Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc., Relating to the Amendment of Certain Current Terms and the Adoption of New Terms Relating to the NASDAQ System That Are Used in Schedule D to the NASD By-Laws and Other Parts of the NASD's Rules and Regulations That Are Contained in the NASD Manual

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34743; File No. SR-NASD-94-48]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by National Association of Securities Dealers, Inc., Relating to

the Amendment of Certain Current Terms and the Adoption of New Terms

Relating to the NASDAQ System That Are Used in Schedule D to the NASD

By-Laws and Other Parts of the NASD's Rules and Regulations That Are

Contained in the NASD Manual

September 28, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on

September 20, 1994,\1\ the National Association of Securities Dealers,

Inc. (``NASD'' or ``Association'') filed with the Securities and

Exchange Commission (``SEC'' or ``Commission'') the proposed rule

change as described in Items I, II, and III 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.

---------------------------------------------------------------------------

\1\The proposed rule change was initially submitted on August

23, 1994, and was amended on September 20, 1994.

---------------------------------------------------------------------------

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

of the Proposed Rule Change

Below is the text of the proposed rule change. Proposed new

language is italicized and proposed deletions are bracketed.

SCHEDULE D TO THE NASD BY-LAWS

PART I

DEFINITIONS

* * * * *

(17) [``NASDAQ] ''``Nasdaq market maker'' means a dealer that, with

respect to a security, holds itself out (by entering quotations in [the

NASDAQ System] The Nasdaq Stock Market) as being willing to buy and

sell such security for its own account on a regular and continuous

basis and that is registered as such.

(18) ``Nasdaq National Market'' or ``NNM'' is a distinct tier of

The Nasdaq Stock Market comprised of securities that meet the

requirements of and are authorized as a Nasdaq National Market

security.

[18] (19) [NASDAQ National Market System security'' or ``NASDAQ NMS

security''] ``Nasdaq National Market security'' or ``NNM security''

means any authorized security in the Nasdaq National Market with (i)

satisfies all applicable requirements of Part II and substantially

meets the criteria set forth in Part III [Section 2 and 5] of this

Schedule D and is subject therefore to a transaction reporting plan

approved by the Securities and Exchange Commission; (ii) is a right to

purchase such security; or (iii) is a warrant to subscribe to such

security, and has been designated therefore as a national market system

security pursuant to SEC Rule 11Aa2-1.

(20)``Nasdaq SmallCap Market security'' or ``SCM security'' means

any authorized security in The Nasdaq SmallCap Market which (i)

satisfies all applicable requirements of Part II of this Schedule D

other than a Nasdaq National Market security; (ii) is a right to

purchase such security; or (iii) is a warrant to subscribe to such

security.

[(20)] (21) ``Net Tangible Assets'' shall mean total assets

(including the value of patents, copyrights and trade marks but

excluding the value of goodwill) less total liabilities.

[(21)] (22) ``Normal unit of trading'' means 100 shares of a

security unless, with respect to particular security, the Association

determines that a normal unit of trading shall constitute other than

100 shares. If a normal unit of trading is other than 100 shares, a

special identifier shall be appended to the issuer's [NASDAQ] Nasdaq

symbol.

Sections (22)-(25) are renumbered (23)-(26) respectively.

(27) ``The Nasdaq SmallCap Market'' or ``SCM'' is a distinct tier

of The Nasdaq Stock Market comprised of securities that meet the

requirements of and are authorized as a Nasdaq SmallCap Market

security.

[19] (28) [``NASDAQ System'' means the electronic inter-dealer

quotation system] ``The Nasdaq Stock Market'' or ``Nasdaq'' is an

electronic securities market comprised of competing market makers whose

trading is supported by a communications network linking them to

quotation dissemination, trade reporting, and order execution systems.

This market also provides specialized automation services for screen-

based negotiations of transactions, on-line comparison of transactions,

and a range of informational services tailored to the needs of the

securities industry, investors and issuers. The Nasdaq Stock Market

consists of two distinct market tiers: the ``Nasdaq National Market''

and ``The Nasdaq SmallCap Market''. The Nasdaq Stock Market is operated

by [NASDAQ, Inc.] The Nasdaq Stock Market, Inc., a wholly-owned

subsidiary of the Association.

In addition to the changes listed above, the proposed rule change

would insert the proposed new terms, where applicable, throughout the

NASD Manual. The proposed rule change also would apply to all rule

filings that are approved or pending prior to the Commission's approval

of the proposed rule 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, 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 place 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 is proposing to amend certain current terms and adopt new

terms related to the NASDAQ System that more appropriately describe the

current technological facilities and services provided by this national

securities market throughout Schedule D to the NASD By-Laws)

(``Schedule D'') and other parts of the NASD's rules and regulations in

the NASD Manual. The NASD believes that the proposed new terms will

indicate more clearly the current functionality of the NASDAQ System as

a market for securities with quotation dissemination, trade reporting,

and other execution capability, as well as other specialized automation

services for screen-based negotiations of transactions, on-line

comparison of transactions, and a range of informational services

tailored to the needs of the securities industry, investors and issues.

The proposed new terms would also clarify that the NASDAQ System is

composed of two distinct market tiers, each with different inclusion

criteria that are set forth in different parts of Schedule D. Finally,

the proposed rule change would make clear that The Nasdaq Stock Market

is operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary

of the Association.

Section 17 to Part I of Schedule D would be amended to replace the

term ``NASDAQ'' with the term ``Nasdaq'' and to replace the phrase

``the NASDAQ System'' with the term ``The Nasdaq Stock Market''.

