Federal Register / Vol. 61, No. 96 / Thursday, May 16, 1996 / Notices 24845

6 15 U.S.C. § 78s(b)(2) (1988).

7 17 CFR § 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

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

Sec. 49 (CCH) ¶ 2200I.

4See Securities Exchange Act Release No. 34277

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

(approving, inter alia, Article III, Section 48 to the

NASD Rules of Fair Practice). The pilot has been

approved to continue through August 3, 1996. See

Securities Exchange Act Release No. 36532 (Nov.

30, 1995), 60 FR 62519 (Dec. 6, 1995).

5A 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. To

determine whether a sale is a short sale members

must adhere to the definition of a ‘‘short sale’’

contained in SEC Rule 3b–3, which rule is

incorporated into Nasdaq’s short sale rule by Article

III, Section 48(l)(1) of the NASD Rules of Fair

Practice.

6Nasdaq calculates the inside bid and the best

bid from all market makers in the security

(including bids on behalf of exchanges trading

Nasdaq securities on an unlisted trading privileges

basis), and disseminates symbols to denote whether

the current inside bid is an ‘‘up bid’’ or a ‘‘down

bid.’’ Specifically, an ‘‘up bid’’ is denoted by a

green ‘‘up’’ arrow symbol and a ‘‘down bid’’ is

denoted by a red ‘‘down’’ arrow. Accordingly,

absent an exemption from the rule, a member can

not effect a short sale at or below the inside bid in

a security in its proprietary account or an account

of a customer if there is a red arrow next to the

security’s symbol on the screen. In order to effect

a ‘‘legal’’ short sale on a down bid, the short sale

must be executed at a price at least a 1⁄16th of a

point above the current inside bid. Conversely, if

the security’s symbol has a green ‘‘up’’ arrow next

to it, members can effect short sales in the security

without any restrictions. The rule is in effect during

normal domestic market hours (9:30 a.m. to 4:00

p.m.; Eastern Time).

7Article III, Section 48(c)(1).

8Before the PMM standards went into effect, a

‘‘qualified market maker’’ was defined to be a

market maker that had entered quotations in the

relevant security on an uninterrupted basis for the

preceding 20 business days, the so-called ‘‘20-day

test.’’

9For example, if there are 10 market makers in

a stock, each dealer’s proportionate share volume

would be 10 percent; therefore, 11⁄2 times

proportionate share volume would mean 15 percent

of overall volume.

result in more efficient compliance with

such rules. Accordingly, the proposal

does not raise any new or unique

regulatory issues. For these reasons, the

Commission believes there is good

cause, consistent with Sections 6(b)(5)

and 19(b)(2) of the Act, to approve the

proposed rule change on an accelerated

basis.

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, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rules

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

Section, 450 Fifth Street NW.,

Washington, D.C. 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 in the caption

above and should be submitted by June

6, 1996.

It therefore is ordered, pursuant to

Section 19(b)(2) of the Act,6 that the

proposed rule change (SR–CBOE–96–

25) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12236 Filed 5–15–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37190; File No. SR–NASD–

96–11]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Amendments

to the Primary Maker Standards

May 9, 1996.

On March 27, 1996, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

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

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b–4 thereunder.2 The rule change

amends the Primary Market Maker

(‘‘PMM’’) Standards rule be deleting a

provision of the rule that allows a

market maker to qualify as a PMM in a

security by registering in that security

and refraining from quoting that

security for five days.3

Notice of the proposed rule change,

together with the substance of the

proposal, was provided by issuance of a

Commission release (Securities

Exchange Act Release No. 37062, April

2, 1996) and by publication in the

Federal Register (61 FR 15885, April 9,

1996). No comment letters were

received. This order approves the

proposed rule change.

On June 29, 1994, the Commission

approved on a pilot basis the NASD’s

short sale rule governing short sales in

Nasdaq National Market (‘‘NNM’’)

securities (‘‘Short Sale Rule’’).4

The Short Sale Rule prohibits member

firms from effecting short sales 5 at or

below the current inside bid as

disseminated by the Nasdaq system

whenever that bid is lower than the

previous inside bid.6

The short sale rule provides an

exemption to so-called ‘‘qualified’’

Nasdaq market makers (‘‘market maker

exemption’’) to ensure that the rule does

not constrain market making activities

that provide liquidity and continuity to

the market.7 The market maker

exemption is limited to transactions

made in connection with bona fide

market making activity. A market maker

that does not satisfy the requirements

for a qualified market maker can remain

a market maker but cannot rely upon the

market maker exemption when effecting

short sales of a NNM security.

A ’’qualified’’ Nasdaq market maker is

currently defined to be a market maker

that satisfies the criteria for a PMM

found in Section 49 of the NASD Rules

of Fair Practice.8 A market maker may

qualify as a PMM if it satisfies 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

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 the

stock.9 A market maker also may qualify

as a PMM in a security by registering in

the security and refraining from quoting

the security for five days (‘‘five-day

quotation delay rule’’). A ‘‘P’’ indicator

is displayed next to the market maker

identification of a market maker that

qualifies as a PMM.

