13918 Federal Register / Vol. 62, No. 56 / Monday, March 24, 1997 / Notices

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

2Letter from Claudia Crowley, Special Counsel,

Amex, to Anthony Pecora, Attorney, Division of

Market Regulation, SEC, dated March 4, 1997

(‘‘Amendment No. 1’’). Amendment No 1 added a

paragraph explaining the Exchange’s enforcement

policy concerning ‘‘substantive’’ violations of Amex

Rule 170 and included an interpretation of that rule

in the form of an information circular that the

Exchange has represented to be binding on it.

3A zero minus tick is a price equal to the last sale

where the last preceding transaction at a different

price was at a higher price.

4A zero plus tick is a price equal to the last sale

where the last preceding transaction at a different

price was at a lower price.

5Securities Exchange Act Release No. 38299 (Feb.

18, 1997), 62 FR 8464 (‘‘February 1997 Approval

Order’’) (approving File No. SR–Amex–97–01).

6 15 U.S.C. 78f(b).

7 15 U.S.C. 78f(b)(5).

8 15 U.S.C. 78k(b).

For the Commission, by the Division of

Investment Management, under delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–7282 Filed 3–21–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38379; File No. SR–Amex–

97–12]

Self-Regulatory Organizations; Notice

of Filing of, and Order Granting

Accelerated Approval to, Proposed

Rule Change by the American Stock

Exchange, Inc. Relating to Execution

of Specialists’ Liquidating

Transactions

March 10, 1997.

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

Securities Exchange Act of 1934

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

February 28, 1997, the American Stock

Exchange, Inc. (‘‘Amex’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I and II below, which Items have

been prepared by the self-regulatory

organization. Subsequently, the

Exchange submitted Amendment No. 1

to the proposed rule change.2 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 Amex is proposing permanent

approval of a pilot program that

amended Exchange Rule 170 to permit

a specialist to effect a liquidating

transaction on a zero minus tick,3 in the

case of a ‘‘long’’ position, or a zero plus

tick,4 when covering a ‘‘short’’ position,

without Floor Official approval. The

pilot program also amended Exchange

Rule 170 to set forth the affirmative

action that specialists are required to

take subsequent to effecting various

types of liquidating transactions.

The text of the proposed rule change

is available at the Office of the

Secretary, the Amex, and at the

Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

land 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 III below.

The self-regulatory organization has

prepared summaries, set forth in

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

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

On February 18, 1997, the

Commission approved an extension

until March 7, 1997 of a pilot program

that amended exchange Rule 170 to

permit a specialist to effect a liquidating

transaction on a zero minus tick, in the

case of a ‘‘long’’ position, or a zero plus

tick, when covering a ‘‘short’’ position,

without Floor Official approval.5 The

Rule continues to require that Floor

Official approval be obtained prior to

effecting a liquidating transaction on a

straight destabilizing tick (i.e., a minus

tick in the case of a ‘‘long’’ position or

a plus tick when covering a ‘‘short’’

position). The amendments also set

forth the affirmative action that

specialists are required to take

subsequent to effecting various types of

liquidating transactions.

During the course of the pilot

program, the Exchange has carefully

monitored compliance with the

requirements of the Rule. The Amex

believes that the amendments have

provided specialists with flexibility in

liquidating specialty stock positions in

order to facilitate their ability to

maintain fair and orderly markets,

particularly during unusual market

conditions. In addition, the specialist’s

concomitant obligation to participate as

dealer on the opposite side of the

market after a liquidating transaction

has been strengthened. The Exchange is

therefore proposing permanent approval

of the amendments to Amex Rule 170.

In addition, the Exchange is

proposing to adopt a formal policy to

address its enforcement with respect to

‘‘non-substantive’’ (i.e., if the approval

would have been granted if it had been

sought) violations of the requirement

that specialists obtain Floor Official

approval for reliquidating transactions

on straight destabilizing ticks. Absent

unusual circumstances, the Exchange

will, at a minimum, take the following

action:

—The Exchange staff will issue a cautionary

letter to the specialist for an initial

violation, during a ‘‘rolling’’ twelve-month

period.

—Any subsequent violation(s) by the same

specialist during the ‘‘rolling’’ twelvemonth period will be referred to the Minor

Floor Violation Disciplinary Committee for

appropriate action. Pursuant to Rule 590

and its commentary, the Committee has the

authority to issue a cautionary letter to the

specialist or impose fines ranging from

$500 to $2,500 ($1,000 to $5,000 for

member organizations).

Of course, the Exchange, even for an

initial violation, has the authority to

take more stringent action either

pursuant to Rule 590 or in accordance

with the Exchange’s formal disciplinary

procedures. In addition, the Exchange’s

policy with respect to ‘‘substantive’’

violations of this rule (e.g., failure to

properly re-enter the market or failure to

obtain the required Floor Official

approval when such approval, if sought,

would not have been granted) remains

unchanged. Such instances of

noncompliance will be dealt with

according to the Exchange’s formal

disciplinary procedures.

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with Section

6(b) of the Act 6 in general and furthers

the objectives of Section 6(b)(5) 7 in

particular in that it is designed to

promote just and equitable principles of

trade, remove impediments to and

perfect the mechanism of a free and

open market, and, in general, protect

investors and the pubic interest. The

Exchange also believes the proposed

rule change is consistent with Section

11(b) of the Act 8 which allows

exchanges to promulgate rules relating

to specialists in order to maintain fair

and orderly markets.
Federal Register / Vol. 62, No. 56 / Monday, March 24, 1997 / Notices 13919

9 15 U.S.C. 78f(b) and 78k.

10 15 U.S.C. 78f(b)(5).

11 15 U.S.C. 78k(b).

12 17 CFR 240.11b–1.

13 In general specialists’ activities are

circumscribed by Section 11 of the Act and the

rules thereunder and by the rules of the exchange

where the specialist is registered. See 15 U.S.C. 78k

(prohibiting members of a national securities

exchange from effecting transactions on such

exchange for their own accounts but allowing,

among other things, market making transactions).

Rule 11b–1(a)(2), which sets forth the primary

responsibilities of a specialist, states that a

specialist’s course of dealings for his or her own

account must assist in the maintenance of a fair and

orderly market, so far as practicable. 17 CFR

240.11b–1(a)(2). Rule 11b–(a)(2) also states,

however, that a specialist should restrict his or her

dealings, so far as practicable, to those reasonably

necessary to permit him or her to maintain a fair

and orderly market. Id. See also Amex Rule 170(c)

(prohibiting a specialist from effecting purchases or

sales of any security in which that specialist is

registered for any account in which that specialist

is directly or indirectly interested, unless such

dealings are reasonably necessary to maintain a fair

and orderly market in such security); Amex Rule

170(d) (stating that transactions effected by a

specialist on the Exchange for his or her own

account in the securities in which he or she is

registered are to constitute a course of dealings

reasonably calculated to contribute to the

maintenance of price continuity with reasonable

depth and minimize the effects of temporary

disparities between supply and demand).

14 17 CFR 240.11b–1(a)(2).

15See SEC, Division of Market Regulation, The

October 1987 Market Break 4–29 to 4–41 (Feb.

1988) [hereinafter 1987 Market Break Report].

16 Id. at 4–40 to 4–41.

17See SEC, Division of Market Regulation, Market

Analysis of October 13 and 16, 1989, at 33 (Dec.

1990) [hereinafter 1989 Market Analysis Report].

18See 1987 Market Break Report, supra note 15,

at 4–30; 1989 Market Analysis Report, supra note

17, at 27.

19A specialist’s dealer responsibilities consist of

‘‘affirmative’’ and ‘‘negative’’ obligations. In

accordance with their affirmative obligations,

specialists are obligated to trade for their own

accounts to minimize order disparities and

contribute to continuity and depth in the market.

