[Federal Register Volume 63, Number 190 (Thursday, October 1, 1998)]
[Notices]
[Pages 52780-52782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26276]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40485; File No. SR-NASD-98-26]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval to Amendment No. 5 to a Proposed Rule
Change by the National Association of Securities Dealers, Inc. to
Institute, on a Pilot Basis, New Primary Nasdaq Market Maker Standards
for Nasdaq National Market Securities
September 25, 1998.
I. Introduction
On March 19, 1998, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association''), through its wholly-owned
subsidiary, The Nasdaq Stock Market, Inc. (``Nasdaq''), submitted to
the Securities and Exchange Commission (``SEC'' or ``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') 1 and Rule 19b-4 thereunder,2
a proposed rule change to: (a) implement, on a pilot basis, new Primary
Nasdaq Market Maker (``PMM'') standards for all Nasdaq National Market
(``NNM'') securities; (b) extend the NASD's Short Sale Rule pilot until
November 1, 1998; and (c) extend the suspension of existing PMM
standards until May 1, 1998. On March 30, 1998, the Commission issued
notice of the filing and approved, on an accelerated basis, the
portions of the filing extending the NASD's Short Sale Rule pilot and
the suspension of existing PMM standards.3 The suspension of
existing PMM standards was subsequently extended until October,
1998.4
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Exchange Act Release No. 39819 (March 30, 1998) 63 FR 16841
(April 6, 1998).
\4\ See Exchange Act Release No. 40140 (June 26, 1998) 63 FR
36464 (July 6, 1998).
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On September 25, 1998, Nasdaq proposed to (1) continue to suspend
the current PMM standards until March 31, 1999, and (2) extend the
NASD's Short
[[Page 52781]]
Sale Rule pilot (including extending the amendment to the definition of
``legal'' short sale) until March 31, 1999.5
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\5\ See letter from Robert E. Aber, Senior Vice President and
General Counsel, Nasdaq, to Richard Strasser, Assistant Director,
Division, SEC, dated September 25, 1998.
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Background
Presently, NASD Rule 4612 provides that a member registered as a
Nasdaq market maker pursuant to NASD Rule 4611 may be deemed a PMM if
that member meets certain threshold standards. The implementation of
the SEC Order Handling Rules and what some perceive as a concurrent
move toward a more order-driven, rather than a quote-driven, market
raised questions about the continued relevance of those PMM standards.
As a result, such standards were suspended beginning in early
1997.6 Currently, all market makers are designated as PMMs.
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\6\ See Exchange Act Release No. 38294 (February 14, 1997) 62 FR
8289 (February 24, 1997) (approving temporary suspension of PMM
standards); Exchange Act Release No. 39198 (October 3, 1997) 62 FR
53365 (October 14, 1997) (extending suspension through April 1,
1998); Exchange Act Release No. 39819 (March 30, 1998) 63 FR 16841
(April 6, 1998) (extending suspension through May 1, 1998); Exchange
Act Release No. 39936 (April 30, 1998) 63 FR 25253 (May 7, 1998)
(extending suspension through July 1, 1998); Exchange Act Release
No. 40140 (June 26, 1998) 63 FR 36464 (July 6, 1998) (extending
suspension through October 1, 1998).
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Since February 1997, Nasdaq has worked to develop PMM standards
that are more meaningful in what may be an increasingly order-driven
environment and that better identify firms engaged in responsible
market making activities deserving of the benefits associated with
being a PMM, such as being exempt from NASD Rule 3350, the NASD's Short
Sale Rule. The NASD now proposes to extend the current suspension of
the existing PMM standards.
In light of a substantial number of comments on the proposed new
PMM standards, Nasdaq staff in August 1998 convened a subcommittee to
develop new standards. Nasdaq expects that the subcommittee will
complete its task and that new PMM standards will be submitted to the
appropriate Nasdaq and NASD committees and boards for approval shortly.