Market makers are reviewed each

month to determine whether they have

satisfied the PMM performance

standards. If a PMM has not satisfied the

threshold standards after a particular

review period, its PMM designation is

removed commencing on the next

business day following notice of failure

to comply with the standards. A market

maker that loses its PMM designation

may requalify for PMM designation by

satisfying the threshold standards for

the next review period.
24846 Federal Register / Vol. 61, No. 96 / Thursday, May 16, 1996 / Notices

10The NASD stated in its filing that few market

makers have utilized the five-day quotation delay

rule to become PMMs. 11 17 CFR 200.30–3(a)(12).

1The underwriter of the Securities has advised

the NYSE that the Securities will comply with the

‘‘hybrid exemption’’ of the Commodity Futures

Trading Commission (‘‘CFTC’’), 17 CFR part 34. The

underwriter has further advised the Exchange that

it has presented a description of the structure and

sample term sheet of the Securities to the staff of

the CFTC, who have not raised any objections.

A market maker may register as a

market maker in a NNM security and

become a PMM immediately if it is a

PMM in at least 80% of the securities in

which it makes a market. If a market

maker does not meet the 80% threshold,

it can either comply with the five-day

quotation delay rule or it can register in

the security as a regular Nasdaq market

maker, enter quotes immediately, and

satisfy the qualification criteria for the

next review period.

The NASD stated in its filing that the

five-day quotation delay rule originally

was intended to ensure that market

makers were not registering in a security

to take advantage of momentary shortselling opportunities. However, the

NASD expressed concern in its filing

that market making affiliates of the same

firm are able to use the five-day

quotation delay rule to circumvent the

application of the PMM standards by

‘‘swapping’’ lists of stocks in which they

make a market and alternatively receive

PMM designation without ever meeting

the quantitative PMM standards. The

NASD also expressed concern in its

filing that market makers are able to use

the five-day quotation delay rule to

inflate the percentage of stocks in which

they are a PMM above the 80 percent

level, thereby entitling them to PMM

status for all NNM securities in which

they register during the next month. In

both instances, the five-day quotation

delay rule would allow a market maker

to become a PMM for reasons wholly

unrelated to the quality of its marketmaking.10 Therefore, the NASD has

proposed to amend the Primary Market

Maker (‘‘PMM’’) Standards rule by

deleting the five-day quotation delay

rule.

The Commission finds that the rule

change is consistent with the provisions

of section 15A(b)(6) of the Act. The rule

change is designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, 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 by ensuring that market

makers qualify for PMM status only if

they have met certain performance

standards. The rule change also is

reasonably designed to ensure that a

market maker’s short sale transactions

are made in connection with bona fide

market making activity.

It is therefore ordered, pursuant to

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

proposed rule change SR–NASD–96–11

be, and hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12234 Filed 5–15–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37188; International Series

Release No. 976: File No. SR–NYSE–96–08]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Notice of

Filing and Order Granting Accelerated

Approval of Proposed Rule Change

Relating to Commodity Indexed

Preferred Securities

May 9, 1996.

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 April 8, 1996, the

New York Stock Exchange, Inc.

(‘‘NYSE’’ or ‘‘Exchange’’) 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 NYSE. This Order

approves the proposed rule change on

an accelerated basis and also solicits

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 Exchange proposes to list under

Paragraph 703.19 of the Listed Company

Manual (‘‘Manual’’) Commodity Futures

Index Preferred Securities

(‘‘Securities’’). The Securities are

intermediate term securities whose

value will be linked, in part, to changes

in the 11 individual commodities (or the

futures contracts overlying such

commodities) that comprise the J.P.

Morgan Commodity Index or its

subindices.

The Securities either will be linked:

(1) directly to the price of a futures

contract on the commodity, (2) to an

‘‘Excess Return Index’’ of the

commodity, or (3) to a ‘‘Total Return

Index’’ of the commodity. An Excess

Return Index represents the cumulative

returns of investing in unleveraged

positions in nearby commodity futures

contracts and constantly rolling the

position forward to the next designated

contract as the contract nears expiration.

The Total Return Index consists of the

Excess Return Index plus the return on

three-month Treasury Bills.

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

NYSE 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. NYSE 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 Exchange proposes to list the

Securities pursuant to Para. 703.19 of

the Manual. Under Para. 703.19, the

issuer will be either a listed company,

an affiliate of a listed company or a

company that meets NYSE listing

criteria. It currently is anticipated that

the issuer will be a financing subsidiary

of a listed company.

The Securities. The Securities will be

preferred securities or debt securities

with a term of two to ten years listed

pursuant to Para. 703.19 of the Manual.

The redemption price of the Securities

will be based, in part, on the 10-day

average level of the value of the

underlying individual commodity (or

futures contract) during the 20 days

prior to maturity of the Securities. At

redemption, holders will receive par

value times a percentage calculated by

dividing the ending value of the

underlying commodity (or futures

contract) by the beginning value of the

underlying commodity (or futures

contract). Such percentage may be

greater or less than 100 percent and,

therefore, at redemption, the holder

could receive less than the original issue

amount of the Securities.1 The following

chart describes the linked contracts: