64084 Federal Register / Vol. 60, No. 239 / Wednesday, December 13, 1995 / Notices

4The term ‘‘related participant’’ means any

affiliate (as defined in Rule 12b–2 of the Act) or

entity that is used or intended to be used in whole

or in part to contravene the purposes of the

proposed rule change. Letter from Anthony H.

Davidson, MBSCC, to Michele J. Bianco, Division of

Market Regulation, Commission (November 1,

1995).

5 15 U.S.C. § 78q–1 (1988). 1 15 U.S.C. 78s(b)(1) (1988).

a related participant.4 The SBO

settlement netting process was not

intended for trades between multiple

accounts of a participant or between a

participant’s account and an account of

a related participant. The inclusion of

these types of trades was not

contemplated when the MBSCC cash

adjustment procedures were developed,

and the inclusion could cause a

perception that participants might

receive greater or lesser amounts than

originally intended depending upon the

amount of internal trades submitted.

Participants may record such trades on

a trade-for-trade basis.

The proposed rule change is

consistent with the requirements of

Section 17A of the Act and the rules and

regulations thereunder because it will

facilitate the prompt and accurate

clearance and settlement of securities

transactions.5

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

MBSCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

MBSCC advised participants by an

administrative bulletin dated October 6,

1995, that it would file the proposed

rule change with the Commission. No

written comments relating to the

proposed rule change have been

received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 provisions of

5 U.S.C. 552, will be available for

inspection and copying in the

Commission’s Public Reference Room in

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 the

file number SR–MBSCC–95–08 and

should be submitted by January 3, 1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30300 Filed 12–12–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36563; File No. SR–NASD–

95–57]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Notice of Filing and

Order Granting Accelerated Approval

of a Proposed Rule Change Relating to

Policy Statement on Market Closings

December 7, 1995.

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

Securities Exchange Act of 1934

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

November 22, 1995, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) 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 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

The NASD proposes to amend its

Policy Statement on Market Closings

(‘‘Statement’’ or ‘‘Policy Statement’’),

adopted pursuant to Article VII, Section

3 of the NASD By-Laws, to: (1) extend

the expiration date of the Statement to

December 31, 1997; and (2) reflect

regulatory developments since the

Statement was first adopted in 1988.

The amended Statement is as follows

(additions are italicized; deletions are

bracketed):

NASD Board of Governors Policy

Statement on Market Closing

September 20, 1988

Amended [insert date] 1995

In 1988, [T] the Board of Governors of

the National Association of Securities

Dealers, Inc. [has] carefully considered

the numerous proposals resulting from

the October 1987 market break

including the Report of the NASD

Committee on the Quality of Markets

and the ‘‘circuit breaker’’ proposal

recommended by the President’s

Working Group on Financial Markets.

The Working Group proposal

recommend[s]ed that all U.S. markets

for equity and equity-related products,

i.e., stocks, individual stock options,

and stock index options and futures,

halt trading for [one hour] certain

specified periods if the Dow Jones

Industrial Average [(‘‘DJIA’’)]

decline[s]d 250 points or 400 points

from its previous day’s closing level [

and for two hours if the DJIA declines

400 points]. The proposal also

recommend[s]ed specific reopening

procedures and consistent index futures

price limit requirements. Subsequently,

the major securities exchanges adopted

the recommendations of the Working

Group as trading halt rules, with

uniform criteria established for the

coordinated implementation of trading

halts across all equity and equityrelated markets in the event of

extraordinary market movements. The

exchanges have, from time-to-time,

considered amendments to such rules.

Having reviewed the [se numerous]

original proposal[s] of the Working

Group, the trading halt rules adopted by

the major securities exchanges and any

modifications thereto, the Board of

Governors [has adopted] reaffirms the

position that is set forth below in this

Statement of Policy.

The Board notes that while progress

has been made by the markets in areas

involving systems capacity, margin

requirements and information sharing, a
Federal Register / Vol. 60, No. 239 / Wednesday, December 13, 1995 / Notices 64085

2Specifically, in its release approving Article VII,

Section 3 of the NASD By-Laws, the Commission

stated that ‘‘the Commission believes the proposal

provides the NASD with the flexibility to deal with

extraordinary market conditions such as existed in

October 1987.’’ See Securities Exchange Act Release

No. 26072 (September 12, 1988), 53 FR 36143.

3Securities Exchange Release No. 26198 (October

19, 1988), 53 FR 41673.

4Securities Exchange Act Release Nos. 27370

(October 23, 1989), 54 FR 43881 (approving File No.

