16884 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Notices

9 17 CFR 200.30–3(a)(12).

1On December 17, 1996, the NASDR filed the

proposed rule change with the Commission.

However, Amendment No. 1, modifying the rule

language, replaces the original rule filing.

or otherwise in furtherance of the

purposes of the Act.

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, N.W.,

Washington, D.C. 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, N.W.,

Washington, D.C. 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Amex–97–

16 and should be submitted by April 29,

1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8876 Filed 4–7–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38468; File No. SR–NASD–

96–46]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

NASD Regulation, Inc. Relating to the

Submission of Information in

Electronic Form

April 2, 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 17, 1997,1

NASD Regulation, Inc. (‘‘NASDR’’) 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 NASDR. 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

NASDR is proposing to amend Rule

8210 of the Procedural Rules of the

National Association of Securities

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

to permit the NASD to request that

members provide regulatory information

in electronic form (where the member

maintains its records in electronic form)

and to establish electronic submission

programs for regularly filed regulatory

information. Below is the text of the

proposed rule change. Proposed new

language is in italics.

Procedural Rules

8000. Complaints, Investigations and

Sanctions

* * * * *

8200. Investigations

8210. Reports and Inspection of Books

for Purpose of Investigating Complaints

(a) For the purpose of any

investigation, or determination as to

filing a complaint or any hearing of any

complaint against any member of the

Association or any person associated

with a member made or held in

accordance with the Rule 9000 Series,

or made or held by another domestic or

foreign self-regulatory organization,

association, securities or contract

market or regulator of such markets,

with whom the Association has entered

into an agreement providing for the

exchange of information and other

forms of material assistance solely for

market surveillance, investigative,

enforcement or other regulatory

purposes, any District Business Conduct

Committee, the Market Surveillance

Committee, or the Board of Governors,

or any duly authorized member or

members of any such Committees or

Board or any duly authorized agent or

agents of any such Committee or Board

shall have the right:

(1) to require any member of the

Association, person associated with a

member, or person no longer associated

with a member when such person is

subject to the Association’s jurisdiction

to report, either informally or on the

record, orally or in writing or

electronically (if the requested

information is maintained in electronic

form) with regard to any matter

involved in any such investigation or

hearing, and

(2) to investigate the books, records

and accounts of any such member or

person with relation to any matter

involved in any such investigation or

hearing.

(b) No such member or person shall

fail to make any report as required in

this Rule, or fail to permit any

inspection of books, records and

accounts as may be validly called for

under this Rule. Any notice requiring an

electronic, oral, or written report or

calling for an inspection of books,

records and accounts pursuant to this

Rule shall be deemed to have been

received by the member or person to

whom it is directed by the mailing

thereof to the last known address of

such member or person as reflected on

the Association’s records.

(c) In carrying out its responsibilities

under this paragraph, the Association

may, as approved by the Commission,

establish programs for the submission of

information to the Association on a

regular basis through a direct or indirect

electronic interface between the

Association and members.

* * * * *

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NASDR 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. NASDR 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) Various NASD and SEC rules

require members to maintain records of

compliance so that information will be

available to NASD staff for on-site

examination. In addition, members are

required by NASD and SEC rules to

submit certain information to the NASD

on a regular basis or on request. The

various rules and regulations of the

Municipal Securities Rulemaking Board

(‘‘MSRB’’) also impose recordkeeping

requirements on members of the

Association. Rule 8210 of the

Association’s Conduct Rules (formerly,

Article IV, Section 5 of the Rules of Fair

Practice) requires members to respond

to any NASD request for information for

the purpose of any investigation or

determination as to the filing of a
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Notices 16885

2The Association’s findings are based on

technology surveys conducted of the membership

in connection with establishing electronic

submission programs with respect to the filing of

FOCUS Reports, Blue Sheet Reports, Short Interest

Reports, Forms U–4 and U–5, and Free-Riding and

Withholding Questionnaires, which electronic

submission programs are more fully discussed

below.

3Submission of information ‘‘orally,’’ as

permitted by the Interpretation, is generally limited

to situations where Association staff engage in a

conversation with the member and information is

elicited from the member in the course of the

conversation.

4Providing an electronic copy of part or all of

electronically stored information is less costly to

the member in terms of personnel time and

computer time than providing a hard copy printout

or arranging for examining staff to review

information on-line. The cost and time-saving

advantages for broker-dealers of storing information

in electronic media is recognized by the

Commission in Securities Exchange Act Release No.

38245, Feb. 5, 1997; 62 FR 6469, Feb. 12, 1997.

5See, Securities Exchange Act Release No. 38245,

Feb. 5, 1997; 62 FR 6469, Feb. 12, 1997.

6See, advice to the SEC regarding the electronic

program for the Free-Riding and Withholding

Questionnaire in correspondence dated March 1,

and August 2, 1996 and announced in Notice to

Members 96–18 (March 1996).