Nasdaq also expects that it will file an amendment to SR-NASD-98-26 to
incorporate the new PMM standards that currently are being developed by
the subcommittee, or in the alternative, that it will withdraw SR-NASD-
98-26 and will submit the new PMM standards as a new filing.
For the reasons discussed below, the Commission has determined to
grant accelerated approval of Nasdaq's request, in Amendment No. 5, to
continue to suspend the current PMM standards and to extend the NASD's
Short Sale Rule Pilot until March 31, 1999.
II. Proposed Rule Change
In the current amendment, Nasdaq is proposing to extend the Short
Sale Rule pilot (including extending the amendment to the definition of
``legal'' short sale) and the suspension of existing PMM standards to
allow more time to refine the PMM standards.
* * * * * * *
The proposed rule language, as amended, follows. Additions are
italicized; deletions are bracketed.
NASD Rule 3350
(a)-(k) No Changes
(l) This Rule shall be in effect until [November 1, 1998] March 31,
1999.
* * * * * * *
III. Discussion
After careful consideration, the Commission has concluded, for the
reasons set forth below, that the extension of the Short Sale Rule
pilot and the suspension of the existing PMM standards until March 31,
1999, is consistent with the requirements of the Exchange Act and the
rules and regulations thereunder. In particular, the extension is
consistent with Section 15A(b)(6) \7\ of the Exchange Act. Section
15A(b)(6) requires that the NASD's rules be designed, among other
things, to remove impediments to and perfect the mechanism of a free
and open market and a national market system and to promote just and
equitable principles of trade. The Commission believes that
continuation of the Short Sale Rule pilot and the continued suspension
of the current PMM standards will maintain the status quo while the
Commission and the NASD review the operation of revised PMM standards.
Because the Commission's ultimate stance on the Short Sale Rule may be
affected, in part, by the operation of revised PMM standards, it is
reasonable to keep the Short Sale Rule pilot in place while work
continues on the PMM standards. Furthermore, it is judicious, in the
short term, to avoid reintroducing the previous PMM standards prior to
the implementation of a new PPM pilot.
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\7\ 15 U.S.C. 78o-3(b)(6).
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In finding that the suspension of the existing PMM standards is
consistent with the Exchange Act, the Commission reserves judgment on
the merits of the NASD's Short Sale Rule, any market maker exemptions
to that rule, and the proposed new PMM standards. The Commission
recognizes that the Short Sale Rule already has generated significant
public comment. Such commentary, along with any further comment on the
interaction of the Short Sale Rule with the proposed new PMM standards,
will help guide the Commission's evaluation of the Short Sale Rule and
new PMM standards. During the PMM pilot period, the Commission
anticipates that the NASD will continue to address the Commission's
questions and concerns and provide the Commission staff with any
relevant information about the practical effects and the operation of
the revised PMM standards and possible interaction between those
standards and the NASD's Short Sale Rule.
The Commission finds good cause for approving the extension of the
Short Sale Rule pilot (including extending the amendment to the
definition of ``legal'' short sale) and the suspension of existing PMM
standards prior to the 30th day after the date of publication of notice
of the filing in the Federal Register. It could be disruptive to the
Nasdaq market and confusing to market participants to reintroduce the
previous PMM standards for a brief period prior to implementing a new
PMM pilot.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 5, including whether the proposed
Amendment is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W., 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 File No.
SR-NASD-98-26 and should be submitted by October 22, 1998.
[[Page 52782]]
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\8\ that Amendment No. 5 to the proposed rule change, SR-
NASD-98-26, which extends the NASD Short Sale Rule pilot and the
suspension of the current PMM standards to March 31, 1999, be and
hereby is approved on an accelerated basis.\9\
\8\ 15 U.S.C. 78s(b)(2).
\9\ In approving Amendment No. 5, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-26276 Filed 9-30-98; 8:45 am]
BILLING CODE 8010-01-M