Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice and Order Granting Accelerated Approval to Proposed Rule Change Extending the Informational Linkage With the Stock Exchange of Singapore Ltd. for Six Months

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34021; International Series Release No. 664; File No.

SR-NASD-94-25]

Self-Regulatory Organizations; National Association of Securities

Dealers, Inc.; Notice and Order Granting Accelerated Approval to

Proposed Rule Change Extending the Informational Linkage With the Stock

Exchange of Singapore Ltd. for Six Months

May 6, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of

1934\1\ (``Act''), notice is hereby given that on April 26, 1994, the

National Association of Securities Dealers, Inc. (``NASD'') filed with

the Securities and Exchange Commission (``Commission'') the proposed

rule change as described in Items I and II below, which Items have been

prepared by the NASD. 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) (1988).

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The NASD hereby files, pursuant to Section 19(b)(1) of the Act and

Rule 19b-4 thereunder, for Commission authorization to extend the

operation of its Pilot Program with the Stock Exchange of Singapore

Limited (``SES'') for six months. The Pilot Program currently consists

of an interchange of closing price and volume data on up to 35 Nasdaq

securities that also may be traded through the SES's facilities

(collectively, ``Pilot Securities''). With the thirteen hour time

difference (twelve hours during EDT), the trading hours of the SES and

NASD markets do not overlap. The end-of-day information being exchanged

under the Pilot Program may assist in the establishment of opening

prices the following business day. The Pilot Program currently involves

no automated order routing or execution capabilities, and no such

capability will be established during the proposed extension.

The Commission originally authorized operation of the NASD-SES

Pilot Program for a two-year term\2\ that was extended most recently

through May 12, 1994.\3\ Commission approval of the instant filing

would permit continuation of this Pilot Program through November 12,

1994. During this interval, no more than 35 Nasdaq issues will be

included in this Pilot Program. That figure corresponds to the number

originally authorized at the inception of the Pilot Program in 1988. As

noted in File No. SR-NASD-93-28, the SES information being transmitted

to the NASD reflects the SES's use of an order-driven trading system

(known as the ``CLOB'').

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\2\See Release No. 34-25457 (Mar. 14, 1988), 53 FR 9156 (Mar.

21, 1988).

\3\See Release No. 34-33061 (Oct. 15, 1993), 58 FR 54617 (Oct.

22, 1993).

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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 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 in

Item IV below. The NASD 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

The NASD-SES Pilot Program commenced operation with the

Commission's approval of File No. SR-NASD-87-40 on March 14, 1988. The

principal features of this Program were fully described in Section 1 of

that Form 19b-4, which description is hereby incorporated by

reference.\4\

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\4\See also Release No. 34-25065 (Oct. 28, 1987), 52 FR 42167

(Nov. 3, 1987).

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The current authorization of the NASD-SES Pilot Program will expire

on May 12, 1994. The NASD, on its own as well as on the SES's behalf,

hereby requests that the Commission approve a further extension of the

Pilot Program for six months, expiring on November 12, 1994.

During the proposed extension, each market will transmit to the

other static price/volume information compiled at the end of each

trading day on approximately 35 Nasdaq securities which are also traded

on the SES. The NASD will transmit for each Pilot Security the closing

inside quotes, cumulative volume, last sale price and the closing quote

of every Nasdaq market maker in each of the Pilot Securities

(collectively referred to as ``NASD information''). In recognition of

the SES's use of the order-driven CLOB system, the SES will transmit

the following data elements for each Pilot security: closing price

(i.e., the price of the final transaction in the CLOB on that business

day), the highest and lowest prices at which transactions were

effected, and the aggregate volume (collectively referred to as ``SES

information'').\5\ Because all trading of Pilot Securities on the SES

occurs in the CLOB, the price information sent to the NASD will reflect

the prices of actual trades consummated by the automated matching of

buy and sell orders resident in the CLOB system.

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\5\If no trades are effected in a Pilot security on a given day,

the SES will transmit no data on that issue even if bids or offers

had been entered into the CLOB for possible execution.

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The CLOB is a fully automated trading system that was instituted by

the SES in 1989. Prior to that time, the SES employed a quote-driven,

market maker system similar to the Nasdaq Stock Market. Orders to buy

and sell securities are entered into the CLOB through some 1,800

trading terminals on the premises of approximately 26 SES member firms.

The CLOB provides an electronic limit order file with open orders

ranked by price and time in each security. When the terms of two orders

match, the CLOB generates an automated execution accompanied by

confirmations back to the originating brokers.

