for the oneday or five-day restricted periods. The

NASD is intending to provide members

the option of using the Underwriting

Activity Report to submit the member’s

request to stabilize a Nasdaq security,

provide notification of the member’s

intent to impose a penalty bid or

conduct syndicate covering transactions

with respect to Nasdaq securities, and to

request an identifier be associated with

a penalty bid in a Nasdaq security. In

addition, a member may use the

Underwriting Activity Report to provide

the notification of an offering and of its

intention to impose a penalty bid or

conduct syndicate covering transactions

with respect to OTCBB securities.

The NASD is proposing to amend the

filing requirements of the Corporate

Financing Rule in Rule 2710 to add new

subparagraph (b)(11) that would require

that a member acting as a manager (or

in a similar capacity) of a distribution of

securities subject to SEC Rule 101

submit a request to the Corporate

Financing Department for an

Underwriting Activity Report. If no

member is acting as managing

underwriter, each member that is a

distribution participant or an affiliated

purchaser is required to submit the

request unless another member has

assumed responsibility for compliance

with the requirement.

The request must be submitted with

respect to any security considered a

subject or reference security under SEC

Rule 101 that is publicly traded. Thus,

the requirement to request an

Underwriting Activity Report applies to

follow-on or secondary distributions of

a publicly traded security (i.e., the

publicly traded security is the subject

security under SEC Rule 101) and to

publicly traded securities that are

reference securities in a distribution

subject to SEC Rule 101. The latter

situation would arise where a private

placement is proposed of a security for

which a publicly traded security is a

reference security. In this case,

distribution participants and affiliated

purchasers would be subject to

compliance with SEC Rule 101 with

respect to the publicly traded security.

In addition, it is important to note, that

the requirement to request an

Underwriting Activity Report applies to

every offering regardless of whether the

subject or reference security is listed on

Nasdaq, quoted in the OTCBB, traded in

the non-Nasdaq over-the-counter

market, or listed on a stock exchange.

Finally, the requirement to submit a

request for an Underwriting Activity

Report applies regardless of the

availability of an exemption from filing

of a public offering in subparagraph

(b)(7) of the Corporate Financing Rule in

Rule 2710.

Proposed subparagraph (b)(11) of Rule

2710 states that the purpose of the

request for the Underwriting Activity

Report is to facilitate compliance with

SEC Rules 101, 103, and 104 and other

distribution-related rules of the

Association. Such other rules include

the Free-Riding and Withholding

Interpretation in IM–2110–1 and the

directed commissions provision of Rule

2740. The proposed provision requires

that the request be submitted at the time

a registration statement or similar

offering document is filed with the

Department, the SEC, or other regulatory

agency. If no offering document is

required to be filed with a regulatory

agency, the request must be submitted at

least two business days prior to the

commencement of the restricted period

under SEC Rule 101.
11244 Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices

3CommScan’s data system provides the NASD

with information on all offerings filed with the

Commission.

4See Notice to Members 96–18 (March 1996) for

a more complete discussion of the operation of

CommScan and SynWire. 5 15 U.S.C. § 78o–3.

Transmission of Regulatory Notices

Under Regulation M

NASD Regulation is proposing to

standardize the information content of

notices required to be submitted under

SEC Rules 101, 103, and 104, i.e.,

notification of withdrawal of quotations,

identification of quotations as those of

a passive market maker, request for

entry of a stabilizing bid, and

notification of penalty bids and

syndicate covering transactions. The

individual notices are required to be

submitted to Nasdaq Market Operations

or the Corporate Financing Department,

as applicable, as an attachment to the

Underwriting Activity Report issued by

the Corporate Financing Department

and will consist of two additional

notification forms, the Regulation M

Restricted Period Commencement

Notification form and the Regulation M

Trading Notification form. Moreover,

the Report will be able to be requested

by the submission of a Request for

Underwriting Activity Report form.

In an effort to provide greater

efficiency to syndicate managers and

other distribution participants, the

NASD has engaged CommScan, Inc.

