Federal Register / Vol. 61, No. 96 / Thursday, May 16, 1996 / Notices 24843

7The Commission notes that Section 11A of the

Act establishes special fairness conditions for the

dissemination of market information by exclusive

securities information processors (‘‘SIPs’’) such as

CTA and CQ. Limitations on access to services of

exclusive SIPs must be consistent with the Act,

must not discriminate unfairly, and must not place

an inappropriate burden on competition. Section

11A requires any SIP that directly or indirectly

prohibits or limits access to services offered by the

SIP to immediately file notice thereof with the

Commission. Such prohibition or limitation on

access is subject to review by the Commission. 8 17 CFR 200.30–3(a)(27).

the Act provides, inter alia, that the

Commission approve an amendment to

an effective National Market System

plan if it finds that the amendment is

necessary or appropriate in the public

interest, for the protection of investors

and maintenance of fair and orderly

markets, to remove impediments to and

perfect the mechanisms of a National

Market System, or otherwise in

furtherance of the purposes of the Act.

In making such a determination, the

Commission must examine Section 11A

of the Act and rules promulgated

thereunder. Rule 11Aa3–2(b) lists the

requirements for filing or amending a

national market system plan. The

Commission has determined that the

detailed description of the amendments,

the rationale for the amendments, and

plans for operation meet the

requirements of Rule 11Aa3–2(b).

Furthermore, the amendments will

remove impediments to and perfect the

mechanisms of a National Market

System by affording greater flexibility

that changing technology is likely to

require. Participants will retain greater

flexibility in determining which

vendors and subscribers need to enter

into contracts to receive and use

information and which terms and

conditions apply.7 The Commission

expects that vendors and users of

information will benefit from a more

flexible agreement with the Participants,

and in some instances will be relieved

of additional contractual documents

that today’s practice requires.

The public’s interest in availability of

information will be met by the

broadening of the scope of concurrent

use information to include virtually all

Participant securities (including bonds)

and index information. Amending the

language and format of the two plans to

make them more closely comport with

each other will result in drafting

economies, and a more easily readable

document.

IV. Conclusion

For the reasons discussed above, the

Commission finds that the proposed

amendments to the CTA and CQ Plans

are consistent with the Act, and the

Rules thereunder.

It is therefore ordered, pursuant to

Section 11A of the Act, that the

amendments to the CTA and CQ Plans

be, and hereby are, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12237 Filed 5–15–96; 8:45 am]

BILLING CODE 8010–01–M

[File No. 500–1]

Comparator Systems Corp; Order of

Suspension of Trading

It appears to the Securities and

Exchange Commission that questions

that have been raised about the

adequacy and accuracy of publiclydisseminated information about

Comparator Systems Corp. concerning,

among other things, the assets recorded

on its financial statements.

The Commission is of the opinion that

the public interest and the protection of

investors require a suspension of trading

in the securities of the above listed

company.

Therefore, it is ordered, pursuant to

Section 12(k) of the Securities Exchange

Act of 1934, that trading in the above

listed company is suspended for the

period from 9:30 a.m. EDT, May 14,

1996 through 11:59 p.m. EDT, on May

28, 1996.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12468 Filed 5–14–96; 2:46 pm]

BILLING CODE 8010–01–M

[Release No. 34–37187; File No. SR–CBOE–

96–25]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Notice of Filing and Order

Granting Accelerated Approval of

Proposed Rule Change Relating to

Members’ Use of Blanket or Standing

Assurances as to Stock Availability To

Satisfy Their Affirmative Determination

Requirements Under the Prompt

Receipt and Delivery of Securities

Interpretation When Effecting Short

Sales

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 17, 1996, the

Chicago Board Options Exchange, Inc.

(‘‘CBOE’’ 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 CBOE. This Order

approves the proposed rule change on

an accelerated basis and also solicits

comments from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to make

certain changes to its rules relating to

the requirement to make prior

arrangements to borrow stock or to

obtain other assurances that delivery

can be made on settlement date before

a member or person associated with a

member may sell short. The text of the

proposed rule change is available at the

Office of the Secretary of the CBOE and

at the Commission.

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

CBOE included statements concerning

the purpose of the 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. CBOE has prepared

summaries, set forth in Section (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 this rule proposal is

to amend an interpretation regarding the

need to make prior arrangements to

borrow stock, warrants, or other

securities that trade subject to Chapter

30 of the Exchange’s rules, or to

otherwise ensure availability of the

subject securities before engaging in

short sales. Specifically, the Exchange

proposes to amend the interpretation to

provide that under certain

circumstances members may rely on

‘‘blanket’’ or standing assurances (e.g.,

daily fax sheets) as to stock availability

to satisfy their affirmative determination

requirements under the Interpretation.

On November 27, 1995, the

Commission published a notice of filing

an immediate effectiveness of a

proposed rule change by the Exchange

which adopted Interpretation .04 to

Rule 30.20 (‘‘Interpretation’’), ‘‘Long’’
24844 Federal Register / Vol. 61, No. 96 / Thursday, May 16, 1996 / Notices

1Securities Exchange Act Release No. 36513

(November 27, 1996).

2See Securities Exchange Act Release No. 37052

(March 29, 1996).

