[Federal Register Volume 66, Number 167 (Tuesday, August 28, 2001)]
[Notices]
[Pages 45348-45350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21668]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44732; File No. SR-NASD-2001-44]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. to Allow
ECN and ATS Participation on the OTC Bulletin Board
August 22, 2001.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on July 12, 2001, the National Association of Securities Dealers,
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc.
(``Nasdaq''), filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by Nasdaq. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Nasdaq is proposing to add new NASD Rule 6540(b) to the NASD Rule
6500 Series, which governs the operation of the OTC Bulletin Board
(``OTCBB''). The purpose of the proposed rule change is to permit
alternative trading systems (``ATSs'') and electronic communication
systems (``ECNs'') to participate in the OTCBB. The text of the
proposed rule change is below. Proposed new language is italicized.
* * * * *
6540. Requirements Applicable to Market Makers
(a) No change.
(b) An alternative trading system (ATS), as defined in Regulation
ATS, Rule 300(a), or electronic communications network (ECN) as defined
in SEC Rule 11Ac1-1(a)(8), shall be eligible to participate in the
Service, provided however, that such ATS or ECN is an NASD member and
otherwise meets the requirements for participation set forth in the OTC
Bulletin Board Rules. Where used in the OTC Bulletin Board Rules, the
term ``market maker'' shall be construed to include a participating ATS
or ECN.
(c) No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq 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. Nasdaq 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
1. Purpose
Nasdaq proposed to permit ATSs and ECNs to post quotes and
otherwise participate in the OTCBB. The OTCBB is a quotation service
that displays quotes, last-sale prices, and volume
[[Page 45349]]
information in over-the-counter (``OTC'') securities. OTC securities
are equity securities not listed or traded on Nasdaq or a national
securities exchange. OTCBB securities include national, regional, and
foreign equity issues, warrants, units, American Depositary Receipts,
and Direct Participation Programs. Currently, only NASD member firms
registered with the NASD as market makers can post quotes for OTC
securities on the OTCBB. Nasdaq proposes to broaden participation in
the OTCBB by allowing ATSs and ECNs to participate in the OTCBB.
The OTCBB began in 1990 as a pilot program to provide transparency
in the OTC equities market.\3\ In 1997, the program became
permanent.\4\ The OTCBB operates pursuant to the NASD Rule 6500 Series.
These rules provide, among other things, that all securities quoted on
the OTCBB must be sponsored by a participating market maker that
registers the security by completing a Form 211, unless an exemption
applies. The market maker submits the Form 211 to the NASD OTC
Compliance Unit prior to publication of a quote in that security on the
OTCBB. Once cleared, Nasdaq Market Data Integrity notifies the market
maker that it has been registered in the security and may enter a
quote. If the market maker is exempt from Rule 15c2-11 under the
Act,\5\ the market maker submits a Rule 15c2-11 Exemption Form, which
is processed in the same way.
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\3\ See Securities Exchange Act Release No. 27975 (May 1, 1990),
55 FR 19123 (May 8, 1990) (approving SR-NASD-88-19); Securities
Exchange Act Release No. 27975A (May 30, 1990), 55 FR 23161 (June 6,
1990) (correcting initial approval order).
\4\ See Securities Exchange Act Release No. 38456 (March 31,
1997), 62 FR 16635 (April 7, 1997) (approving SR-NASD-92-7).
\5\ 17 CFR 240.15c2-11.
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Under proposed Rule 6540(b), an ATS or ECN would be permitted to
participate in the OTCBB in the same way that a market maker currently
participates. That is, an ATS or ECN that wishes to post a quote in a
security on the OTCBB would register the security by completing a Form
211, unless an exemption applies. The ATS or ECN would submit the Form
211 to the NASD OTC Compliance Unit prior to publication of a quote in
that security on the OTCBB. Once cleared, Nasdaq Market Data Integrity
would notify the ATS or ECN that it has been registered in the security
and may enter a quote. If the ATS or ECN is exempt from Rule 15c2-11,
the ATS or ECN would submit an alternative form indicating that it is
an ATS or ECN and that it is exempt from Rule 15c2-11.
Every OTC security not currently quoted on the OTC Bulletin Board
is considered ``ineligible'' until a Form 211 or Rule 15c2-11 Exemption
Form is submitted. Under the current rules and proposed NASD Rule
6540(b), once clearance to quote the security is given, the security is
granted ``eligible'' status. Thereafter, any other market maker that
wishes to quote an ``eligible'' security must also submit a Form 211 or
Exemption Form. An alternative method for obtaining approval to quote
an ``eligible'' security and is exempt from Rule 15c2-11. During the
``eligible'' period, a frequency-of-quotation test is administered. The
test must be satisfied before the security is identified as ``active.''
Once the security is ``active,'' a market maker, ATS, or ECN need not
submit a Form 211 or Exemption Form before quoting in the security. To
satisfy the test, the security must have been quoted on the OTCBB on at
least 12 business days during the preceding 30 calendar days, with not
more than four consecutive business days without quotations. Market
makers, ATSs, or ECNs would be permitted to register on-line to quote
in a security that has satisfied the test. As long as the security
remains ``active,'' any market maker, ATS, or ECN would be permitted to
quote the security without a Form 211 or Exemption Form submission.
Nasdaq has stated that one ATS has expressed interest in
participating in the OTCBB, and Nasdaq believes that there may be
additional ATSs or ECNs interested in participating in the Service.
Proposed NASD Rule 6540(b) would permit such participation.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act.\6\ Section 15A(b)(6)
requires that the rules of a national securities association, among
other things, foster cooperation and coordination with persons engaged
in facilitating transactions in securities and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. Nasdaq believes that the proposed rule, by enabling ATS and
ECN participation in the OTCBB, would broaden participation and
increase the transparency and liquidity of the OTCBB.
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\6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change would 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which the Nasdaq consents, the Commission will:
(A) by order approve such proposed rule change; or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. 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 20549-0609.
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-2001-44 and
should be submitted by September 18, 2001.
[[Page 45350]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
Margaret H. McFarland,
Deputy Secretary.
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\7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 01-21668 Filed 8-27-01; 8:45 am]
BILLING CODE 8010-01-M