7The FOCUS Filing Plan was approved in

Securities Exchange Act Rel. No. 29105 (April 18,

1991); 56 FR 19131 (April 25, 1991). The Short

Interest Reporting requirement was permanently

approved in Securities Exchange Act Rel. No. 23482

(July 30, 1986); 51 FR 28472 (Aug. 7, 1986). The

Blue Sheet Reporting Plan was approved in

Securities Exchange Act Rel. No. 26539 (Feb. 13,

1989); 54 FR 7318 (Feb. 17, 1989). The Central

Registration Depository electronic filing

requirements were approved in Securities Exchange

Act Rel. No. 37439 (July 15, 1996); 61 FR 37950

(July 22, 1996).

8Section 15A(b)(6) requires the Association to

prevent fraudulent and manipulative acts and

practices, to promote just and equitable principles

of trade and to protect investors and the public

interest.

9Section 15A(b)(7) requires that the rules of the

Association provide that its members and persons

associated with its members shall be appropriately

disciplined for violation of the rules of the MSRB

or the rules of the Association.

10 15 U.S.C. § 78o–3.

complaint or any hearing of a complaint

and to submit such information ‘‘orally

or in writing.’’ This provision covers the

Association’s request for investigatory

information in the context of an

individual examination or investigation

of a member firm and also covers the

Association’s programs for the receipt of

regular reports from members.

Amendment to Obtain Information in

Electronic Form—In recent years,

members have increasingly maintained

their trading records in computer-based

technology (‘‘electronic’’) rather than

hard copy form, particularly as the

rapidly expanding volume of securities

transactions has required the speed of

electronic processing. At this time, most

members store their primary trading

records in some form of electronic

storage media.2 Such electronic storage

capability is provided either in-house or

through a service bureau. Relatively few

members maintain their records only in

manual form.

With respect to the Association’s

conduct of an individual examination or

investigation of a member firm’s trading

activities, the NASD has previously

requested such information in hard

copy or ‘‘written’’ form, even where the

member stored the information in

electronic form.3 In these cases,

members provide a hard copy print of

the electronically stored data or the

examining staff reviews electronic data

displayed on-line to transfer the

information to hard copy. To the extent

that members store their important

trading records in electronic storage

media, many members have indicated

that they prefer that the staff of the

NASD accept such trading information

in that form because of increased cost

efficiencies.4 The SEC has recently

announced policies that clarify when

and in what manner members are

permitted to store the books and records

required by SEC rules in electronic

form.5 NASDR is, moreover, currently

engaged in a long-term initiative that

will permit examining staff to utilize

current computer-based technology in

the course of conducting an

examination of a member firm to

analyze larger numbers of securities

transactions than can be achieved using

current manual methodology.6

The Association believes that the

current provision of Rule 8210 that

permits the Association to request that

a member or a person associated with a

member report ‘‘in writing,’’ covers

information stored by a member in a

form of electronic media, as the

electronic format merely retains the

written record. The NASDR is, however,

proposing to amend Rule 8210 to

provide specifically that a member may

be required to submit a report in

electronic form where the member

maintains the information in that

manner. The proposed rule change

would amend subparagraph (a)(1) to

require ‘‘* * * any member of the

Association, person associated with a

member, or person no longer associated

with a member when such person is

subject to the Association’s jurisdiction

to report, either informally or on the

record, orally or in writing or

electronically (if the requested

information is maintained in electronic

form) with regard to any matter

involved in any such investigation or

hearing * * *’’ and would amend

subparagraph (b) to insert the word

‘‘electronic’’ in the provision regarding

the receipt of any notice requiring a

report (emphasis provided). NASDR

believes that this action will both

increase examination efficiency and will

eliminate the costs borne by members in

providing electronically maintained

information in hard copy to NASDR

examiners. Consequently, the potential

for human error and delay attendant

with paper submission will be

decreased.

Amendment to Establish Electronic

Submission Programs—The NASD has

also worked with the membership over

many years to develop procedures for

the electronic submission of periodic

reports or other frequently requested

investigatory data that would otherwise

be submitted in written form in order to

better fulfill its regulatory

responsibilities under the federal

securities laws. Such programs for

electronic submissions have already

been established for filing of members’

FOCUS Reports, Blue Sheet Reports,

Short Interest Reports, Forms U–4 and

U–5 with Central Registration

Depository (‘‘CRD’’).7

As the Association continues to

increase its services to the membership

and enhance its ability to surveil for

regulatory compliance through the use

of computer-based technology, it is

important that NASDR be able to

establish electronic submission

programs for information required to be

submitted by members on a regular

basis. In recent discussions with the

membership on this issue, members

indicated they preferred to submit

frequently filed information

electronically because of assurance of

receipt (in comparison to the mails) and

the ability to amend a previouslysubmitted filing if an error is

subsequently discovered. The

Association is, therefore, proposing to

amend Rule 8210 to add new paragraph

(c) to provide general authority for the

Association to establish programs for

the submission of information on a

regular basis through direct or indirect

electronic interface between the

Association and members, upon

approval by the Commission.