Conversely, specialists, pursuant to their negative

obligations, are precluded from trading for their

own accounts unless such dealing is necessary for

the maintenance of a fair and orderly market. In

view of these obligations, the price trend in a

security should be determined by the movements of

the incoming orders that initiate the trades, not by

a specialist’s proprietary trading activity.

20 1989 Market Analysis Report, supra note 17, at

n.56.

21 1989 Market Analysis Report, supra note 17, at

n.31.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes the proposed

rule change will impose no burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

The Exchange has neither solicited

nor received written comments with

respect to the proposed rule change.

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 at

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Also, copies of

such filing will be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–AMEX–97–

12 and should be submitted by April 14,

1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval to the

Proposed Rule Change

After careful consideration, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange, and, in

particular, with the requirements of

Section 6(b) and Section 11 of the Act.9

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) 10 requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to remove impediments to and

perfect the mechanism of a free and

open market and, in general, to protect

investors and the public interest. The

Commission also believes the proposal

is consistent with Section 11(b) of the

Act 11 and Rule 11b–1 12 thereunder,

which allow exchanges to promulgate

rules relating to specialists in order to

maintain fair and orderly markets.

Both the Act and the Exchange’s rules

reflect the crucial role played by

specialists in providing stability,

liquidity, and continuity in the

Exchange’s auction market. Recognizing

the importance of the specialist to the

auction market, the Act and the

Exchange’s rules impose stringent

obligations upon specialists.13 Primary

among these obligations is the

requirement to restrict a specialist’s

dealings to those that are ‘‘reasonably

necessary’’ to maintain a fair and

orderly market.14

The importance of specialist

performance to the quality of exchange

markets was highlighted during the

1987 and 1989 market breaks. In the

Division of Market Regulation’s

(‘‘Division’’) 1987 Market Break Report,

the Division examined specialist

performance on the Amex on October 19

and 20, 1987.15 Although some Amex

specialists performed well under the

adverse conditions, the Division found

that others appeared to perform

inadequately.16

The Division also examined Amex

specialist performance during the

volatile conditions of October 13 and

16, 1989. It found that specialist

performance during that time was

similar in many respects to the pattern

of specialist performance during the

October 1987 Market Break.17

Specifically, the Division found that

specialists were confronted with

extreme volume and volatility.18

Both the 1987 Market Break Report

and the 1989 Market Analysis Report

reaffirmed the importance of specialist

participation in countering market

trends during periods of market

volatility. At the same time, the reports

emphasized the importance the

Commission placed on the Amex’s

ability to ensure that all specialists

comply with their affirmative and

negative market making obligations

during such periods.19

One area of specialist performance

specifically reviewed by the 1989

Market Analysis Report involved

specialists’ compliance with the

negative obligations imposed by Amex

Rule 170.02. Prior to the

implementation of the Amex’s pilot

program, this rule stated that, unless the

specialist had the prior approval of a

Floor Official, he or she should avoid

liquidating all or substantially all of a

dealer position on a destabilizing tick

(i.e., purchases on plus or zero plus

ticks and sales on minus or zero minus

ticks) unless the transaction was

reasonably necessary in relation to the

specialist’s overall position in the stocks

in which he or she was registered. The

Division requested in the 1989 Market

Analysis Report that the Amex examine

the language of this rule 20 because it

appeared to provide specialists with

unnecessarily broad latitude for

effecting transactions on destabilizing

ticks.21

The proposed rule change is

responsive to the request regarding

Amex Rule 170.02, as well as the

conclusions of the two market reports.
13920 Federal Register / Vol. 62, No. 56 / Monday, March 24, 1997 / Notices

22See Securities Exchange Act Release No. 33957

(Apr. 22, 1994), 59 FR 22188 (approving File No.

SR–Amex–92–26) (‘‘1994 Approval Order’’);

Securities Exchange Act Release No. 35635 (Apr.

