Self-Regulatory Organizations; Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1 and 2 to the Proposed Rule Change by the National Association of Securities Dealers, Inc., Relating to Listing Standards for Selected Equity-Linked Debt Securities (``SEEDS'').

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34758; File No. SR-NASD-94-49]

Self-Regulatory Organizations; Filing and Order Granting

Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1 and

2 to the Proposed Rule Change by the National Association of Securities

Dealers, Inc., Relating to Listing Standards for Selected Equity-Linked

Debt Securities (``SEEDS'').

September 30, 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 August

31, 1994, the National Association of Securities Dealers, Inc.

(``NASD'') filed with the Securities and Exchange Commission

(``Commission'' or ``SEC'') the proposed rule change as described in

Items I and II below, which Items have been prepared by the NASD. The

NASD filed Amendment No. 1 to the proposed rule change on September 2,

1994, and Amendment No. 2 on September 9, 1994.\1\ The Commission is

publishing this notice to solicit comments on the proposed rule change,

as amended, from interested persons.

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\1\In Amendment Nos. 1 and 2, the NASD proposed to make certain

clarifying amendments to the proposed rule language, as more fully

discussed herein, to more closely conform the listing standards for

SEEDS to the listing standards for equity-linked debt in place on

the New York Stock Exchange (``NYSE'') and the American Stock

Exchange (``Amex''). Amendment No. 1 also eliminates the minimum

holder requirement for securities that are listed pursuant to

Article III, Section 2 of the NASD Rules of Fair Practice but which

are traded in thousand dollar denominations. See Letter from Robert

Aber, Vice President and General Counsel, NASD, to Brad Ritter,

Attorney, Office of Market Supervision (``OMS''), Division of Market

Regulation (``Division''), Commission, dated September 2, 1994

(``Amendment No. 1''); and Letter from Robert Aber, Vice President

and General Counsel, NASD, to Brad Ritter, Attorney, OMS, Division,

Commission, dated September 9, 1994 (``Amendment No. 2'').

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

of the Proposed Rule Change

The NASD is proposing amendments to Schedule D of the NASD By-Laws

to provide listing standards for the designation of Selected Equity-

Linked Debt Securities (``SEEDS'')\2\ as Nasdaq National Market

securities. The NASD also proposes to amend the Policy of the NASD

Board of Governors issued under Article III, section 2, of the NASD

Rules of Fair Practice to highlight members' obligations to deal fairly

with their customers when making recommendations or accepting orders

concerning SEEDS. The text of the proposed rule change is available at

the Office of the Secretary, NASD, and at the Commission.

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\2\``SEEDS'' and ``Selected Equity-Linked Debt Securities'' are

service marks of the NASD.

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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 the

Statutory Basis for, the Proposed Rule Change

Under section 2(e) of Part III of Schedule D to the NASD By-Laws,

the NASD may designate as Nasdaq National Market securities financial

instruments which can not be readily categorized under traditional

listing guidelines for, among other instruments, common and preferred

stock, bonds, debentures, and warrants.\3\ The NASD is now proposing to

amend Section 2 of Part III of Schedule D to the NASD By-Laws to

provide listing standards for SEEDS, a specific type of hybrid

security. As with the more general hybrid product listing standards,

all SEEDS will be designated as Nasdaq National Market securities.\4\

In addition, SEEDS will be treated as equity instruments for, among

other purposes, margin requirements.

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\3\See Securities Exchange Act Release No. 32988 (September 29,

1993), 58 FR 52124 (October 6, 1993).

