204 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

9 15 U.S.C. § 78o–4(b)(2)(C).

10 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1991).

3See letter from Joan Conley, Corporate Secretary,

NASD, to Mark Barracca, Branch Chief,

Commission, dated December 15, 1995.

4The Commission notes that the paragraph

designation within the proposed rule language, as

originally filed, has been adjusted with the NASD

staff’s consent, to reflect an outstanding proposal

currently under review with the Commission.

Telephone conversation between Tom Gira,

Assistant General Counsel, NASD, and Betsy Prout

Lefler, Senior Counsel, Commission, on December

19, 1995.

those transactions that are ineligible for

automated comparison.

II. Discussion

Section 15B(b)(2)(C) 9 of the Act

authorizes the MSRB to adopt rules to

foster cooperative and coordination

with persons engaged in regulating,

clearing, settling, processing

information with respect to, and

facilitating transactions in municipal

securities. The MSRB also has the

authority to adopt rules 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.

The Commission believes the MSRB’s

proposed rule change is consistent with

the requirements of Section 15B(b)(2)(C)

because it will require earlier

confirmation of certain inter-dealer

when-issued and regular way

transactions and require a shorter

settlement cycle for certain inter-dealer

when-issued transactions. Furthermore,

the amendments will conform the

MSRB’s rules regarding the settlement

dates for when-issued transactions

eligible for automated comparison at a

registered clearing agency with the

clearing agency’s processing capabilities

for these transactions. Finally, the

amendments require underwriters to

provide registered clearing agencies

with interest rate and final maturity

information about new issues as soon as

such information is known. This should

help ensure that clearing agencies have

the information necessary to calculate

accurately final money amounts and to

provide complete and accurate

descriptions of new issues in the

automated comparison system and

should promote accurate pricing and

securities descriptions in the MSRB

Transaction Reporting System which is

linked to the automated comparison

system.

Collectively, the amendments should

facilitate automated comparison of

transactions in municipal securities and

foster cooperation and coordination

with persons involved in the clearance

and settlement of municipal securities

by making MSRB rules and clearing

agency processing capabilities

consistent thus enabling the municipal

securities market to maximize the

benefits and efficiencies from the

automated comparison system and by

helping to ensure more timely

confirmation of certain municipal

transactions thereby increasing the

likelihood that such transactions will

settle within the shorter settlement

cycle established in this proposal.

Finally, the proposal should remove

impediments to and perfect the

mechanisms of a free and open market

in municipal securities by requiring

more efficient and accurate reporting of

transaction information by underwriters

to clearing agencies and thus to the

MSRB Transaction Reporting System.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and in

particular Section 15B of the Act and

the rules and regulations thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

MSRB–95–14) be, and hereby is,

approved.

For the Commission by the Division

of Market Regulation, pursuant to

delegated authority.10

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00040 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36612; File No. SR–NASD–

95–30]

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 Commencement of

Third Market Trading in Initial Public

Offerings of Exchange-Listed

Securities

December 20, 1995.

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

Securities Exchange Act of 1934

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

notice is hereby given that on June 19,

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 have been prepared by the

self-regulatory organization. On

December 15, 1995, the NASD filed with

the Commission Amendment No. 1 to

the proposal which clarifies the

operation of the proposed amendment,

and requests accelerated effectiveness of

the proposed rule change.3 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 and Substance

of the Proposed Rule Change

The NASD proposes to amend Section

4 of Schedule G to the NASD By-Laws

to prohibit NASD members from

executing over-the-counter transactions

in an exchange-listed security that is the

subject of an initial public offering

(‘‘IPO security’’) until the security has

opened for trading on the exchange that

lists the security.4 (Additions are in

italics; deletions are bracketed.)

Schedule G

Sec. 1. Definitions

(a)–(f). No change.

(g) The term ‘‘over-the-counter

transaction’’ shall mean a transaction in an

eligible security effected otherwise than on a

national securities exchange.

(h) A security is subject to an ‘‘initial

public offering’’ if: (1) the offering of the

security is registered under the Securities Act

of 1933; and (2) the issuer of the security,

immediately prior to filing the registration

statement with respect to such offering, was

not subject to the reporting requirements of

Section 13 or 15(d) of the Securities

Exchange Act of 1934.