SR–NASD–89–46, extending expiration date

through December 31, 1990); 28694 (December 12,

1990), 55 FR 52119 (approving File No. SR–NASD–

90–60, extending expiration date through December

31, 1991); 30113 (December 20, 1991), 56 FR 67341

(File No. SR–NASD–91–70, extending expiration

date through January 31, 1992); 30304 (January 29,

1992), 57 FR 4658 (approving File No. SR–NASD–

92–02, extending expiration date through December

31, 1993); 33292 (December 6, 1993), 58 FR 65214

(approving File No. SR–NASD–93–70, extending

expiration date through December 31, 1994); and

35133 (December 21, 1994), 59 FR 67361 (approving

File No. SR–NASD–94–63, extending expiration

date through December 31, 1995).

number of recommendations from the

various proposals unfortunately have

not yet been either fully considered or

actively pursued. The Board believes

that market closings are not the answer

to the potential danger of precipitous

declines in market prices and that it is

more important to aggressively pursue

other initiatives. Among these are:

1. Congress should vest regulatory

authority for all equity derivative

instruments in the Securities and

Exchange Commission.

2. Congress should give the Securities

and Exchange Commission authority to

oversee the establishment of initial or

maintenance margin requirements by

self-regulatory organizations for all

equity instruments. Relative margin

levels for equities and equity derivative

instruments should be consistent across

all market places.

3. The activities of clearing and

settlement systems should be

coordinated across market places to

reduce financial risk for all participants.

Clearing and settlement facilities for all

equity derivative instruments should be

unified or linked as in the options and

securities markets.

4. An intermarket self-regulatory

coordinating policy group (with

subgroups) composed of persons at the

senior management level of all selfregulatory organizations should be

established to plan, communicate and

coordinate with each other in the

surveillance, financial, operational and

technology areas and, acting with

federal regulators, to formulate

contingency plans for market

emergencies.

5. To the extent that legislation is

needed to accomplish any of these

objectives, Congress should be urged by

all securities industry organizations to

act promptly.

We believe implementation of these

recommendations would provide a more

permanent and appropriate response to

the events of October 1987 than would

market closings based upon arbitrary

formulae. They should be adopted

expeditiously. Because sufficient

progress on all of these matters has not

yet occurred, the Board recognizes the

need to consider the Working Group’s

proposal on ‘‘circuit breakers’’ and the

trading halt rules adopted by the major

securities exchanges as an interim step.

The Board strongly believes that the

Nation’s securities markets should

remain open and operating during

normal market hours whenever

possible. The Board is opposed in

principle to the implementation of

‘‘circuit breakers’’ that mandate market

closings on the basis of arbitrary

formulae. The Board supports the

[current] practice whereby individual

market determine, after coordination

with other markets and federal

regulators, whether to close based on

the character of a particular emergency

situation.

The Board of Governors acknowledges

that the risks imposed on any single

market remaining open while all other

U.S. markets have halted trading

because of extraordinary price

movements could be unacceptable. The

Board therefore has determined that, at

times when other major securities

markets initiate market-wide trading

halts in response to extraordinary

market conditions, the NASD will, upon

request from the Securities and

Exchange Commission, act to halt

domestic trading in all securities quoted

in [the NASDAQ system] The Nasdaq

Stock Market and domestic trading in

equity or equity-related securities in the

over-the-counter market.

This Policy Statement on Market

Closings shall be effective until

December 31, [1995] 1997 unless

modified or extended prior thereto by

the Board of Governors.

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 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 Policy Statement is adopted as a

stated policy of the NASD under Article

VII, Section 3 of the NASD By-Laws,

which provides the Association with the

authority, acting through a designated

committee of the NASD Board of

Governors, to take appropriate action in

the event of an emergency or

extraordinary market conditions. Article

VII, Section 3 was adopted by the NASD

as a result of the events of October 1987,

and the provision was enacted to enable

the NASD to respond to future crises

with a maximum degree of flexibility,

providing properly tailored responses to

varying situations.2 As originally

approved, the Statement was to expire

December 31, 1989, unless modified or

extended prior thereto by the NASD

Board of Governors.3 The expiration

date of the Policy Statement has

previously been extended a number of

times.4

Other groups, including the

President’s Working Group on Financial

Markets (the ‘‘Working Group’’), have

proposed more specific, formulaic

responses to the events of October 1987.

One such proposal is the Working

Group’s proposal for ‘‘circuit breakers.’’

The Commission requested the NASD to

express its views on that proposal and

the Policy Statement was adopted in

response to that request.

It should be noted that the Policy

Statement expresses the views of the

NASD Board of Governors as of

November 16, 1995 concerning progress

made on the numerous proposals

emanating from the October 1987 crisis.