21, 1995), 60 FR 20780 (approving File No. SR–

Amex–95–11) (‘‘April 1995 Approval Order’’);

Securities Exchange Act Release No. 36014 (July 21,

1995), 60 FR 38870 (approving File No. SR–Amex–

95–19) (‘‘July 1995 Approval Order’’); Securities

Exchange Act Release No. 37448 (July 17, 1996), 61

FR 38487 (approving File No. SR–Amex–96–16);

Securities Exchange Act Release No. 37704 (Sept.

19, 1996), 61 FR 50525 (approving File No. SR–

Amex–96–33); Securities Exchange Act Release No.

37958 (Nov. 15, 1996), 61 FR 59476 (approving File

No. SR–Amex–96–42); February 1997 Approval

Order, supra note 5.

23 15 U.S.C. 78f and 78k.

24 15 U.S.C. 78s(g) (requiring every self-regulatory

organization to comply with, and enforce

compliance with, the Act, the rules thereunder, and

its own rules).

25Although liquidating transactions are not

precluded during periods of significant price

movements, the Commission emphasizes that such

transactions should be accompanied by the

necessary dealer participation against the trend of

the market, even in situations where continuity and

depth reflect variations that normally may be

experienced in the stock.

The Amex, recognizing that market

conditions may necessitate that a

specialist participate heavily in a

rapidly declining market, proposed

amendments to Amex Rule 170.02 to

provide specialists with flexibility in

liquidating specialty stock positions in

order to facilitate a specialist’s ability to

maintain fair and orderly markets,

particularly during unusual market

conditions. At the same time, the

amendments were designed to

strengthen the specialist’s concomitant

obligation to participate as dealer on the

opposite side of the market after a

liquidating transaction. The

Commission approved the proposed

amendments as a one-year pilot

program, and subsequently extended the

pilot on several occasions.22

The Exchange is requesting

permanent approval of the pilot

program procedures. Under the

proposal, a specialist may liquidate a

position by selling stock on a direct

minus tick or by purchasing stock on a

direct plus tick only if such transactions

are reasonably necessary for the

maintenance of a fair and orderly

market and only if the specialist has

obtained the prior approval of a Floor

Official. Liquidations on a zero minus or

zero plus tick, which previously

required Floor Official approval, can be

effected under the pilot procedures

without a Floor Official’s approval, but

would continue to be subject to the

restriction that they be effected only

when reasonably necessary to maintain

a fair and orderly market. In addition,

the specialist must maintain a fair and

orderly market during the liquidation.

After the liquidation, a specialist is

required to re-enter the market on the

opposite side to offset any imbalances

between supply and demand. During

any period of volatile or unusual market

conditions resulting in significant price

movement in a specialist’s specialty

stock, the specialist’s re-entry into the

market must reflect, at a minimum, his

or her usual level of dealer participation

in the specialty stock. In addition,

during such periods of volatile or

unusual price movements, re-entry into

the market following a series of

transactions must reflect a significant

level of dealer participation.

In the prior approval orders

concerning this pilot program, the

Commission requested that the Amex

submit a report setting forth the criteria

developed by the Exchange to determine

whether any reliquidating transactions

by specialists were necessary and

appropriate in connection with fair and

orderly markets. The Commission also

asked, among other things, that the

Exchange provide information regarding

the Exchange’s monitoring of

liquidating transactions effected by

specialists on any destabilizing tick. In

particular, the Commission asked the

Amex to report any noncompliance with

the rule and the action the Amex took

as a result of such noncompliance.

The Amex submitted its reports

concerning the pilot program to the

Commission in January 1997, April

1996, and May 1995. As noted above,

the Amex believes that the pilot

procedures appear to be working well in

enabling specialists to reliquidate

appropriately to meet the needs of the

market.