(b) The NASD believes that the

proposed rule change is consistent with

the provisions of Sections 15A(b)(6),8

and 15A(b)(7),9 of the Act.10 The

proposed rule change will permit the

NASD to request that members provide

regulatory information in electronic

form (where the member maintains its

records in electronic form) and to

establish electronic submission

programs for regularly filed regulatory

information, upon Commission

approval. The proposed rule will also

assist the Association in preventing
16886 Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Notices

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 38273

(February 12, 1997), 62 FR 7489.

4See Securities Exchange Act Release No. 37810

(October 11, 1996), 61 FR 54481 (‘‘Pilot Approval

Order’’).

5More specifically, under the rule changes

approved by the Commission, LMMs may perform

all functions of the Order Book Official (‘‘OBO’’) in

designated issues pursuant to Rules 6.51 through

6.59. In that regard, the Exchange will allow the

LMM to utilize Exchange personnel to assist the

LMM in performing the OBO function, and the

Exchange will charge the LMM a reasonable fee for

such use of Exchange personnel. If the program is

made permanent, LMMs would be responsible for

hiring and maintaining their own employees, but

the Exchange would provide employees to assist

LMMs when necessary due to market conditions. In

all cases, however, employees working in the Book

operation will be subject to all rules, policies, and

procedures established by the Exchange. With

regard to their duties as market makers, LMMs

would be required to perform all obligations

provided in Rules 6.35 through 6.40 and 6.82.

6Each option issue typically has only one symbol

associated with it, unless LEAPs are traded on that

issue, in which case there usually would be two

additional symbols related to the issue, or unless a

contract adjustment is necessary due, for example,

to a merger or stock split, in which case one

additional symbol usually would be added.

7See Pilot Approval Order, supra note 4.

8 17 CFR 240.15c3–1.

9 15 U.S.C. § 78f(b).

10 15 U.S.C. § 78f(b)(5).

fraudulent and manipulative acts and

practices, in promoting just and

equitable principles of trade, in

protecting investors and the public

interest, and in appropriately

disciplining members for violations of

its rules, the rules and regulations of the

Commission, and the rules of the MSRB.

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.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

As the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the 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 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 29, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8929 Filed 4–7–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38462; File No. SR–PSE–

96–45]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the Pacific Stock Exchange

Incorporated Relating to the

Exchange’s Lead Market Maker

Options Book Pilot Program

April 1, 1997.

I. Introduction

On December 10, 1996, the Pacific

Stock Exchange Incorporated (‘‘PSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

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

of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder 2 a proposal to expand the

scope of its Lead Market Maker

(‘‘LMM’’) Book Pilot Program to allow

additional LMMs to participate and to

allow a greater number of option issues

to be eligible under the program. The

proposal was published for comment in

the Federal Register on February 19,

1997.3 No comments were received on

the proposal. This order approves the

Exchange’s proposal.

II. Description of the Proposal

On October 11, 1996, the Commission

approved an Exchange proposal to

adopt a one-year pilot program under

which some LMMs are permitted to

manage the options public limit order

book (‘‘Book’’) in certain designated

issues.4 Under the pilot, the approved

LMMs manage the Book function, take

responsibility for trading disputes and

errors, set rates for Book execution, and

pay the Exchange a fee for systems and

services.5 The program allows LMMs to

have greater control over their

operations on the Exchange floor by

allowing them, among other things, to

set their own rates for execution

services provided to customers.

Under the pilot as approved by the

Commission, the program is limited to

no more than three LMMs and no more

than forty option symbols in total,6

during a one-year pilot phase. The PSE

is proposing to expand the scope of the

program to allow additional LMMs to

participate, and to allow a greater

number of option issues to be eligible

under the Program. Specifically, the

Exchange proposed an expansion of the

Book Pilot Program to allow for up to

nine LMMs and up to 150 options

symbols.

The LMMs who participate during the

pilot phase are selected by the Options

Floor Trading Committee based on

certain designated factors.7 Approved

LMMs must maintain ‘‘minimum net

capital,’’ as provided in Rule 15c3–1

under the Act,8 and also must maintain

a cash or liquid asset position of at least

$500,000, plus $25,000 for each issue

over five issues for which they perform

the function of an OBO. Only multiplytraded option issues are eligible during

the pilot phase.

III. Discussion

After careful consideration, the

Commission finds that the Exchange’s

proposal to expand the Book Pilot

Program is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange in that

the proposal is consistent with Section

6(b) of the Act,9 in general, and Section

6(b)(5),10 in particular, in that it is

designed to facilitate transactions in

securities, to promote just and equitable