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

[Federal Register: October 2, 1998 (Volume 63, Number 191)]

[Notices]

[Page 53108-53109]

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

[DOCID:fr02oc98-139]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40473; File No. SR-NASD-98-66]

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc.; Relating to Small Order Execution System Tier Size Classifications

September 24, 1998.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on September 2, 1998, the National Association of Securities Dealers, Inc. (``NASD'' or ``Association''), through its wholly-owned subsidiary The Nasdaq Stock Market, Inc. (``Nasdaq''), filedwith the Securities and Exchange Commission (``Commission'' or ``SEC'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq.\2\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

\2\ On September 2, 1998, Nasdaq filedan amendment to the proposed rule change that replaced a previously submitted filing. See Letter from Robert E. Aber, Senior Vice President and General Counsel, Office of the General Counsel, Nasdaq, to Richard Strasser, Assistant Director, Division of Market Regulation, Commission, dated September 1, 1998 (``Amendment No. 1'').

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

   The NASD is submitting this filing to reclassify Nasdaq National Market (``NNM'') securities into appropriate tier sizes for purposes of determining the maximum size order for a particular security eligible for execution through Nasdaq's Small Order Execution System (``SOES''). Specifically, under the proposal, 488 NNM securities will be reclassified into a different SOES tier size effective October 1, 1998. Since the NASD's proposal is an interpretation of existing NASD rules, there are no language changes.

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 it received on the proposed rule change. The text of these statements may be examined at the places specified

   [[Page 53109]]

   in Item IV below. Nasdaq 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

      The purpose of this filing is to reclassify NNM securities into appropriate tier sizes for purposes of determining the maximum size order for a particular security eligible for execution through SOES. Nasdaq periodically reviews the SOES tier size applicable to each NNM security to determine if the trading characteristics of the issue have changed so as to warrant a tier size adjustment. Such a review was conducted using data as of June 30, 1998, pursuant to the following established criteria: \3\

      \3\ See NASD Rule 4710(g).

      (1) a 1,000 share maximum order size shall apply to NNM securities on SOES with an average daily non-block volume of 3,000 shares or more a day, a bid price of less than or equal to $100, and three or more market makers;

      (2) a 500 share maximum order size shall apply to NNM securities on SOES with an average daily non-block volume of 1,000 shares or more a day, a bid price of less than or equal to $150, and two or more market makers; and

      (3) a 200 share maximum order size shall apply to NNM securities with an average daily non-block volume of less than 1,000 shares a day, a bid price of less than or equal to $250, and two or more market makers.

      Pursuant to the application of this classification criteria, 488 NNM securities will be reclassified effective October 1, 1998. These 488 NNM securities are set out in the NASD's Notice to Members 98-76 (September 1998).\4\

      \4\ Previously, Nasdaq market makers were required to maintain a minimum quotation size for an NNM security in an amount equal to the maximum SOES order size for that security. See generally, NASD Rule 4613(a) (1)-(2). The Commission approved an amendment to NASD Rule 4613(a)(1)(C) reducing the minimum quotation size for all Nasdaq securities to one normal trading unit when the market maker is not displaying a limit order, thus eliminating the requirement that market makers quote a size equal to the maximum SOES order size. See Securities Exchange Act Release No. 40211 (July 15, 1998), 63 FR 39322 (July 22, 1998).

      In ranking NNM securities pursuant to the established classification criteria, Nasdaq followed the changes dictated by the criteria with three exceptions. First, an issue was not moved more than one tier size level. For example, if an issue was previously categorized in the 1,000-share tier size, it would not be permitted to move to the 200-share tier even if the reclassification criteria showed that such a move was warranted. Second, for securities priced below $1 where the reranking called for a reduction in tier size, the tier size was not reduced. Third, for the top 50 Nasdaq securities based on market capitalization, the SOES tier sizes were not reduced regardless of whether the reranking called for a tier-size reduction.

      Nasdaq believes that the proposed rule change is consistent with Section 15A(b)(6) of the Act.\5\ Section 15A(b)(6) \6\ requires, among other things, that the rules of the NASD governing the operation of The Nasdaq Stock Market be designed to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market. Nasdaq believes that the reassignment of NNM securities into SOES tier sizes commensurate with the trading characteristics of a particular security facilitates the entry and execution of appropriately sized orders in SOES.

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

      \6\ Id.

   2. Self-Regulatory Organization's Statement on Burden on Competition

      Nasdaq 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.

   3. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

      Comments were neither solicited nor received.

3. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

   The foregoing rule change constitutes a stated policy, practice or interpretation with respect to the administration and enforcement of an existing rule and, therefore, has become effective immediately pursuant to section 19(b)(3)(A)(i) of the Act \7\ and subparagraph (e)(1) of Rule 19b-4 under the Act.\8\

   \7\ 15 U.S.C. 78s(b)(3)(A)(i).

   \8\ 17 CFR 240.19b-4(e)(1).

   At any time within sixty days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.\9\

   \9\ In reviewing this proposal, the Commission has considered the proposal's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

4. Solicitation of Comments

   Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change 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. 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. SR-NASD-98-66 and should be submitted by October 23, 1998.

   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\10\

   \10\ 17 CFR 200.30-3(a)(12).

   Jonathan G. Katz, Secretary.

   [FR Doc. 98-26234Filed10-1-98; 8:45 am]

   BILLING CODE 8010-01-M