Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Notices 62519

8 17 CFR 200.30–3(a)(12) (1994). 1 15 U.S.C. § 78s(b)(1) (1988).

2See Securities Exchange Act Release No. 34277

(June 29, 1994), 59 FR 34885 (July 7, 1994).

3A 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.

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 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 any

copying at the principal office of the

above-mentioned self-regulatory

organization. All submissions should

refer to the file number in the caption

above and should be submitted by

December 27, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–29685 Filed 12–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36532; File No. SR–NASD–

95–58]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.

Relating to the Date of Implementation

of the NASD’s Primary Market Maker

Standards and the Duration of the Pilot

Program for the NASD’s Short Sale

Rule

November 30, 1995.

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

Securities Exchange Act of 1934

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

November 27, 1995, 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 and II 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. As

discussed below, the Commission has

also granted accelerated approval of the

proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

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

Act, the NASD is proposing to delay,

from December 1, 1995 to February 1,

1996, the implementation date of the

Primary Market Maker standards to be

used to determine the eligibility of

market makers for an exemption from

the NASD’s short-sale rule. The NASD

also proposes to extend the termination

date for the pilot period to August 3,

1996 instead of June 3, 1996. The text

of the proposed rule change is as

follows (additions are italicized;

deletions are bracketed):

Article III, Section 1

* * * * *

Section 48

(1)(3) Until February 1, 1996 [December 1,

1995], the term ‘‘qualified market maker’’

shall mean a registered Nasdaq market maker

that has maintained, without interruption,

quotations in the subject security for the

preceding 20 business days.

* * * * *

Beginning February 1, 1996 [December 1,

1995], the term ‘‘qualified market maker’’

shall mean a registered Nasdaq market maker

that meets the criteria for a Primary Nasdaq

Market Maker as set forth in Article III,

Section 49 of the Rules of Fair Practice.

* * * * *

(m) This section shall be in effect until

August 3, 1996 [June 3, 1996].

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

On June 29, 1994, the SEC approved

the NASD’s short-sale rule applicable to

short sales in Nasdaq National Market

securities on an eighteen-month pilot

basis through March 5, 1996.2 The

NASD’s short-sale rule prohibits

member firms from effecting short sales

at or below the current inside bid as

disseminated by the Nasdaq system

whenever that bid is lower than the

previous inside bid.3 The rule is in

effect during normal domestic market

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

Time). As approved by the Commission,

during the first year that the rule has

been in effect (from September 6, 1994

to September 6, 1995), Nasdaq market

makers who maintained a quotation in

a particular Nasdaq National Market

security for 20 consecutive business

days without interruption are exempt

from the rule for short sales in that

security, provided that the short sales

were made in connection with bona fide

market making activity (‘‘the 20-day’’

test). For the next six months of the 18-

month pilot period (i.e., September 6,

1995 through March 5, 1996), the ‘‘20-

day’’ test for market maker exemptions

from the rule was scheduled to be

replaced with a four-part quantitative

test known as the ‘‘Primary Market

Maker (PMM) Standards.’’

Under the PMM Standards, to be

eligible for an exemption from the shortsale rule, a market maker must satisfy at

least two of the following four criteria:

(1) The market maker must be at the best

bid or best offer as shown on the Nasdaq
62520 Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Notices

4Specifically, the proportionate volume test

requires a market maker to account for volume of

at least one-and-a-half times its proportionate share

of overall volume in the security for the review

period. For example, if a security has 10 market

makers, each market maker’s proportionate share

volume is 10 percent. Therefore, the proportionate

share volume is one-and-a-half times 10, or 15

percent of overall volume.

5See Securities Exchange Act Release No. 36171

(Aug. 30, 1995), 60 FR 46651 (Sept. 7, 1995).

6 15 U.S.C. § 78o–3(b)(6), (9) and (11). Section

15A(b) (6) requires, among other things, that the

NASD’s rules be designed to prevent fraudulent and

manipulative acts and practices, to promote just

and equitable principles of trade, and to protect

investors and the public interest. 15 U.S.C. § 78o–

3(b) (6). Sections 15A(b) (9) and (11) require that the

NASD’s rule be designed not to impose any burden

on competition not necessary or appropriate in

system 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

stock.4 If a market maker is a PMM for

a particular stock, there will be a ‘‘P’’

indicator next to its quote in that stock.