After careful review, the Commission

finds that it is appropriate to approve

the amendments to Amex Rule 170.02

on a permanent basis. In making this

determination, the Commission notes

that the pilot period has provided the

Commission and the Exchange an

opportunity to monitor the operation of

the amendments during unusual or

volatile market conditions. The

Commission believes that the

experience with the pilot indicates that

specialists, for the most part, have been

meeting their obligations under the Rule

and are properly assuming their

responsibilities of re-entering the market

following liquidating transactions.

In sum, the Commission believes the

amendments to Amex Rule 170.02

reinforce a specialist’s obligation to

maintain a fair and orderly market by

providing stabilizing dealer

participation to the marketplace,

especially during periods of volatile or

unusual market activity. For example,

during periods of high market volatility,

not only would specialists continue to

be obligated to temper disparities

between supply and demand, but

specialists would specifically have to reenter the market at a specified rate after

a liquidating transaction. Similarly, the

amendments to Amex Rule 170.02

reinforce the negative market making

obligations of specialists. For example,

a specialist is not permitted to

reliquidate in the absence of a large

dealer position; rather, he or she is able

to do so only if reasonably necessary to

enable him or her to maintain a fair and

orderly market. Thus, the amendments

to Amex Rule 170.02 do not allow the

specialist to use the rule as a vehicle for

trading.

The Commission recognizes that

future periods of market volatility

accompanied by increasing volume and

selling pressure may place specialists

under extreme duress to keep the

markets orderly and continuous by

entering the market as buyers. In these

instances, the Commission believes the

amendments should assist specialists in

tempering sudden price movements and

keeping any general price movements

orderly, thereby furthering the

maintenance of fair and orderly markets

consistent with Section 6 and Section

11 of the Act.23

Finally, the Commission believes

aggressive enforcement of this rule is

warranted given the negative effect

noncompliance has on the market.

Therefore, the Commission expects the

Exchange to continue to carefully

monitor specialist compliance with

Amex Rule 170’s procedures as required

under Section 19(g) of the Act.24 In

particular, the Exchange should

continue to ensure that specialists are

meeting their market making obligations

and appropriately re-entering the market

as required under the Rule.25 If a

specialist fails to properly enter the

aftermarket or fails to seek Floor Official

approval where such approval, if

sought, would not have been granted,

the Commission expects the Exchange

to bring full disciplinary procedures.

In addition, the Commission expects

the Exchange to address all

‘‘nonsubstantive’’ violations of this rule

(i.e., instances where a specialist fails to

seek Floor Official approval where such

approval, if sought, would have been

granted). The Commission recognizes

that most, if not all, ‘‘nonsubstantive’’

violations of these procedures will be

inadvertent. Nevertheless, given the

crucial role that specialists play in

providing stability to the Exchange’s

market, it is important to reinforce the

specialists’ obligations. Thus, consistent

with the interpretation adopted by the

Amex in conjunction with its request for
Federal Register / Vol. 62, No. 56 / Monday, March 24, 1997 / Notices 13921

26See Amex Rule 590(h). Although Amex Rule

590 states that the Committee ‘‘may’’ impose a fine,

the Commission believes the use of such

‘‘prosecutorial discretion’’ to issue a cautionary

letter in lieu of a fine for ‘‘nonsubstantive’’

violations of this rule should be exercised only in

extraordinary circumstances. This position is

bolstered by the fact that the specialist, at a

minimum, already would have received such a

letter from the Amex’s staff in connection with its

first ‘‘nonsubstantive’’ violation of this rule within

the last twelve months.

In addition, each instance of noncompliance

should be addressed individually. Although

instances of noncompliance by a specialist that

occur between regularly scheduled meetings of the

Committee may be presented as a single bundle,

each infraction should be considered a separate

offense for calculating the appropriate fine. For

example, if a specialist fails to properly obtain Floor

Official approval 15 times during a 5 month period,

that specialist should be fined for 15 violations,

instead of the minimum amount for a first offense

simply because all 15 violations were presented to

the Committee at the same meeting.

27See Securities Exchange Act Release No. 31797

(Jan. 29, 1993), 58 FR 7277 (approving File No. SR–

NYSE–92–20).