As noted in File No. SR-NASD-93-28, the SES intends to incorporate

the Pilot Securities into ``CLOB International.'' The latter is a

separate section of the SES market system for the trading of foreign

issues that are not listed on the SES. These securities trade through

the CLOB in the same manner as SES-listed securities. CLOB

International currently includes the stocks of Malaysian, Hong Kong,

and Philippine issuers. The SES regards inclusion of the Pilot

Securities in CLOB International as a logical step in the progression

of the Pilot Program. Further, the SES believes that this step could

stimulate greater trading interest in Nasdaq securities among Singapore

investors. Accordingly, both the NASD and the SES desire to continue

the Pilot Program.

The incorporation of Pilot Securities into CLOB International will

not alter the basic operation of the Pilot Program, namely, the

interchange of static, end-of-day information on the Pilot Securities.

SES information will continue to be offered only to subscribers of

Nasdaq Level 2/3 services.\6\ Similarly, NASD information transmitted

to Singapore will be available only on the terminals used by SES

members to access the CLOB. The original linkage agreement between the

NASD and the SES will remain in effect for the term of the extended

Pilot Program. That agreement, which provides for the sharing of

regulatory information as needed, is believed adequate given the

limited nature and limited scope of the Pilot Program.

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\6\To retrieve this information, a Nasdaq subscriber must enter

a discrete query through a Nasdaq Workstation device.

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Finally, the NASD acknowledges that any further enhancement to the

Pilot Program, including the introduction of automated order routing

and execution facilities, would require concurrent authorizations from

the Commission and the Monetary Authority of Singapore. No such

enhancement is planned for implementation during the requested

extension.

The NASD believes that Sections 11A(a)(1) (B) and (C), 15A(b)(6),

and 17A(a)(1) of the Act provide the statutory basis for this proposed

rule change. Subsections (B) and (C) of Section 11A(a)(1) set forth the

Congressional goals of achieving more efficient and effective market

operations, the availability of information with respect to quotations

for securities and the execution of investor orders in the best market

through the application of new data processing and communications

techniques. Section 15A(b)(6) requires, among other things, that the

rules of the NASD 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. Finally, Section 17A(a)(1) reflects the

Congressional goals of linking all clearance and settlement facilities

and reducing costs involved in the clearance and settlement process

through new data processing and communications techniques. The NASD

submits that extension of the Pilot Program will further these ends by

providing the cooperative regulatory environment and operating

experience needed for advancement of these goals in the context of

internationalization of securities markets.

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

The extended Pilot Program will permit the continued exchange of

static market data on a limited group of Nasdaq securities between the

NASD and the SES on a non-exclusive basis. The costs of supporting the

Pilot Program are nominal, and the sponsoring markets absorb their

respective costs. The market information being exchanged by the NASD

and SES under the Pilot Program is deemed to constitute an exchange of

equivalent value. Hence, no additional fee is paid by NASD and SES

member firms for receipt of the static data being provided on Pilot

Securities.

The NASD submits that neither the structure no operation of the

present Pilot Program poses any burden on competition.

C. Self-Regulatory Organization's Statement on Comment on the Proposed

Rule Change Received From Members, Participants, or Others

The NASD did not solicit or receive written comments on this rule

proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

The NASD requests that the Commission find, pursuant to Section

19(b)(2) of the Act, good cause for approving the proposed rule change

prior to the 30th day after the date of publishing notice of the filing

and, in any event, by May 12, 1994. The NASD believes that accelerated

approval is appropriate for the following reasons: (1) The experimental

character of the Pilot Program and the need to maintain continuity in

its operation; (2) the commitment not to make any significant

operational changes during the requested extension absent Commission

approval; (3) the limited nature of the Pilot Program, both in terms of

the number of Pilot securities and the amount of market information

being exchanged; and (4) the limited utility of end-of-day, static

information to the NASD and SES member firms capable of accessing,

respectively, SES and NASD information. Moreover, during the period of

the proposed extension, the sponsoring markets remain committed to

exchange regulatory information whenever the need arises. Finally, if

accelerated approval is not granted, the sponsors will be obliged to

terminate this experimental program before its potential benefits can

be realized in relation to the globalization of securities markets.

The Commission finds that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to the NASD and, in particular, the requirements

of Sections 11A(a)(1) (B) and (C), 15A(b)(6), 17A(a)(1) and the rules

and regulations thereunder.

The Commission finds good cause for approving the proposed rule

change prior to the 30th day after the date of publishing of notice of

filing thereof. The Commission believes that accelerated approval is

appropriate to maintain continuity in the Pilot Program and to allow

the sponsors to continue to assess the impact of the trading of these

securities in the international section of the SES's order-driven

market system. Further, the Pilot Program is of a limited nature and no

substantive changes will be implemented during the proposed extension.

Accordingly, the Commission believes that the Pilot Program should not

be terminated under these circumstances.

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, 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 Number SR-NASD-94-25 and

should be submitted by June 3, 1994.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,

that the proposed rule change be, and hereby is, approved for a period

of six months, through November 12, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority, 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-11700 Filed 5-12-94; 8:45 am]

BILLING CODE 8010-01-M