In addition, market makers will be able

to review their status as PMMs through

their Nasdaq Workstation. The review

period for satisfaction of the PMM

performance standards is one calendar

month. If a PMM has not satisfied the

threshold standards after a particular

review period, the PMM designation

will be removed commencing on the

next business day following notice of

failure to comply with the standards.

Market makers may requalify for

designation as a PMM be satisfying the

threshold standards for the next review

period.

As noted above, the PMM standards

were originally scheduled to go into

effect on September 6, 1995. However,

because of unforeseen delays in the

programming of the PMM standards, the

NASD proposed and the SEC approved

a delay in the effective date of the PMM

standards until December 1, 1995.5 With

the instant filing, the NASD is

proposing a further delay of the

implementation date for the PMM

standards. Specifically, because of

recently detected errors in a segment of

the NASD’s software used to calculate

whether market makers are satisfying

the PMM standards, the NASD is

proposing to delay the effective date of

the PMM standards until February 1,

1996.

With the proposed delay, a market

maker’s trading activity during the

month of January 1996 will be evaluated

according to the PMM standards to

determine if it can retain its exemption

until February 1996. Until January 31,

1996, the 20-day test will continue to be

used to evaluate market makers’

eligibility for an exemption from the

rule. Thus, beginning February 1, 1996,

a ‘‘P’’ indicator will be displayed next

to every PMM that is exempt from the

rule according to the new PMM

standards.

Because implementation of the PMM

standards will be delayed under the

proposal, the NASD is also proposing to

extend the pilot period for the rule so

that there is sufficient time to evaluate

the effectiveness and impact of the

PMM standards and the effectiveness of

the short sale rule with the PMM

standards in place. Specifically, the

NASD proposes to extend the

termination date for the pilot program

until August 3, 1996.

The NASD believes the proposed rule

change is consistent with Sections

15A(b)(6) and 11A(c)(1)(F) 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,

and to remove impediments to and

perfect the mechanism of a free and

open market. Section 11A(c)(1)(F)

assumes equal regulation of all markets

for qualified securities and all exchange

members, brokers, and dealers effecting

transactions in such securities.

Specifically, the NASD believes that

continuing the operation of the present

‘‘20-day’’ test until the PMM standards

are in place will ensure that the

liquidity provided to the market by

virtue of the market maker exemption

will not be diminished. In addition, the

NASD believes that continuation of the

‘‘20-day’’ test until the PMM standards

are in place would avoid the confusion

in the marketplace that would result if

the market maker exemption were to

lapse for two months and then be

reinstated. Finally, the NASD believes

that extending the pilot period for the

short-sale rule will enhance the quality

of studies analyzing the effectiveness of

the rule and help to ensure that future

regulatory action taken with respect to

the rule is based on a greater knowledge

and understanding of the rule.

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

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

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 NASD 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.

The NASD has requested, however, that

the Commission find good cause

pursuant to Section 19(b)(2) for

approving the proposed rule change

prior to the 30th day after publication in

the Federal Register.

As discussed below, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act. Further, the Commission finds

good cause for approving the proposal

prior to the 30th day after the date of

publication of notice of filing in the

Federal Register. The Commission

believes that accelerated approval of the

proposal is appropriate in that it will

permit the NASD to provide interested

persons adequate notice that

implementation of the PMM standards

will be delayed until February 1, 1996

and that the expiration of the short sale

rule, including the PMM standards, will

be extended until August 3, 1996.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

As discussed in the Original Approval

Order, the Commission believed and

continues to believe that the imposition

for a limited time of a short sale rule

and accompanying PMM standards

applicable to Nasdaq National Market

securities is consistent with the

requirements of Sections 15A(b) (6),

15A(b) (9) and 15A(b) (11) of the Act.6
Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Notices 62521

furtherance of the Act, id. § 78o–3(b) (9), and to

produce fair and informative quotations, to prevent

fictitious or misleading quotations, and to promote

orderly procedures for collecting, distributing and

publishing quotations. Id. § 78o–3(b) (11). In

addition, the Commission believes that the rule

change will further the goals of Section 11A in that

it will promote efficient and effective market

operations and economically efficient execution of

investor orders in the best market and assure fair

competition between the exchange markets and the

OTC market and among brokers and dealers. Id.