3See Securities Exchange Act Release No. 36859

(February 20, 1996) (‘‘NASD Approval Order’’).

4 15 U.S.C. § 78f(b)(5) (1982).

5See NYSE Rule 440C; NYSE Information Memo

91–41 (October 18, 1991).

and ‘‘Short’’ Sales.1 The Interpretation

is similar to rules of other securities

exchanges and requires that member

organizations who effect short sales for

their own account or for the accounts of

customers make an affirmative

determination that delivery of the

subject securities can be made on

settlement date. The purpose for this

interpretation is to ensure that

borrowings and short sales do not

outpace the supply of deliverable stock,

thus, leading to potential systemic

problems.

The Interpretation also describes the

type of ‘‘affirmative determinations’’

that must be obtained by the member or

person associated with the member to

ensure that the securities will be

available. The member or person

associated with the member is obligated

to keep a written record of each

‘‘affirmative determination.’’ If a

customer assures delivery, the written

affirmative determination must record

the present location of the securities in

question, whether they are in good

deliverable form and the customer’s

ability to deliver them to the member

within three business days. If the

member or person associated with a

member locates the stock, the

affirmative determination must record

the identity of the individual and firm

contacted who offered assurance that

the shares would be delivered or that

were available for borrowing by

settlement date and the number of

shares needed to cover the short sale.

The Interpretation also provides that

the manner by which a member or

person associated with a member

annotates compliance with this

‘‘affirmative determination’’

requirements (e.g., marking the order

tickets, recording inquiries in a log) is

left for each individual firm to decide.

In addition, the Interpretation required

that an affirmative determination and

annotation of that affirmative

determination be made for each and

every transaction since a ‘’blanket’’ or

standing assurance that securities are

available for borrowing is not acceptable

to satisfy the affirmative determination

requirement (‘‘standing assurance

provision’’).

On March 29, 1996, the Exchange

filed a proposed rule with the

Commission to delay the effectiveness

of the standing assurance provision

until May 10, 1996.2 CBOE delayed

effectiveness of this provision because

its rule was based on a similar rule of

the NASD, which had also delayed

effectiveness of its standing assurance

provision. The NASD re-examined the

standing assurance provision and

subsequently replaced it with a

provision that allows members to rely

on blanket assurances under some

circumstances.3

The Exchange has decided, for the

sake of regulatory compatibility, to

adopt the same provision. Specifically,

under the proposal, a CBOE member

could rely on a ‘‘blanket’’ or standing

assurance that securities will be

available for borrowing on settlement

date to satisfy its affirmative

determination requirement under the

Interpretation provided that: (1) the

information used to generate the

‘‘blanket’’ or standing assurance is not

more than 24-hours old; and (2) the

member delivers the security on

settlement date. The proposal also

provides that, should a member relying

on a blanket or standing assurance fail

to deliver the security on settlement

date, the Exchange will deem such

conduct inconsistent with the terms of

the Interpretation, absent mitigating

circumstances adequately documented

by the member.

The Exchange believes the new

proposal strikes the appropriate balance

between the need to prevent potentially

abusive short selling activity and the

desire to avoid the imposition of

unnecessarily burdensome regulatory

requirements. Under the new proposal,

members would have the flexibility to

exercise their judgment as to whether it

would or would not be appropriate to

rely on a fax sheet. On the other hand,

the proposal allows the Exchange to

consider the firm to have violated the

rule if the firm uses a fax sheet but then

fails to deliver the stock. In order to

permit the rule to be reasonably

employed by firms who with good

intention are unable to deliver, the rule

does permit the Exchange to consider

mitigating circumstances in failure to

deliver situations.

Because this rule proposal helps

prevent a shortage of deliverable stock

and fails to deliver without imposing

any unnecessarily burdensome

regulatory requirements, and conforms

the CBOE rule to the rules of the NASD

and the New York Stock Exchange, the

Exchange believes the proposal is

consistent with Section 6(b) of the act in

general and Section 6(b)(5) in particular

by providing rules that facilitate

transactions in securities, remove

impediments to a free and open market

and protect investors and the public

interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange 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

The Exchange neither solicited nor

received comments.

III. Findings and Conclusions

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6(b)(5).4 In

particular, the Commission believes the

proposal is consistent with the Section

6(b)(5) requirement that the rules of an

exchange be designed to promote just

and equitable principles of trade and

not to permit unfair discrimination

between customers, issuers, brokers,

and dealers.

As in the NASD Approval Order, the

Commission has determined to allow

CBOE to permit firms to utilize standing

assurances in satisfying their affirmative

determination requirements, thereby

providing members with the flexibility

to determine whether it is appropriate to

rely on a standing assurance in a given

situation. The proposal, however, also

puts members on notice that reliance on

standing assurances may be deemed

conduct inconsistent with the

Interpretation under certain

circumstances. The Commission

believes that this flexible approach will

act not only to ease compliance burdens

where appropriate, but also to protect

against conduct inconsistent with the

purposes of the Interpretation.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register because the CBOE’s

proposal conforms the Interpretation to

the NYSE’s interpretation of its own

affirmative determination rule 5 and is

also identical to the recently approved

NASD proposal. The Commission

believes that consistent application of

CBOE, NASD, and NYSE rules will
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.