3368 Federal Register / Vol. 63, No. 14 /Thursday, January 22, 1998 / Notices

19(b)(3)(A) of the Act, which renders the

proposed rule change effective upon

receipt of this filing by the Commission.

At any time within sixty days of the

filing of the proposed rule change, the

Commission may summarily abrogate

such rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

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 in

the Commission’s Public Reference

Room. Copies of the filing will also be

available for inspection and copying at

the Board’s principal offices. All

submissions should refer to File No.

SR–MSRB–97–17 and should be

submitted by February 12, 1998.

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. 98–1423 Filed 1–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39545; File No. SR–MSRB–

97–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Municipal Securities Rulemaking

Board Relating to Forms G–36(OS) and

G–36(ARD) and Recordkeeping,

Operative on January 1, 1998

January 13, 1998.

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 November 26,

1997, the Municipal Securities

Rulemaking Board (‘‘Board’’ or

‘‘MSRB’’) filed with the Securities and

Exchange Commission (‘‘Commission’’

or ‘‘SEC’’) a proposed rule change (File

No. SR–MSRB–97–10). The proposed

rule change is described in Items I, II,

and III below, which Items have been

prepared by the Board. 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

The Board has filed with the

Commission a proposed rule change

consisting of revised Forms G–36(OS)

and G–36(ARD) under rule G–36 and

amendments to section (a)(xv) of rule G–

8, on recordkeeping. The proposed rule

change becomes operative on January 1,

1998.

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

Board 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 texts of these

statements may be examined at the

places specified in Item IV below. The

Board 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

Rule G–36 requires that a broker,

dealer or municipal securities dealer

acting as underwriter in a primary

offering of municipal securities (with

certain limited exceptions) send to the

Board copies of the official statement

and completed Form G–36(OS). If the

securities advance refund an

outstanding issue of municipal

securities, rule G–36 requires that the

underwriter also send to the Board

copies of the advance refunding

document and completed Form G–

36(ARD). Forms G–36(OS) and G–

36(ARD) are being revised to provide

greater clarity to brokers, dealers and

municipal securities dealers in the

process of completing the forms as well

as to provide additional information

that would assist the enforcement

agencies in their enforcement activities

relating to rules G–36 and G–32.

The revisions to Form G–36(OS) add

the following new data elements: the

date materials are received from the

issuer, the date materials are sent to the

Board, whether materials submitted

consist of more than one document, the

actual or expected date of delivery of

securities to underwriters, whether the

securities advance refund another issue,

the SEC registration number,

information regarding CUSIP–6 number

assignments and the fax number of the

preparer. The revisions to Form G–

36(ARD) add the following new data

elements: the date materials are received

from the issuer, the date materials are

sent to the Board, whether materials

submitted consist of more than one

document, the date of delivery of

securities to underwriters, the SEC

registration number and the fax number

of the preparer. In addition, the layout

of both forms is reorganized.

Rule G–8(a)(xv) currently requires

brokers, dealers and municipal

securities dealers acting as underwriters

in most primary offerings of municipal

securities to maintain certain records

relating to such primary offerings and

the receipt and sending of materials as

required under rule G–36. Rule G–

8(a)(xv) is being amended to require

such brokers, dealers and municipal

securities dealers to record and

maintain additional information

regarding the date of delivery of the

issue to the underwriters, as well as to

retain a copy of the receipt of sending

the required forms and documents to

the Board and a copy of the forms and

documents sent. The additional records

required under the amended rule will

assist the enforcement agencies in their

enforcement activities relating to rule

G–36.

2. Basis

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act, which provides

that the Board’s rules shall:

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 municipal

securities, to remove impediments to and

perfect the mechanism of a free and open

market in municipal securities, and, in

general, to protect investors and the public

interest.