(‘‘CommScan’’), a New York based

company that owns and operates an

electronic communications system that

currently connects the syndicate

departments of approximately 450

subscriber firms, to establish an

electronic system for transmission of the

Underwriting Activity Report between

the regulatory organizations and broker/

dealers. The NASD previously analyzed

CommScan’s system and engaged

CommScan to develop a software

application known as NASDesk/

Compliance Desk, that facilitates

electronic communication between lead

managers and all syndicate members

and the NASD’s Corporate Financing

Department prior to and during a public

offering of securities 3 for the purpose of

compliance with the Free-Riding and

Withholding Interpretation under IM–

2110–1.4 The NASD is proposing to

expand the use of NASDesk/Compliance

Desk to provide electronic

communications and database

capability with respect to compliance

with NASD Rules that implement SEC

Regulation M and to add a link to

Nasdaq Market Operations. NASDesk/

Compliance Desk permits the NASD to

communicate with members through a

preexisting electronic communication

system known as SynWire. As a result,

the electronic communications

transmitted through this system are

generally referred to as wires. When the

NASD transmits a wire to a member

firm, the member is able to download

the wire into a pre-formatted database

known as SynDesk. Similar to the

procedures for the Free-Riding and

Withholding Interpretation, NASDesk/

Compliance Desk will provide members

with pre-formatted wire templates that

permit the member firm to fill in data

fields with pertinent distribution-related

compliance information required by the

NASD Rules related to Regulation M.

Once the wire templates are completed

with the information required by the

proposed rule change, the

communication protocol designed into

NASDesk/Compliance Desk will permit

the member firm to access the SynWire

transmission system and send the

information directly to the Corporate

Financing Department and Nasdaq

Market Operations.

Thus, the notifications described

below that are intended to provide

compliance with NASD Rules and SEC

Rules 101, 103, and 104 will be able to

be electronically transmitted to the

NASD and will provide real-time notice

and audit trail information to the NASD

and to broker/dealers. Initially, at the

advent of this program, if a member is

not a NASDesk/Compliance Desk

subscriber, it may submit the

information by fax to CommScan, Inc.,

which will manually input the

information into the notification form

and transmit it to the NASD. Moreover,

until the NASDesk/Compliance Desk

system for Regulation M compliance is

implemented, members will provide the

required notifications by faxing, directly

to Nasdaq Market Operations or

Corporation Finance, the notification

forms provided by the Association in

hard copy.

The Regulation M Restricted Period

Commencement Notification form is

required to be filed with Nasdaq Market

Operations by the managing underwriter

with respect to a Nasdaq security in

order to request an excused withdrawal

on behalf of the distribution participants

and affiliated purchasers and whether a

distribution participant proposes,

instead, to engage in passive market

making, in order to comply with the

member’s requirements under Rule

4619(d)(1). In addition, the Notification

is required to be filed with Nasdaq

Market Operations by members

participating in an offering of an OTCBB

security under Rule 6540 in order to

provide the intended date and time of

the pricing of the offering. (This form is

intended to replace the Passive Market

Making Activity Report currently used

by the Corporate Financing

Department.)

The Regulation M Trading

Notification form is required to be filed

with the Corporate Financing

Department under Rule 4623 and Rule

6540 by a member to provide advice on

penalty bids and syndicate short

covering transactions for Nasdaq and

OTCBB securities. In addition, the form

is to be used for a request for the entry

of a stabilizing bid or an identifier for

a penalty bid on Nasdaq security that is

directed to Nasdaq Market Operations.

In addition, this form will be provided

to the managing underwriter of a

distribution of securities listed on a

national securities exchange when a

request for an Underwriting Activity

Report is received and is required to be

submitted to the Corporate Financing

Department with the time and date of

the pricing and the pricing amount in

order to permit the NASD to carry out

its surveillance obligations with respect

to such offerings.

In addition, a Request of the

Underwriting Activity Report form can

be submitted through CommScan by the

underwriting manager of an offering not

otherwise subject to the filing

requirements of the Corporate Financing

Rule in order to obtain the Underwriting

Activity Report from the Corporate

Financing Department. The Regulation

M Restricted Period Commencement

Notification form or the Regulation M

Trading Notification form is required to

be attached to the Underwriting Activity

Report received by the member when

the applicable notification is submitted

to Nasdaq Market Operations or the

Corporate Financing Department.