§ 78k–1(a) (1) (C).

7Securities Exchange Act Release No. 34277

(June 29, 1994), 59 FR 34885 (July 7, 1994). 8 17 CFR 200.30–3(a) (12).

1Letter from Michele R. Weisbaum, Associate

General Counsel, Phlx, to Michael Walinskas, SEC,

dated November 22, 1995.

2See Securities Exchange Act Release No. 36167

(Aug. 29, 1995).

3The Exchange notes that a substantially similar

regulatory scheme generally applies to broad-based

index options and warrants.

As discussed below, the Commission

believes that delayed implementation of

the PMM standards until February 1,

1996 and limited extension of the short

sales rule until August 3, 1996 (rather

than June 3, 1996) is consistent with the

Act and the rules and regulations

promulgated thereunder.7

Maintaining the current operation of

the short sale rule until the NASD has

completed and tested the systems

necessary to provide market participants

adequate notice of a market maker’s

PMM status will avoid confusion in the

marketplace and assure consistency in

the application of NASD rules.

Moreover, extension of the short sale

rule until August 3, 1996 will maintain

the effectiveness of the PMM standards

for six months, as envisioned by the

Commission’s Original Approval Order.

As noted in the Original Approval

Order, this will provide the Commission

and the NASD the opportunity to study

the effects of the rule and its exemptions

and to determine whether these are

practicable and necessary on an ongoing

basis, or whether other alternatives

would be more appropriate.

In the Original Approval Order, the

Commission stated that experience with

the NASD’s short sale rule may

demonstrate that some or all of the

elements of the rule require

reconsideration. The Commission notes

that this is the NASD’s second proposal

to extend the operation of the short sale

rule due to technical problems

associated with the implementation of

the PMM designation. The Commission

is concerned about the delay in

implementing the PMM designation

which inhibits the ability to assess the

effects of the short sale rule with the

designation in place and, thus, expects

that no further delays will be necessary.

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

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 SR–NASD–95–58 and should be

submitted by December 27, 1995.

VI. Conclusion

For the reasons stated above, the

Commission believes the rule change is

consistent with the Act and, therefore,

has determined to approve it.

It is therefore ordered, pursuant to

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

change SR–NASD–95–58 be, and hereby

is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–29686 Filed 12–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36524; File No. SR–Phlx–

95–76]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 to Proposed Rule

Change by the Philadelphia Stock

Exchange, Inc. Relating to Uniform

Listing and Trading Guidelines for

Narrow-based Stock Index Warrants

November 29, 1995.

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 October 27, 1995,

the Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) 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 self-regulatory organization. On

November 22, 1995, the Phlx submitted

Amendment No. 1 (‘‘Amendment No.

1’’) to the proposal to establish a

maintenance requirement with respect

to the minimum number of securities

that must comprise an index underlying

a warrant issuance, to clarify issues

relating to settlement values for both

narrow-based and broad-based index

warrants, and to amend certain position

limit levels applicable to narrow-based

index warrants.1 The Commission is

publishing this notice to solicit

comments on the proposed rule change

and Amendment No. 1 from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule change

The Phlx proposes to amend

Exchange Rules 722, 803, 1000A, and

1001A to establish uniform listing and

trading guidelines applicable to narrowbased stock index warrants. The text of

the proposed rule change and

Amendment No. 1 thereto is available at

the Office of the Secretary, Phlx and at

the Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of and

Statutory Basis for, the Proproposed

Rule Change

In its filing with the Commission, the

Phlx 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 Phlx 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

In view of the recent approval of the

regulatory framework for stock index

warrants on broad-based stock indexes, 2

the Exchange now proposes to establish

uniform listing and trading guidelines

for warrants based on narrow-based

indexes. To accommodate the trading of

warrants on narrow-based indexes, the

Exchange proposes to modify the

recently approved regulatory framework

for broad-based index warrants. 3 Thus,

the Exchange proposes to conform the

rules applicable to warrants on narrowbased indexes to those applicable to

options on narrow-based indexes.