As discussed above, the Board

believes that the proposed rule change

will provide greater clarity to brokers,

dealers and municipal securities dealers
Federal Register / Vol. 63, No. 14 /Thursday, January 22, 1998 / Notices 3369

1 ‘‘Board Review of Underwriting Process,’’ MSRB

Reports, Vol. 17, No. 2 (June 1997) at 3–16.

2 Goldman, Sachs & Co., Government Finance

Officers Association (‘‘GFOA’’), Newman &

Associates, Inc. and Rauscher Pierce Refsnes, Inc.

(‘‘Rauscher Pierce’’).

3Lehman Brothers Inc.

4 GFOA.

5Rauscher Pierce.

6Smith Barney Inc.

7Wachovia Bank, N.A.

in completing Forms G–36(OS) and G–

36(ARD) and will provide additional

information to the enforcement agencies

that would assist them in their

enforcement activities relating to rules

G–36 and G–32.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Board does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in furtherance of the

purposes of the Act since it would apply

equally to all brokers, dealers and

municipal securities dealers.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

In May 1997, the Board published a

notice (‘‘Notice’’) that, among other

things, urged brokers, dealers and

municipal securities dealers to review

their compliance procedures in

connection with rules G–36 and G–32.1

To assist the agencies charged with

enforcing rules G–36 and G–32, the

Board proposed in the Notice certain

revisions to Forms G–36(OS) and G–

36(ARD). These revisions would require

underwriters to include information

regarding the dates underwriters receive

official statements and advance

refunding documents from issuers, the

date of delivery of the issue to the

underwriters, whether a new issue is an

advance refunding and the date the

documents are sent to the Board. In

addition, the Board proposed an

amendment to rule G–8(a)(xv) to require

underwriters to record the date of

delivery of the issue to the underwriters

and to retain a copy of the receipt of

sending the required forms and

documents to the Board, as well as a

copy of the forms and documents sent.

In response to its request for

comments, the Board received comment

letters addressing the proposed

revisions to Forms G–36(OS) and G–

36(ARD) and the proposed amendments

to rule G–8(a)(xv) from eight

commentators.

Several commentators state that they

supported 2 or did not oppose 3 the

proposed changes to Forms G–36(OS)

and G–36(ARD) and the related change

to rule G–8. One commentator 4

supported the collection and retention

of the additional information as a

deterrent to issuers for the untimely

provision of official statements to

underwriters and as a source of

information about the frequency and

severity of any problem in the

municipal market with the delivery of

official statements and advance

refunding documents. Another

commentator 5 stated that the proposal

would evidence any late delivery by the

issuer of official statements to

underwriters.

NASD Regulation, Inc. suggested

additional changes to the forms. It

suggested that the forms include a

clarifying statement which indicates

whether the ‘‘date of delivery’’ is

synonymous with ‘‘settlement or closing

date’’; that a glossary or definition of

terms be included as part of the forms,

or alternatively, that the forms contain

a reference to the appropriate rule or

interpretation which provides

appropriate definitions; that, in addition

to the managing underwriter, the forms

identify each syndicate member and

percent participation, when applicable,

to be used in compliance activities

under rule G–37; and that when firms

are identified by name on the forms they

also be identified by their broker-dealer

number or SEC–8 number. The Board

has incorporated most of these

suggestions in the revised forms.

Information regarding syndicate

members and participants was not

included since this information would

in several respects not be compatible

with the type of information mandated

by rule G–37 and would require that the

forms be enlarged to three pages to add

data elements that are entirely unrelated

to rule G–36.

Although another commentator 6 did

not specifically oppose the changes in

the forms, it expressed some concern

regarding the revisions by stating that

the ‘‘undisguised purpose’’ of the

proposed revisions to Forms G–36(OS)

and G–36(ARD) was to require brokers,

dealers and municipal securities dealers

to advise the Board whenever a filing is

late under rule G–36. The Board

acknowledges that one of the stated

purposes of the revisions to Forms G–

36(OS) and G–36(ARD) is to assist the

enforcement agencies in their

enforcement activities.

