Federal Register / Vol. 60, No. 47 / Friday, March 10, 1995 / Notices 13199

11 17 CFR 200.30–3(a)(12) (1994).

1See Securities Exchange Act Release No. 35391

(Feb. 16, 1995), 60 FR 9878 (Feb. 22, 1995. Notice

of the proposed rule change, together with the

substance of the proposal as initially filed, was

provided by issuance of a Commission release

(Securities Exchange Act Release No. 35122, Dec.

20, 1994) and by publication in the Federal Register

(59 FR 66389, Dec. 23, 1994).

2NASD Manual, Rules of Fair Practice, Art. III,

Sec. 1 (CCH) ¶ 2151.07.

3NASD Manual, Rules of Fair Practice, Art. III,

Sec. 21 (CCH) ¶ 2171.

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, 450 Fifth Street NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of NSCC. All submissions should

refer to the file number SR–NSCC–95–

02 and should be submitted by March

31, 1995.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

NSCC–95–02) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Jonathan G. Katz,

Secretary.

[FR Doc. 95–5863 Filed 3–9–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35454; File No. SR–NASD–

94–62, Amendment No. 2]

Self-Regulatory Organizations; Notice

of Filing of Amendment No. 2 to

Proposed Rule Change by National

Association of Securities Dealers, Inc.

Relating to Limit Order Protection for

Member-to-Member Limit Order

Handling on Nasdaq

March 8, 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 March 7, 1995, the

National Association of Securities

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

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

an amendment to 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 recently proposed to

amend SR–NASD–94–62 relating to

limit order protection for member-tomember limit order handling in The

Nasdaq Stock Market.1 Currently, the

NASD’s Interpretation to the Rules of

Fair Practice2 makes it a violation of just

and equitable principles of trade for a

member firm to trade ahead of its own

customer’s limit orders. That

amendment clarified that the ‘‘terms

and conditions’’ exception to the

Interpretation applies only to limit

orders from institutional accounts,

whether such limit orders come from a

firm’s own customers or are member-tomember limit orders. The term

‘‘institutional account’’ is defined in

Article III, Section 21(c)(4) of the Rules

of Fair Practice.3 The NASD now is

proposing to amend the proposed rule

change to provide that the ‘‘terms and

conditions’’ exception to the

Interpretation also applies to limit

orders that are 10,000 shares or more,

unless such orders are less than

$100,000 in value, as well as to limit

orders from institutional accounts.

Below is the text of the proposed rule

change. Proposed new language,

including the language that was added

in the original proposal, is italicized;

language to be deleted is bracketed.

Limit Order Protection Interpretation to

Article III, Section 1 of the NASD Rules

of Fair Practice

To continue to ensure investor

protection and enhance market quality,

the NASD Board of Governors is issuing

an Interpretation to the Rules of Fair

Practice dealing with member firm

treatment of [their] customer limit

orders in Nasdaq securities. This

Interpretation will require members

acting as market makers to handle

[their] customer limit orders with all

due care so that market makers do not

‘‘trade ahead’’ of those limit orders.

Thus, members acting as market makers

that handle customer limit orders,

whether received from their own

customers or from another member, are

prohibited from trading at prices equal

or superior to that of the limit order

without executing the limit order,

provided that, prior to September 1,

1995, this prohibition shall not apply to

customer limit orders that a member

firm receives from another member firm

and that are greater than 1,000 shares.

Such orders shall be protected from

executions at prices that are superior

but not equal to that of the limit order.

In the interests of investor protection,

the NASD is eliminating the so-called

disclosure ‘‘safe harbor’’ previously

established for members that fully

disclosed to their customers the practice

of trading ahead of a customer limit

order by a market-making firm.

Interpretation

Article III, Section 1 of the Rules of

Fair Practice states that:

A member, in the conduct of his

business, shall observe high standards

of commercial honor and just and

equitable principles of trade.

The Best Execution Interpretation

states that: In any transaction for or with

a customer, a member and persons

associated with a member shall use

reasonable diligence to ascertain the

best inter-dealer market for the subject

security and buy or sell in such a market

so that the resultant price to the

customer is as favorable as possible to

the customer under prevailing market

conditions. Failure to exercise such

diligence shall constitute conduct

inconsistent with just and equitable

principles of trade in violation of Article

III, Section 1 of the Rules of Fair

Practice.

In accordance with Article VII,

Section 1(a)(2) of the NASD By-Laws,

the following interpretation under

Article III, Section 1 of the Rules of Fair

Practice has been approved by the

Board:

A member firm that accepts and holds

an unexecuted limit order from a

customer (whether its own customer or

a customer of another member) in a

Nasdaq security and that continues to

trade the subject security for its own

market-making account at prices that

would satisfy the customer’s limit order,

without executing that limit order,

[under the specific terms and conditions

by which the order was accepted by the

firm,] shall be deemed to have acted in

a manner inconsistent with just and

equitable principles of trade, in

violation of Article III, Section 1 of the

Rules of Fair Practice, provided that,

until September 1, 1995, customer limit

orders in excess of 1,000 shares received

from another member firm shall be

protected from the market maker’s

executions at prices that are superior

but not equal to that of the limit order,
13200 Federal Register / Vol. 60, No. 47 / Friday, March 10, 1995 / Notices

4See Securities Exchange Act Release No. 34279

(June 29, 1994), 59 FR 34883 (July 7, 1994).

