[Federal Register Volume 63, Number 122 (Thursday, June 25, 1998)]
[Notices]
[Pages 34674-34676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16951]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40102; File No. SR-NASD-98-39]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Small Order Execution System Tier 
Size Classifications

June 19, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 29, 1998, the National 
Association of Securities Dealers (``NASD'' or ``Association'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule

[[Page 34675]]

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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD is submitting this filing to effectuate The Nasdaq Stock 
Market, Inc.'s (``Nasdaq'') periodic reclassification of Nasdaq 
National Market (``NNM'') securities into appropriate tier sizes for 
purposes of determining the maximum size order for a particular 
security eligible for execution through Nasdaq's Small Order Execution 
System (``SOES''). Specifically, under the proposal, 520 NNM securities 
will be reclassified into a different SOES tier size effective July 1, 
1998. Since the NASD's proposal is an interpretation of existing NASD 
rules, there are no language changes.

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 and copy of the Notice-to-Members 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

1. Purpose
    The purpose of the rule change is to effectuate Nasdaq's periodic 
reclassification of NNM securities into appropriate tier sizes for 
purposes of determining the maximum size order for a particular 
security eligible for execution through SOES. Nasdaq periodically 
reviews the SOES tier size applicable to each NNM security to determine 
if the trading characteristics of the issue have changed so as to 
warrant a tier size adjustment. Such a review was conducted using data 
as of March 31, 998, pursuant to the following established criteria.\2\
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    \2\ The classification criteria is set forth in NASD Rule 
4613(a)(2) and the footnote to NASD rule 4710(g).

    NNM securities with an average daily non-block volume of 3,000 
shares or more a day, a bid price less than or equal to $100, and 
three or more market makers are subject to a minimum quotation size 
requirement of 1,000 shares and a maximum SOES order size of 1,000 
shares;
    NNM securities with an average daily non-block volume of 1,000 
shares or more a day, a bid price less than or equal to $150, and 
two or more market makers are subject to a minimum quotation size 
requirement of 500 shares and a maximum SOES order size of 500 
shares; and
    NNM securities with an average daily non-block volume of less 
than 1,000 shares a day, a bid price less than or equal to $250, and 
two or more market makers are subject to a minimum quotation size 
requirement of 200 shares and a maximum SOES order size of 200 
shares.

    Pursuant to the application of this classification criteria, 520 
NNM securities will be reclassified effective July 1, 1998. These 520 
NNM securities are set out in the NASD's Notice to Members 98-44 (June 
1998).
    In ranking NNM securities pursuant to the established 
classification criteria, Nasdaq followed the changes dictated by the 
criteria with three exceptions. First, an issue was not moved more than 
one tier size level. For example, if an issue was previously 
categorized in the 1,000-share tier size, it would not be permitted to 
move to the 200-share tier even if the reclassification criteria showed 
that such a move was warranted. In adopting this policy, Nasdaq was 
attempting to maintain adequate public investor access to the market 
for issues in which the tier size level decreased and help ensure the 
ongoing participation of market makers in SOES for issues in which the 
tier size level increased. Second, for securities priced below $1 where 
the reranking called for a reduction in tier size, the tier size was 
not reduced. Third, for the top 50 Nasdaq securities based on market 
capitalization, the SOES tier sizes were not reduced regardless of 
whether the reranking called for a tier-size reduction.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act.\3\ Section 15A(b)(6) requires, among 
other things, that the rules of the NASD governing the operation of 
Nasdaq be designed to foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities, and to remove 
impediments to and perfect the mechanism of a free and open market. 
Specifically, the NASD believes that the reassignment of NNM securities 
within SOES tier size levels will further these ends by providing an 
efficient mechanism for small, retail investors to execute their orders 
on Nasdaq and by providing investors with the assurance that they can 
effect trades up to a certain size at the best prices quoted on Nasdaq.
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    \3\ 15 U.S.C. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose 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

    The Association has neither solicited nor received written comments 
on the proposed rule change.

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

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule and, therefore, has become effective 
pursuant to Section 19(b)(3)(A)(i) of the Act \4\ and subparagraph 
(e)(1) of Rule 19b-4 thereunder.\5\
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    \4\ 15 U.S.C. 78s(b)(3)(A)(i).
    \5\ 17 CFR 240.19b-4(e)(1).
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    At any time within sixty days of the filing of such 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.\6\
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    \6\ In reviewing this proposal, the Commission has considered 
the proposal's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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

[[Page 34676]]

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 Room, located at the above address. Copies of such filing 
also will be available for inspection and copying at the principal 
office of the NASD. All submissions should refer to File No. SR-NASD-
98-39 and should be submitted by July 16, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-16951 Filed 6-24-98; 8:45 am]
BILLING CODE 8010-01-M