* * * * *

Sec. 4. Trading Practices

(a)–(h). No change.

(i) No member or person associated with a

member shall execute or cause to be

executed, directly or indirectly, an over-thecounter transaction in a security subject to an

initial public offering until such security has

first opened for trading on the national

securities exchange listing the security, as

indicated by the dissemination of an opening

transaction in the security by the listing

exchange via the Consolidated Tape.

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

self-regulatory organization 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 self-regulatory organization has

prepared summaries, set forth in Section

A, B, and C below, of the most

significant aspects of such statements.
Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices 205

5See Securities Exchange Act Release No. 35637

(April 21, 1995), 60 FR 20891 (‘‘UTP Approval

Order’’).

6UTP Approval Order, supra Note 5, 60 FR at

20894.

7 Id.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule

change is to add new Section 4(i) to

Schedule G to the NASD By-Laws to

provide that, after completion of an IPO

of an exchange-listed security, NASD

members and persons associated with

NASD members are prohibited from

executing over-the-counter transactions

in the security until the exchange listing

the security has first opened the stock

for trading. Under the proposal, a stock

is deemed to be first opened on the

listing exchange when the exchange

disseminates an opening transaction in

the security via the Consolidated Tape.

Although it is common practice that

participants in the third market refrain

from trading an IPO security until the

exchange listing the IPO opens the stock

for trading, the NASD is submitting the

instant proposal to prohibit trading in

the third market until the security is

first opened for trading on its listing

exchange. While the NASD has found

no evidence that the trading of IPOs in

the third market has had any

detrimental market effect, the NASD

believes the proposed limited

prohibition on the trading of IPOs in the

market is a prudent precautionary step

that is consistent with the orderly

distribution and pricing of IPO

securities.

Accordingly, 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, the NASD

believes the proposal will help to

promote the fair and orderly

distribution and pricing of IPO

securities, thereby facilitating the

capital formation process and promoting

the protection of investors.

In addition, the NASD believes this

proposal is consistent with recent rule

amendments adopted by the

Commission with respect to the

procedures by which regional exchanges

may extend unlisted trading privileges

(‘‘UTP’’) to IPO securities.5 In the UTP

Approval Order, the Commission

shortened to one day, yet retained, the

time period during which regional

exchanges are prohibited from granting

UTP to IPO securities. In adopting these

rule changes, the Commission stated

that it:

believes that a one-trading-day delay to

precede UTP in listed IPOs is appropriated

at this time primarily because the

Commission is concerned that the first day of

trading in an IPO on an exchange presents

special circumstances, including initial

pricing, an attempt to effectuate an orderly

distribution of securities, high trading

volume, and the resulting potential for high

price volatility in the securities, that could

have a significant effect on pricing and

distribution of IPOs.6

Accordingly, under the NASD’s

proposal, even though the third market

will still be able to trade an IPO security

immediately after the listing exchange

opens the stock for trading, the third

market, like the regional exchanges,

would be precluded from trading the

securities until the primary market

opens the stock for trading. In addition,

the NASD notes that the Commission

did not object to or raise concerns with

the ability of the third market to trade

an IPO on the day of the IPO, while the

regional exchanges must wait one day

before trading the issues. Specifically,

the Commission stated that it is:

sympathetic to concerns that a one-day delay

for exchange extensions of UTP will restrict

regional exchange trading, while OTC dealers

will continue to be free to trade the securities

upon effective registration. The evidence

* * *, however, shows that in virtually all

IPOs studied, OTC market makers trade the

securities only in extremely small volume, if

at all, on the first day of the IPO. The

Commission believes, therefore, that any

competitive advantage to OTC market makers

is minimal, and is outweighed by the benefit

to investors and the capital formation process

that should be accrued by decreasing the risk

of price volatility in the IPO securities.7

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

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 because of

the infrequency with which the third

market is the first market to trade an

exchange-listed IPO. Specifically, given

that the third market is rarely the first

market to trade an exchange-listed IPO,

the NASD believes the proposal will

have minimal impact on the third

market, while serving as a prudent

precautionary step designed to promote

the orderly distribution and pricing of

IPO securities. In addition, the NASD

notes that its proposal is consistent with

recent rule amendments adopted by the

Commission in the UTP Approval Order

with respect to the procedures by which

regional exchanges can extend UTP to

IPO securities. Accordingly, the NASD

believes no regulatory purpose would be

served by delaying approval of the

NASD’s proposal.