5Securities Exchange Act Release No. 34753

(Sept. 29, 1994), 59 FR 50867 (Oct. 6, 1994)

(proposing 17 CFR 240.15c5–1).

and provided further, that a member

firm may negotiate specific terms and

conditions applicable to the acceptance

of limit orders only with respect to limit

orders that are: (1) for customer

accounts that meet the definition of an

‘‘institutional account’’ as that term is

defined in Article III, Section 21(c)(4) of

the Rules of Fair Practice; or (2) 10,000

shares or greater, unless such orders are

less than $100,000 in value. Nothing in

this section, however, requires members

to accept limit orders from any

customer[s].

By rescinding the safe harbor position

and adopting this Interpretation of the

Rules of Fair Practice, the NASD Board

wishes to emphasize that members may

not trade ahead of customer limit orders

in their market-making capacity even if

the member had in the past fully

disclosed the practice to its customers

prior to accepting limit orders. The

NASD believes that, pursuant to Article

III, Section 1 of the Rules of Fair

Practice, members accepting and

holding unexecuted customer limit

orders owe certain duties to their

customers and the customers of other

member firms that may not be overcome

or cured with disclosure of trading

practices that include trading ahead of

the customer’s order. The terms and

conditions under which institutional

account or appropriately sized customer

limit orders are accepted must be made

clear to customers at the time the order

is accepted by the firm so that trading

ahead in the firms’ market making

capacity does not occur. For purposes of

this Interpretation, a member that

controls or is controlled by another

member shall be considered a single

entity so that if a customer’s limit order

is accepted by one affiliate and

forwarded to another affiliate for

execution, the firms are considered a

single entity and the market making unit

may not trade ahead of that customer’s

limit order.

The Board also wishes to emphasize

that all members accepting customer

limit orders owe those customers duties

of ‘‘best execution’’ regardless of

whether the orders are executed through

the member’s market making capacity or

sent to another member for execution.

As set out above, the best execution

Interpretation requires members to use

reasonable diligence to ascertain the

best inter-dealer market for the security

and buy or sell in such a market so that

the price to the customer is as favorable

as possible under prevailing market

conditions. The NASD emphasizes that

order entry firms should continue to

routinely monitor the handling of their

customers’ limit orders regarding the

quality of the execution received.

* * * * *

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 its 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 purpose of the amendment to the

proposed rule change is to expand the

Interpretation’s ‘‘terms and conditions’’

exception to the protection of limited

orders. The NASD is amending its

proposal to permit member firms to

negotiate terms and conditions for

certain larger sized customer orders

from accounts other than institutional

accounts (‘‘retail accounts’’).

The NASD believes that the terms and

conditions exception to the handling of

limit orders should apply not only to

customer orders from institutional

accounts, but also to other orders that

are usually perceived of as

‘‘institutional’’ in nature. To ensure that

markets makers are able to negotiate

regarding the handling of such orders,

the NASD is proposing to permit

markers to negotiate terms and

conditions with respect to orders of

retail accounts that are 10,000 shares or

greater, unless such orders are less than

$100,000 in value. This numerical size

limit is intended to ensure that ordinary

limit orders from detail accounts are not

subject to the terms and conditions

exception.

The provision allows market makers

to negotiate specific order handling

procedures with parties that deal in

larger sized orders. Therefore, market

makers can employ appropriate

strategies in filling larger sized orders.

The order sizes contained in this

amendment are intended to ensure that

the Interpretation provides limit order

protection for retail investors, while

maintaining the ability of market makers

to negotiate with respect to

institutional-sized orders, whether

account customers constitute

institutional accounts or retail accounts.

Accordingly, the amendment provides

that a member firm that accepts a limit

order from a person or entity that does

not fall with the definition of institional

account may not initiate the negotiation

of any terms and conditions on the

acceptance of that limit order, unless

that order is for 10,000 shares or more

and is for a price of $100,000 or greater.

For example, if an order were for 10,000

shares, but the price per share were only

$5.00, the total order value would be

$50,000. The order would not qualify

for the terms and conditions exception

because the total value of the order

would be less than $100,000. This

amendment does not affect the ability of

a member firm to negotiate special terms

and conditions with the customer of an

institutional account, or its

representative, that permit the firm to

trade ahead of or at the same price as

the limit order, regardless of the size or

value of that order. The amended

Interpretation would apply to limit

orders placed by the firm’s own

customers and member-to-member limit

orders.