The fees to be charged by CommScan

for each wire (i.e., each notification or

request) sent over their system will be

assessed a typical cost of $15 or $20 per

wire, and could be less or more

depending on the amount of

information contained in the wire. The

NASDesk/Compliance Desk charges are

treated by the managing underwriter as

expenses of the underwriting and are

charged back to the syndicate.

(b) The NASD believes that the

proposed rule change is consistent with

the provisions of Section 15A(b)(2) of

the Act 5 in that the proposed rule

change will enforce and facilitate

compliance by NASD members with the

requirements of SEC Regulation M. In

addition, the proposed rule change is

consistent with the provisions of

Section 15A(b)(6) of the Act in that the

proposed rule change to amend the

Nasdaq and OTCBB Rules and establish
Federal Register / Vol. 62, No. 47 / Tuesday, March 11, 1997 / Notices 11245

6 17 U.S.C. § 78s(B)(2) (1988).

7 17 CFR 200.30–3(a)(12) (1996).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

a requirement under the Corporate

Financing Rule for members to obtain

an Underwriting Activity Report will

prevent fraudulent and manipulative

acts and practices, promote just and

equitable principals of trade, and

protect investors and the public interest.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD 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. 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, NW.,

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 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 the file

number in the caption above and should

be submitted by April 1, 1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval of the

Proposed Rule Change

The Commission finds that the

NASD’s proposal is consistent with the

Act and the rules and regulations

thereunder applicable to a registered

national securities association.

Specifically, the provisions of Section

15A(b)(2) of the Act which requires that

an association enforce compliance with

Securities Exchange Act Rules in

addition to the rules of the association.

The Commission believes that the

NASD proposal will enforce and

facilitate compliance by NASD members

with the requirements of Regulation M,

SEC Rules 100 through 105.

In addition, the Commission finds

that the NASD’s proposal is consistent

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

of the Act which requires, in part, that

an association have rules that are

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, and in general, to protect

investors. The Commission believes that

the NASD’s proposal is consistent with

Section 15A(b)(6) of that Act in that the

amendments to the Nasdaq and OTCBB

Rules, in addition to the establishment

of a requirement for members to an

Underwriting Activity Report, provide a

regulatory framework that will assist

members in complying with the

obligations under Regulation M. The

Commission, therefore, finds good cause

for approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,6 that the

proposed rule change and Amendment

No. 1 (SR–NASD–97–15) be and hereby

is approved. The proposed rule change

is effective March 4, 1997, with the

exception of the provisions Rule 4623

and Rule 5460 that implement the

notification requirements adopted under

Regulation M with respect to penalty

bids and syndicate covering transactions

that will become effective on the date

that the notification requirements under

SEC Rule 104 become effective.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–5979 Filed 3–10–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38354; File No. SR–NASD–

97–13)

February 28, 1997.

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.

Relating to the Elimination of the

NASD’s Excess Spread Rule

Applicable to Market Maker Quotations

in Nasdaq SmallCap Securities

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 February

24, 1997, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) 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 the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons and to grant

accelerated approval to the proposed

rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NASD proposes to amend NASD

Rule 4613(d) to exclude market maker

quotations in Nasdaq SmallCap

securities from coverage under the Rule.

As a result, Rule 4613(d) will apply only

to quoted spreads by registered market

makers in Nasdaq National Market

securities. The text of the proposed rule

change is as follows [new text is

italicized; deleted text is bracketed]:

* * * * *

NASD Rule 4613 Character of

Quotations

(d) Reasonably Competitive

Quotations

A registered market maker in a

Nasdaq National Market security [listed

on The Nasdaq Stock Market] will be

withdrawn as a registered market maker

and precluded from re-registering as a

market maker in such issue for 20

business days if its average spread in the

security over the course of any full

calendar month exceeds 150 percent of

the average of all dealer spreads in such

issue for the month. This subparagraph

shall not apply to market makers in

Nasdaq SmallCap securities.

(1) If a registered market maker has

not satisfied the average spread

requirement set forth in this

subparagraph (d) for a particular Nasdaq

National Market security, its registration

in such issue shall be withdrawn

commencing on the next business day

following the business day on which the

market maker was sent notice of its

failure to comply with the requirement.

A market maker may request

reconsideration of the withdrawal

notification. Requests for

reconsideration will be reviewed by the

Market Operations Review Committee,

whose decisions are final and binding

on the members. A request for