regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.,

[Federal Register: December 17, 1999 (Volume 64, Number 242)]

[Notices]

[Page 70753-70754]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr17de99-114]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42219; File No. SR-NASD-98-26]

Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval to Amendment No. 8 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

Dated: December 9, 1999.

On December 6, 1999, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to: (1) Continue to suspend the current PMM standards until September 30, 2000; and (2) extend the NASD's Short Sale Rule pilot until September 30, 2000 (``Amendment No. 8'').\3\ Amendment No. 8 to the proposed rule change, SR-NASD-96-28, is described in Items I and II below, which Items have been prepared by the NASD. The Commission is publishing this notice and order to solicit comments on Amendment No. 8 from interested persons and to approve the amendment on an accelerated basis.

\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

\3\ See letter from Robert E. Aber, Senior Vice President and General Counsel, Nasdaq, to Richard Strasser, Assistant Director, Division of Market Regulation, Commission, dated November 18, 1999. The current suspension and extension would expire on December 31, 1999. See Exchange Act Release No. 41568 (June 28, 1999), 64 FR 36416 (July 6, 1999).

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   In the current amendment, Nasdaq is proposing to extend the Short Sale Rule pilot 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 [December 31, 1999] September 30, 2000.

2. 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 received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The NASD has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

   1. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

   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, the PMM standards were suspended beginning in early 1997.\4\ Currently, all market makers are designated as PMMs.

   \4\ See Exchange Act Release Nos. 38294 (February 14, 1997), 62 FR 8289 (February 24, 1997) (approving temporary suspension of PMM standards); 39198 (October 3, 1997), 62 FR 53365 (October 14, 1997) (extending suspension through April 1, 1998); 39819 (March 30, 1998), 63 FR 16841 (April 6, 1998) (extending suspension through May 1, 1998); 39936 (April 30, 1998), 63 FR 25253 (May 7, 1998) (extending suspension through July 1, 1998); 40140 (June 26, 1998), 63 FR 36464 (July 6, 1998) (extending suspension through October 1, 1998); 40485 (September 25, 1998), 63 FR 52780 (October 1, 1998) (extending suspension through March 31, 1999); 41195 (March 19, 1999), 64 FR 14778 (March 26, 1999) (extending suspension through June 30, 1999); and 41568 (June 28, 1999), 64 FR 36416 (July 6, 1999) (extending suspension through December 31, 1999).

   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.

   In light of a substantial number of comments on the proposed new PMM standards, Nasdaq staff is August 1998 convened a subcommittee to develop new standards. Nasdaq expects that it will file an amendment to SR-NASD-98-26 to incorporate the new PMM standards that are currently being developed by the subcommittee or, in the alternative, that it will withdraw SR-NASD-98-26 and submit the new PMM standards as a new filing. In the interim, the NASD now proposes to extend the current suspension of the existing PMM standards and extend the Short Sale Rule pilot.

3. Solicitation of Comments

   Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 8, 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, NW, Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filedwith 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.

   [[Page 70754]]

   SR-NASD-98-26 and should be submitted by January 7, 2000.

4. Commission's findings and Order Granting Accelerated Approval of the Amendment

   After careful consideration, the commission finds, for the reasons set forth below, that the extension of the Short Sale Rule pilot and the suspension of the existing PMM standards until September 30, 2000, is consistent with the requirements of the Act and the rules and regulations thereunder. In particular, the extension is consistent with section 15A(b)(6)\5\ of the Act, which requires that 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.

   \5\ 15 U.S.C. 78o-3(b)(6).

   The Commission finds that continuation of the Short Sale Rule pilot and the continued suspension of the current PMM standards will maintain the status quo while the NASD develops revised PMM standards. Because the Commission's ultimate stance on the Short Sale Rule may be affected, in part, by the operation of revised PPM 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 implementing new PMM standards.

   The Commission finds good cause for approving the extension of the Short Sale Rule pilot 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.

   It is therefore ordered, pursuant to section 19(b)(2) of the Act,\6\ that Amendment No. 8 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 September 30, 2000, is approved on an accelerated basis.\7\

   \6\ 15 U.S.C. 78s(b)(2).

   \7\ In approving Amendment No. 8, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

   For the Commission, by the division of market Regulation, pursuant to delegated authority.\8\

   \8\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 99-32712Filed12-16-99; 8:45 am]

   BILLING CODE 8010-01-M