[Federal Register Volume 62, Number 60 (Friday, March 28, 1997)]
[Notices]
[Pages 14953-14954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7873]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38429; File No. SR-NASD-97-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to the Elimination of the Prohibitions Against NASD Members Accepting 
Stop Orders and Stop Limit Orders in Exchange-Listed Securities

March 21, 1997.
    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 
10, 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 as 
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.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Currently, paragraph (i)(1) of NASD Rule 6440, ``Trading 
Practices,'' prohibits NASD members from accepting stop orders\1\ in 
eligible securities.\2\ NASD Rule 6440(i)(2) currently allows members 
to accept stop limit orders\3\ in eligible securities where the stop 
price and the limit price are the same. The NASD proposes to amend NASD 
Rule 6440(i) to: (1) Allow members to accept stop orders in eligible 
securities; and (2) eliminate the requirement that the stop price must 
equal the limit price in order for a member to accept a stop limit 
order in an eligible security. Below is the text of the proposed rule 
change. Additions are italicized; deletions are bracketed.
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    \1\ A buy stop order is an order to buy which becomes a market 
order when a transaction takes place at or above the stop price. 
Conversely, a sell stop order is an order to sell which becomes a 
market order when a transaction takes place at or below the stop 
price.
    \2\ Under NASD Rule 6410(d), ``eligible securities'' means all 
common stocks, preferred stocks, long-term warrants, and rights 
entitling the holder to acquire an eligible security, listed or 
admitted to unlisted trading privileges on the American Stock 
Exchange (``Amex'') or the New York Stock Exchange (``NYSE''), and 
securities listed on the regional stocks exchanges which 
substantially meet the original listing requirements of the Amex or 
the NYSE.
    \3\ A buy stock limit order is an order to buy that becomes a 
limit order at the limit price when a transaction occurs at the stop 
price. Conversely, a sell stop limit order is an order to sell that 
becomes a limit order at the limit price when a transaction occurs 
at the stop price.
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NASD Rule 6440
    (a)-(h). No change.
    (i) (1) A [No] member [shall] may, but is not obligated to, accept 
a stop order in an eligible security.
    (A) A buy stop order is an order to buy which becomes a market 
order when a transaction takes place at or above the stop price.
    (B) A sell stop order is an order to sell which becomes a market 
order when a transaction takes place at or below the stop price.
    (2) A member[s] may, but is not obligated to, accept stop limit 
orders in eligible securities [where the stop price and the limit price 
are the same]. When transactions occur at the stop price, the order to 
buy or sell becomes a limit order at the stop price.
    (j) No change.
* * * * *

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

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule changes. The 
text of these statements may be examined at the places specified in 
Item IV below. The NASD has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.

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

    The NASD proposes to amend NASD Rule 6440 to eliminate current 
restrictions on the ability of NASD members to accept stop orders and 
certain stop limit orders in eligible securities. Currently, NASD Rule 
6440(i)(1) provides that no NASD member shall accept a stop order in an 
eligible security; NASD Rule 6440(i)(2) provides that no NASD member 
shall accept a stop limit order in an eligible security unless the stop 
price and the limit price are the same. Under the proposed rule change, 
NASD members will be allowed to accept stop orders in eligible 
securities and stop limit orders where the stop price and the limit 
price are not the same. The proposal also clarifies that NASD members 
are not obligated to accept stop orders or stop limit orders.
    The NASD believes there is no economic or regulatory reason to 
preclude or restrict investors from placing stop orders or stop limit 
orders in eligible securities. In this connection, the NASD notes that 
there are no comparable restrictions on the placement of these types of 
orders in securities listed on The Nasdaq Stock Market (``Nasdaq''). 
Just as investors in Nasdaq securities are able to receive the 
protections and benefits that result from placing stop orders and stop 
limit orders, the NASD believes that investors in the third market 
should be able to receive the same benefits and protections from 
placing these types of orders. In particular, through the placement of 
stop orders and stop limit orders, the NASD believes that investors 
will be better able to implement their investment strategies and manage 
their portfolios. Accordingly, the NASD believes its proposal will 
enhance the protection of investors and the integrity of the market.

[[Page 14954]]

    The NASD believes that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act. Among other things, Section 15A(b)(6) 
requires that the rules of a national securities association be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest. In 
particular, as noted above, because the NASD believes the proposed rule 
change will better enable investors to implement their investment 
strategies and manage the risks associated with their portfolios, the 
NASD believes the proposal will enhance the protection of investors.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD believes that the proposed rule change will not result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

(C) Self-Regulatory Organization's Statements on Comments on the 
Proposed Rule Changes Received From Members, Participants or Others

    Comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Changes and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reason for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) By order approve such proposed rule change, or
    (b) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. 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. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to file 
number SR-NASD-97-20 and should be submitted by April 18, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7873 Filed 3-27-97; 8:45 am]
BILLING CODE 8010-01-M