From time to time, the Board will

review progress made on the

recommendations set forth in the

Statement as well as other

developments as they may occur. The

views of the Board may change and the

NASD may modify or amplify the

Statement accordingly.

It also should be noted that the Policy

Statement sets forth the NASD’s

proposed response to a specific set of

circumstances. The Statement does not

in any way preclude the NASD from

taking any other action that may be

appropriate under other circumstances.

The NASD proposes to extend the

expiration date of the Policy Statement

two years until December 31, 1997. The

NASD also proposes to make several

minor modifications to the Policy

Statement to reflect regulatory

developments since the Statement was
64086 Federal Register / Vol. 60, No. 239 / Wednesday, December 13, 1995 / Notices

5Specifically, when the 250- and 400-point

circuit breakers were implemented in October 1988,

a 250-point move in the DJIA was approximately

11.7 percent of the Index and a 400-point move was

approximately 18.7 percent of the Index. However,

given the expansion and growth of U.S. equity

markets since 1988, 250- and 400-point movements

in the NASD now represent a much smaller

percentage move in the Index. Specifically, with the

NASD at 5,000, a 250-point move represents 5

percent of the Index and a 400-point move

represents 8 percent of the Index.

6The Commission reaffirms its request that the

NASD implement its Policy Statement by

implementing a trading halt as quickly as

practicable whenever the New York Stock Exchange

and other equity markets have suspended trading.

See Securities Exchange Act Release No. 27370,

supra note 4.

7 17 U.S.C. 78s(b)(2) (1988).

8 17 CFR 200.30–3(a)(12) (1994).

adopted in 1988. Given the growth of

U.S. equity markets since 1988,

however, the NASD increasingly is

concerned that circuit breakers may be

activated based on smaller percentage

moves in the Dow Jones Industrial

Average (‘‘DJIA’’).5 Accordingly, it is the

intention of the NASD to reevaluate

whether the 250- and 400-point

thresholds contained in the circuit

breakers are appropriate. Nevertheless,

the NASD believes it is appropriate at

this time to extend the effectiveness of

the Policy Statement.

The NASD believes the proposed rule

change is consistent with Section

15A(b)(6) of the Act. 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.

Specifically, by extending the

effectiveness of the Policy Statement,

market participants will be afforded a

reasonable opportunity to assess and

rationally react to extreme market

conditions. In addition, extension of the

Policy Statement will help to ensure

that circuit breakers are coordinated

across all equity and equity-related

markets.

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, as amended.

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

The NASD requests that the

Commission find good cause to

accelerate the effectiveness of the

proposed rule change pursuant to

Section 19(b)(2) of the Act so that the

effectiveness of the Policy Statement

can continue uninterrupted. The NASD

notes that its other proposals to extend

the Statement have been subject to the

full notice and comment period and that

the Commission has received no adverse

comments on the Statement.

Accordingly, because the NASD

believes that there are no changes to the

Policy Statement that would necessitate

the solicitation of public comment prior

to Commission approval, because no

adverse comments have been received

in response to prior extensions of the

Statement, and because the Policy will

otherwise expire on December 31, 1995,

the NASD requests that the Commission

accelerate the effectiveness of the

proposed rule change prior to the 30th

day after its publication in the Federal

Register.

IV. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to the NASD, and, in

particular, the requirements of Section

15A and the rules and regulations

thereunder. Since the Commission

approved the NASD’s proposal in 1988,

the Dow Jones Industrial Average has

not experienced a one day market

decline that would trigger a market halt.

Nevertheless, the Commission continues

to believe that circuit breaker

procedures are desirable to deal with

potential strains that may develop

during periods of extreme market

volatility, and accordingly, the

Commission believes that the pilot

program should be extended. The

Commission also believes that circuit

breakers represent a reasonable means

to retard a rapid one day market decline

that could have a destabilizing effect on

the nation’s financial markets and

participants in these markets. Finally,

the Commission believes that the

proposed changes to the Policy

Statement are minor and not of a nature

to affect its operation.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register because there

are no material changes being made to

the current provisions, which originally

were subject to the full notice and

comment procedures, and accelerated

approval would enable Policy Statement

to continue uninterrupted. The

Commission believes, therefore, that

granting accelerated approval of the

proposed rule change is appropriate and

consistent with Sections 15A and 19(b)

of the Act.6

V. 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

submissions, 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 January 3, 1996.

VI. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

proposed rule change (SR–NASD–95–

57) is hereby approved until December

31, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30355 Filed 12–12–95; 8:45 am]

BILLING CODE 8010–01–M