The NASD believes that this approach

accurately reflects the ordinary

framework in which firms and

institutions typically negotiate the

conditions under which an institution’s

limit order is to be handled. Moreover,

in its approval of the original NASD

Interpretation regarding the handling of

customer limit orders,4 the Commission

specifically indicated its view that the

terms and conditions language of the

original Interpretation was included in

the NASD Rule to permit special

treatment for institutional customer

limit orders. In addition, in its own

proposal regarding customer limit order

protection of Nasdaq securities5 the

Commission solicited comment on the

‘‘terms and conditions’’ provisions in its

rule, which would allow a market maker

to set special conditions to allow it to

employ the appropriate strategy in

filling an institutional customer’s order

without being subjected to the

requirements of the proposed rule. In

the course of that discussion, the

Commission proposed that measurable

characteristics, such as numbers of

shares, or dollar value of the order,

should be used as means to distinguish

retail orders from institutional orders

with respect to terms and conditions.

Of course, the clarification of the

Interpretation continues to permit a

member to establish with its customers
Federal Register / Vol. 60, No. 47 / Friday, March 10, 1995 / Notices 13201

or the order entry firm commissions or

commission-equivalents regarding the

handling of a limit order, provided that

the member makes those charges clear

to the customer. In this connection, the

NASD notes that Nasdaq market makers

are free to negotiate additional

compensation from order routing firms

to the extent that such compensation is

economically and competitively

justified. Similarly, the Interpretation

continues in place the understanding

that nothing in the Interpretation would

obligate a market maker to accept limit

orders from any or all customers or

member firms.

The NASD believes that the proposed

rule change is consistent with Section

15A(b)(6) in that these proposed

changes are designated to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, to facilitate

transactions in these securities, to

remove impediments to and to perfect

the mechanism of free and open market

and a national market system, and in

general to protect investors and the

public interest.

(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.

Accordingly, while the NASD will

monitor carefully for any adverse

competitive effects of the Interpretation,

it believes that any adverse effects are

far outweighed by the enhanced

execution opportunities provided public

investors.

(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 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.

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 SR–NASD–

94–62, Amendment No. 2 and should be

submitted by March 27, 1995.

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. 95–6088 Filed 3–8–95; 12:34 pm]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

Bureau of Political-Military Affairs

[Public Notice 2176]

Imposition of Chemical and Biological

Weapons Proliferation Sanctions on

Foreign Persons

AGENCY: Department of State.

ACTION: Notice.

SUMMARY: The United States

Government has determined that three

companies have engaged in chemical

weapons proliferation activities that

require the imposition of sanctions

pursuant to the Arms Export Control

Act and the Export Administration Act

of 1979 (the authorities of which were

most recently continued by Executive

Order 12924 of August 19, 1994), as

amended by the Chemical and

Biological Weapons Control and

Warfare Elimination Act of 1991.

EFFECTIVE DATE: February 18, 1995.

FOR FURTHER INFORMATION CONTACT:

Vann H. Van Diepen, Office of

Chemical, Biological and Missile

Nonproliferation, Bureau of PoliticalMilitary Affairs, Department of State

(202–647–4930).

SUPPLEMENTARY INFORMATION: Pursuant

to Sections 81(a) and 81(b) of the Arms

Export Control Act (22 U.S.C. 2798(a),

2798(b)), Sections 11C(a) and 11C(b) of

the Export Administration Act of 1979

(50 U.S.C. app. 2410c(a), 2410c(b)),

Section 305 of the Chemical and

Biological Weapons Control and

Warfare Elimination Act of 1991 (P.L.

102–182), Executive Order 12851 of

June 11, 1993, and State Department

Delegation of Authority No. 145 of

February 4, 1980, as amended, the

United States Government determined

that the following foreign persons,

currently operating in the Asia-Pacific

region, have engaged in chemical

weapons proliferation activities that

require the imposition of the sanctions

described in Section 81(c) of the Arms

Export Control Act (22 U.S.C. 2798(c))

and Section 11C(c) of the Export

Administration Act of 1979 (50 U.S.C.

app. 2410c(c)):

1. Asian Ways Limited

2. WorldCo Limited

3. Mainway International

Accordingly, the following sanctions

are being imposed:

(A) Procurement Sanction.—The

United States Government shall not

procure, or enter into any contract for

the procurement of, any goods or

services from the sanctioned persons;

and

(B) Import Sanction.—The

importation into the United States of

products produced by the sanctioned

persons shall be prohibited.

These sanctions apply not only to the

companies described above, but also to

their divisions, subunits, and any

successor entities. Questions as to

whether a particular transaction is

affected by the sanctions should be

referred to the contact listed above. The

sanctions shall commence on February

18, 1995. they will remain in place for

at least one year and until further

notice.

These measures shall be implemented

by the responsible agencies as provided

in Executive Order 12851 of June 11,

1993.

Dated: March 1, 1995.

Thomas E. McNamara,

Assistant Secretary of State for PoliticalMilitary Affairs.

[FR Doc. 95–6007 Filed 3–9–95; 8:45 am]

BILLING CODE 4710–25–M