The proposed rule change would add a new Section 18 to Part I of

Schedule D to define the ``Nasdaq National Market'' or ``NNM'' to mean

a distinct tier of The Nasdaq Stock Market comprised of securities that

meet the requirements of and are authorized as a Nasdaq National Market

security

Part I, Section 18 of Schedule D would be renumbered as Section 19

and amended to replace the terms ``NASDAQ National Market System

security'' and ``NASDAQ NMS security'' with the terms ``Nasdaq National

Market security'' and ``NNM security'', and to clarify a current NASD

requirement that such securities must satisfy ``all applicable

requirements of Part II'' of Schedule D as well as substantially meet

the criteria set forth Part III of Schedule D. The text of the proposed

rule language to new Section 19 is based on that in Section 1 of Part

II and Section 2 of Part III to Schedule D which set forth the

qualification requirements and designation criteria applicable to

Nasdaq SmallCap Market and Nasdaq National Market securities.

The proposed rule change would add a new Section 20 to Part I of

Schedule D to define the term ``Nasdaq SmallCap Market security'' or

``SCM security'' to mean any security which (i) satisfies all

applicable requirements of Part II of Schedule D other than a Nasdaq

National Market security; (ii) is a right to purchase such security; or

(iii) is a warrant to subscribe to such security.

The current section (20) to Part I of Schedule D would be

renumbered as Section (21). The current section (21) to Part I of

Schedule D would be renumbered as Section (22) and the term ``NASDAQ''

contained therein would be replaced with the term ``Nasdaq''. Current

section (22) to (25) to Part I of Schedule D would be renumbered as

Sections (23) to (26,) respectively.

The proposed rule change would add a new Section 27 to Part I of

Schedule D to define ``The Nasdaq SmallCap Market'' or ``SCM'' to be a

distinct tier of The Nasdaq Stock Market comprised of securities that

meet the requirements of and are authorized as a Nasdaq SmallCap Market

security.

The current Section 19 to Part I of Schedule D would be renumbered

as Section 28 and amended by replacing the current term ``NASDAQ

System'' with the term ``The Nasdaq Stock Market'' or ``Nasdaq''.

Proposed Section 28 would define The Nasdaq Stock Market as an

electronic securities market comprised of competing market makers whose

trading is supported by a communications network linking them to

quotation dissemination, trade reporting, and order execution systems.

Proposed Section 28 would state that The Nasdaq Stock Market also

provides specialized automation services for screen based negotiations

of transactions, on-line comparison of transactions, and a range of

informational services tailored to the needs of the securities

industry, investors and issuers.

Proposed Section 28 would also clarify that The Nasdaq Stock Market

is comprised of two distinct market tiers of the current NASDAQ System.

The first tier of The Nasdaq Stock Market would be ``The Nasdaq

SmallCap Market'' or ``SCM''. The second tier of The Nasdaq Stock

Market would be the ``Nasdaq National Market'' or ``NNM''.

On June 30, 1993, the NASD's corporate subsidiaries that operated

and serviced the NASDAQ System, i.e. Nasdaq Inc. and NASD Market

Services, Inc., were merged into a single corporation renamed ``The

Nasdaq Stock Market, Inc.''.\2\ To reflect this corporate

restructuring, proposed Section 28 would clarify that The Nasdaq Stock

Market is operated by The Nasdaq Stock Market, Inc., a wholly-owned

subsidiary of the Association.

---------------------------------------------------------------------------

\2\See, Item 16, Exhibit E to The Nasdaq Stock Market, Inc.--

Annual Amendment to Registration as a Securities Information

Processor (``SIP'') attached to the NASD's March 31, 1994 letter

from Robert E. Aber, Vice President and General Counsel, The Nasdaq

Stock Market, Inc. to Jonathan G. Katz, Secretary, SEC.

---------------------------------------------------------------------------

The proposed rule change would insert the proposed new terms, where

applicable, throughout Schedule D and other parts of the NASD's rules

and regulations, including the Schedules to the By-Laws; Rules of Fair

Practice; SOES Rules; ACT Rules; FIPS Rules; Nasdaq International

Services; Code of Procedure and Uniform Practice Code.

The proposed rule change would apply to all rule filings of the

Association or its subsidiary, The Nasdaq Stock Market, Inc., that are

approved prior to or are pending on the date of the Commission's

approval of the proposed rule change. Moreover, the numbering of the

definition sections are proposed to be amended to reflect any amendment

to the definition sections under Part I of Schedule D adopted prior to

the approval of the proposed rule changes.

The NASD believes that the proposed rule change is consistent with

the provisions of Section 15A(b)(6) of the Act in that the proposed

rule change is designed to perfect the mechanism of a free and open

market and a national market system, and, in general, to protect

investors and the public interest in that the proposed rule change

would amend certain current terms and adopt new terms relating to the

NASDAQ System in order to more appropriately describe the current

technological facilities and services provided by this national

securities market. The NASD believes that the proposed new terms will

indicate more clearly the current functionality of the NASDAQ System as

a market for securities with quotation dissemination, trade reporting,

and order execution capability, as well as other specialized automation

services for screen-based negotiations of transactions, on-line

comparison of transactions, and a range of informational services

tailored to the needs of the securities industry, investors and

issuers. The proposed new terms would also clarify that The Nasdaq

Stock Market is composed of two distinct market tiers, each with

different inclusion criteria in different parts of the rules. Finally,

the proposed rule change would make clear that The Nasdaq Stock Market

is operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary

of the Association.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The NASD does not believe that the proposed rule change will result

in any burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act, as amended.

(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 self-regulatory organization 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street NW., Washington, D.C. 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-94-48 and

should be submitted by October 26, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\3\

---------------------------------------------------------------------------

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

---------------------------------------------------------------------------

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-24613 Filed 10-4-94; 8:45 am]

BILLING CODE 8010-01-M