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 th4e

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

Room. All submissions should refer to

File No. SR–NASD–95–30 and should

be submitted by January 24, 1996.

V. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission believes the

proposed rule change is consistent with

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

Commission believes the proposal
206 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

8 15 U.S.C. § 78s(b)(2) (1988).

9 17 CFR 200.30–3(a)(12) (1991).

1NASD Manual, Uniform Practice Code, Section

65 (CCH) ¶ 3565.

should serve to promote just and

equitable principles of trade and protect

investors and the public interest by

facilitating the orderly distribution and

pricing of IPO securities. Specifically,

the proposed mandatory delay in third

market trading of IPO securities should

help to minimize any potential risk of

price volatility that may be associated

with multiple-market trading of listed

IPO securities before the listing

exchange has provided for the first trade

in the security. This should benefit

investors and the capital formation

process by decreasing the risk of price

volatility in the IPO securities.

The Commission finds good cause for

approving the proposed rule change

prior the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. The Commission

believes that accelerated approval of the

proposal is appropriate because the

proposal is an important precautionary

measure for the protection of investors,

yet accelerated approval should have

minimal impact on market participants

because the third market so rarely trades

IPOs before the listing exchange effects

the first trade in the securities.

It is therefore ordered, pursuant to

Section 19(b)(2) 8 that the proposed rule

change is hereby approved.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.9

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00036 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36638; File No. SR–NASD–

95–59]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. to Amend Section 65 of

the Uniform Practice Code to Require

Members Who are Participants in a

Registered Clearing Agency to Use the

Electronic Facilities of such Agency to

Transmit Customer Account Transfer

Instructions

December 26, 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 December 16, 1995,

the National Association of Securities

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

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘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 Section

65 of the Uniform Practice Code

(UPC’’) 1 to require members who are

participants in a registered clearing

agency to use the electronic facilities of

such agency to transmit customer

account transfer instructions. Below is

the text of the proposed rule change.

Proposed new language is italicized;

proposed deletions are in brackets.

UNIFORM PRACTICE CODE

Customer Account Transfer Contracts

Sec. 65.

* * * * *

Participant in a Registered Clearing

Agency

(m)(1) When both the carrying

member and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

and are eligible to use such capabilities,

the account transfer procedure,

including the establishing and closing

out of fail contracts, must be

accomplished in accordance with the

provisions of this rule and pursuant to

the rules of and through such registered

clearing agency.

(2) When both the carrying member

and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

with an automated facility for

transferring mutual fund positions such

facilities must be utilized for

transferring mutual fund positions.

(3) When both the carrying member

and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

with a facility for transferring residual

credit positions (both cash and

securities) which have accrued to an

account after the account has been

transferred (residual credit processing),

such facilities must be utilized for

transferring residual credit positions

from carrying member to receiving

member.

(4) When both the carrying member

and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

with a facility permitting electronic

transmittal of customer account transfer

instructions, such facilities shall be used

in accordance with the following:

(A) Members using such facilities

shall execute an agreement designated

by the Committee specifying the rights,

obligations and liabilities of all

participants in or users of such

facilities;

(B) Customer account transfer

instructions shall be transmitted in

accordance with the procedures

prescribed by the registered clearing

agency;

(C) The transmittal of a transfer

request through such electronic facilities

shall constitute a representation by the

receiving member that it has received a

properly executed Transfer Instruction

Form (TIF) or other actual authority to

receive the customer’s securities and

funds; and

(D) Transfer instructions transmitted

through such facilities shall contain the

information necessary for the clearing

agency and the carrying member to

respond to the transfer instruction as

may be specified by this Section and the

clearing agency.

[(4)](5) For purposes of this rule, the

term ‘‘registered clearing agency’’ shall

be deemed to be a clearing agency as

defined in the Securities Exchange Act

of 1934 and registered in accordance

with that Act.

* * * * *

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

Background

Section 65 of the UPC requires a

customer who wishes to transfer an

account from one member to another to

give written notice (a Transfer

Instruction Form or ‘‘TIF’’) to the

member who will be receiving the