One commentator 7 opposed the

proposed amendments to rule G–

8(a)(xv), stating that it would increase

the burden on brokers, dealers and

municipal securities dealers without

solving the underlying problem. The

Board believes that the proposed

amendments to rule G–8(a)(xv) will at

most constitute a negligible compliance

burden while providing significant

assistance to the enforcement agencies

in their enforcement activities relating

to rule G–36.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Because the foregoing proposed rule

change: (i) does not significantly affect

the protection of investors or the public

interest; (ii) does not impose any

significant burden on competition; (iii)

was provided to the Commission for its

review at least five business days prior

to the filing date; and (iv) does not

become operative for at least thirty (30)

days from the date of its filing, the

proposed rule change has become

effective pursuant to Section 19(b)(3)(A)

of the Act and Rule 19b–4(e)(6)

thereunder and become operative on

January 1, 1998. At any time within

sixty days of the filing of the proposed

rule change, the Commission may

summarily abrogate such rule change if

it appears to the Commission that such

action is necessary or appropriate in the

public interest, for the protection of

investors, 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 in

the Commission’s Public Reference

Room. Copies of the filing will also be

available for inspection and copying at

the Board’s principal offices. All

submissions should refer to File No.

SR–MSRB–97–10 and should be

submitted by February 12, 1998.
3370 Federal Register / Vol. 63, No. 14 /Thursday, January 22, 1998 / Notices

1 15 U.S.C. § 78s(b)(1) (1994).

2 17 CFR 240.19b–4 (1997).

3The NASD has requested permanent approval of

its short sale rule. Securities Exchange Act Release

No. 38979 (Aug. 26, 1997), 62 FR 46537 (Sept. 3,

1997) [File No. SR–NASD–97–58]. In response to its

solicitation of comments on the filing (SR–NASD–

97–58), the Commission has received 352 comment

letters to date, which will be considered in

connection with the Commission’s determination

on SR–NASD–97–58.

4A short sale is a sale of a security which the

seller does not own or any sale which is

consummated by the delivery of a security

borrowed by, or for the account of, the seller. To

determine whether a sale is a short sale, members

must adhere to the definition of a ‘‘short sale’’

contained in Rule 3b–3 of the Act, which rule is

incorporated into Nasdaq’s Rule by NASD Rule

3350(k)(1).

5Securities Exchange Act Release No. 34277

(June 29, 1994), 59 FR 34885 (July 7, 1994) [File No.

SR–NASD–92–12] (‘‘Short Sale Rule Approval

Order’’).

6The Rule was extended on several occasions.

See Securities Exchange Act Release No. 39140

(Sept. 26, 1997), 62 FR 52170 (Oct. 6, 1997) [File

No. SR–NASD–97–65]; Securities Exchange Act

Release No. 37917 (Nov. 1, 1996), 61 FR 57934

(Nov. 8, 1996) [File No. SR–NASD–96–41];

Securities Exchange Act Release No. 36171 (Aug.

30, 1995), 60 FR 46651 (Sept. 7, 1995) [File No. SR–

NASD–95–35]. The most recent extension of the

pilot program through January 15, 1998, was to

allow Nasdaq and the NASD to develop more

meaningful primary market maker standards.

7Nasdaq calculates the inside bid or best bid from

all market makers in the security (including bids on

behalf of exchanges trading Nasdaq securities on an

unlisted trading privileges basis) and disseminates

symbols to denote whether the current inside bid

is an ‘‘up bid’’ or a ‘‘down bid.’’ Specifically, an

‘‘up bid’’ is denoted by a green ‘‘up’’ arrow and a

‘‘down bid’’ is denoted by a red ‘‘down’’ arrow. To

effect a ‘‘legal’’ short sale on a down bid, the short

sale must be executed at a price at least a 1/16th

of a point above the current inside bid. Conversely,

if the security’s symbol has a green ‘‘up’’ arrow next

to it, members can effect short sales in the security

without any restrictions.