28 15 U.S.C. 78f, 78k, and 78s(b)(2).

29 15 U.S.C. 78s(b)(2).

30 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 36783 (Jan.

29, 1996), 61 FR 3955 (Feb. 2, 1996).

3The Commission notes that the proposal

requires that the securities be physically present in

a depository to qualify for this exception. Simply

being ‘‘eligible for deposit’’ in a depository is not

enough.

permanent approval, the Commission

expects, at a minimum, that the

Exchange’s staff will issue a cautionary

letter to a specialist for an initial

‘‘nonsubstantive’’ violation during a

rolling twelve-month period and to refer

any subsequent ‘‘nonsubstantive’’

violations by the same specialist during

this period to the Minor Floor Violation

Disciplinary Committee (‘‘Committee’’)

for a fine pursuant to the Amex’s Minor

Rule Plan (‘‘MRP’’).26

The Commission finds good cause for

approving the proposed rule change,

including Amendment No. 1, prior to

the thirtieth day after the date of

publication of notice of filing thereof.

The Exchange will continue to use the

identical procedures contained in the

pilot program. These procedures have

been published in the Federal Register

on several occasions for the full

comment period, and no comments

have ever been received. Furthermore,

the Commission approved a similar rule

change for the NYSE, also without

receiving comments on that proposal.27

For these reasons, the Commission finds

that accelerating approval of the

proposed rule change is consistent with

Section 6, Section 11, and Section

19(b)(2) of the Act.28

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,29 that the

proposed rule change (SR–Amex–97–

12), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.30

Jonathan G. Katz,

Secretary.

[FR Doc. 97–7342 Filed 3–21–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38398; File No. SR–NASD–

97–05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc., Relating to the Transfer

of Limited Partnership Securities

March 13, 1997.

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

Securities Exchange Act of 1934

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

January 29, 1997 the 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 the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing to

amend Rules 11580 and 11870 of the

National Association of Securities

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

to expand the current exceptions to the

requirement that members use the

Limited Partnership Transfer Forms for

the transfer of limited partnership

securities and require that the Forms be

used by members in account transfers of

limited partnerships.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization 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.

The self-regulatory organization has

prepared summaries, set forth in

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

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

On January 29, 1996, the Commission

approved new NASD Rule 11580

(formerly, Section 73) to the NASD’s

Uniform Practice Code requiring

members to use Standardized Transfer

Forms when transferring limited

partnership securities.2 Use of the forms

became mandatory for NASD members

on May 15, 1996. NASD Regulation is

proposing two amendments related to

the use of the Standardized Transfer

Forms. The first is an amendment to

NASD Rule 11580 to expand the current

exceptions to include limited

partnerships that trade in the nonNasdaq over-the-counter market that are

in a depository. The second amendment

is to NASD Rule 11870 (formerly,

Section 65) to require that the

Standardized Transfer Forms be used by

members in account transfers of limited

partnerships.

i. Amendment to Rule 11580. This

rule includes an exception for limited

partnership securities that are listed on

an exchange or the Nasdaq Stock

Market. The exception does not cover

those limited partnership securities that

are quoted on the OTC Bulletin Board

that trade with such frequency that use

of the Standardized Transfer Forms

would not be appropriate. In order to

broaden the exception, NASD

Regulation is proposing to amend

subparagraph (a) of NASD Rule 11580 to

except from the requirements of the rule

those limited partnership securities that

are in a depository and that settle

regular way.3 It is believed that the

proposed criteria of depository

eligibility and regular way settlement

identify that group of non-Nasdaq overthe-counter limited partnership

securities that do not need the

Standardized Transfer Forms to

facilitate settlement. The Forms were

specifically adopted to address

problems associated with the settlement

of limited partnership interests that are

generally illiquid and where the transfer

requirements contained in the General

Partnership Agreement vary widely as

to the type of information and

documents necessary for a valid transfer

of a interest.