8Under the PMM Standards, a market maker was

required to satisfy at least two of the following four

criteria each month to be eligible for an exemption

from the Rule: (1) the market maker must be at the

best bid or best offer as shown on Nasdaq no less

than 35 percent of the time; (2) the market maker

must maintain a spread no greater than 102 percent

of the average dealer spread; (3) no more than 50

percent of the market maker’s quotation updates

may occur without being accompanied by a trade

execution of at least one unit of trading; or (4) the

market maker executes 11⁄2 times its

‘‘proportionate’’ volume in the stock. If a PMM did

not satisfy the threshold standards after a particular

review period, the market maker lost its designation

as a PMM (i.e., the ‘‘P’’ next to its market maker

identification was removed). Market makers could

requalify for designation as a PMM by satisfying the

threshold standards in the next review period.

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. 98–1424 Filed 1–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39551; File No. SR–NASD–

97–94]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.

Extending the Pilot Program of the

NASD’s Short Sale Rule and the

Amendment to the Definition of

‘‘Legal’’ Short Sale

January 14, 1998.

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

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 2 thereunder,

notice is hereby given that on December

23, 1997, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) 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 and to

grant accelerated approval of the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NASD is proposing to extend

until April 15, 1998, the pilot program

of the NASD’s short sale rule (‘‘Rule’’)

and the recently-approved amendment

to the definition of ‘‘legal’’ short sale.3

Below is the text of the proposed rule

change. Proposed new language is in

italics; proposed deletions are in

brackets.

* * * * *

NASD Rule 3350

(1) This section shall be in effect until

April 15, 1998 [January 15, 1998].

* * * * *

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 change. The text of these statements

may be examined at the places specified

in Item V below. Nasdaq 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. Background and Description of the

NASD’s Short Sale Rule

On June 29, 1994, the SEC approved

the rule applicable to short sales 4 in

Nasdaq National Market (‘‘NNM’’)

securities on an eighteen-month pilot

basis through March 5, 1996.5 The

termination date for the pilot program

for the Rule was subsequently extended

until January 15, 1998.6

The Rule prohibits member firms

from effecting short sales at or below the

current inside bid as disseminated by

Nasdaq whenever that bid is lower than

the previous inside bid.7 The Rule is in

effect during normal domestic market

hours (9:30 a.m. to 4:00 p.m., Eastern

Time). To ensure that market maker

activities that provide liquidity and

continuity to the market are not

adversely constrained when the Rule is

invoked, the Rule provides an

exemption to ‘‘qualified’’ Nasdaq market

makers (i.e., those market makers that

meet the Primary Market Maker

(‘‘PMM’’) standards). Even if a market

maker is able to avail itself of the

qualified market maker exemption, it

can only utilize the exemption from the

Rule for transactions that are made in

connection with bona fide market

making activity. If a market maker does

not satisfy the requirements to be a

qualified market maker, it can remain a

market maker in the Nasdaq system,

although it can not take advantage of the

exemption from the Rule.

Since the Rule has been in effect,

there have been three methods used to

determine whether a market maker is

eligible for the market maker exemption.

Specifically, from September 4, 1994

through February 1, 1996, Nasdaq

market makers who maintained a

quotation in a particular NNM security

for 20 consecutive business days

without interruption were exempt from

the Rule for short sales in that security,

provided that short sales were made in

connection with bona fide market

making activity (the ‘‘20-day’’ test).

From February 1, 1996 until February

14, 1997, the ‘‘20-day’’ test was replaced

with a four-part quantitative test known

as the Nasdaq PMM Standards. 8 On

February 14, 1997, the PMM standards

were waived for all NNM securities due

to the effects of the SEC’s Order

Handling Rules and corresponding

NASD rule change and system

modifications on the operation of the