\4\The NASD notes that the Commission already has approved

comparable listing standards for Equity-Linked Debt Securities

(``ELDS'') listed and traded on the New York Stock Exchange

(``NYSE'') and Equity-Linked Term Notes (``ELNs'') listed and traded

on the American Stock Exchange (``Amex''). The NASD states that with

two exceptions, as discussed herein, the NASD's proposed standards

are virtually identical to the NYSE's and Amex's listing standards

for ELDS and ELNs, respectively. See Securities Exchange Act Release

Nos. 32343 (May 20, 1993), 58 FR 30833 (May 27, 1993) (order

originally approving the listing of ELNs); 33328 (December 13,

1993), 58 FR 66041 (December 17, 1993) (order approving revised

market capitalization and trading volume requirements for the

listing of ELNs); 33468 (January 13, 1994), 59 FR 3387 (January 21,

1994) (order originally approving the listing of ELDS); 33841 (March

31, 1994), 59 FR 16671 (April 7, 1994) (order approving revised

market capitalization and trading volume requirements for the

listing of ELDS); 34545 (August 18, 1994), 59 FR 43877 (August 25,

1994) (order approving the listing of ELDS linked to securities

issued by non-U.S. companies) (``Exchange Act Release No. 34545'');

and 34549 (August 18, 1994), 59 FR 43873 (August 25, 1994) (order

approving the listing of ELNs linked to securities issued by non-

U.S. companies) (``Exchange Act Release No. 34549'') (collectively,

``Equity-Linked Note Approval Orders'').

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SEEDS are intermediate-term, hybrid securities, the value of which

is based, at least in part, on the value of another issuer's common

stock, non-convertible preferred stock, or certain sponsored American

Depositary Receipts (``ADRs''). SEEDS may pay periodic interest or may

be issued as zero-coupon instruments with no payments to holders prior

to maturity. SEEDS may be subject to a ``cap'' on the maximum principal

amount to be repaid to holders upon maturity, and they may feature a

``floor'' on the minimum principal amount paid to holders upon

maturity. A specific issue of SEEDS, for example, may provide holders

with a fixed semi-annual interest payment, while capping the maximum

amount to be repaid upon maturity at 135% of the issuance price, with

no minimum floor guarantee on the principal to be repaid at maturity.

Another issue of SEEDS might offer lower semi-annual payments based

upon a floating interest rate\5\ with a minimum floor for the repayment

of principal of 75% of the issuance price. According to the NASD the

flexibility available to an issuer of SEEDS permits the creation of

securities which offer issuers and investors the opportunity to more

precisely focus on a specific investment strategy.

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\5\The NASD will notify the Commission if an issue of SEEDS

provides for periodic interest payments to holders based on a

floating rate. The Commission, at that time, may require the NASD to

submit a rule filing pursuant to section 19(b) of the Act prior to

permitting Nasdaq to list SEEDS with such terms.

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The NASD generally believes that the level of risk involved in the

purchase or sale of a SEEDS is similar to the risk involved in the

purchase or sale of traditional common stock. Nevertheless, the unique

nature and characteristics of SEEDS raises several concerns: (1)

Investor protection concerns; (2) dependence on the creditworthiness of

the issuer of a SEEDS to meet its obligations under the instruments;

(3) systemic concerns regarding the position exposure of issues with

partially hedged or dynamically hedged positions; and (4) the impact on

the market for the underlying linked security. The NASD believes its

proposal adequately addresses these concerns.

Specifically, there are four components to the NASD's proposed

listing standards for SEEDS: (1) Standards applicable to issuers of

SEEDS; (2) standards applicable to the SEEDS offerings themselves; (3)

standards applicable to the underlying linked security; and (4)

limitations on the size of a particular SEEDS offering.

Issuer Listing Standards

The proposal provides that an issuer of a SEEDS must be a entity

that is listed on Nasdaq or the NYSE, or an affiliate of a company

listed on Nasdaq or the NYSE.\6\ Each issuer of a SEEDS must also have

a minimum net worth of $150 million. In addition, the market value of a

SEEDS offering, when combined with the market value of all other SEEDS

offerings previously completed by the issuer and traded through Nasdaq

or on a national securities exchange, may not be greater that 25% of

the issuer's net worth at the time of issuance.

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\6\For the numerical listing criteria for securities eligible to

be listed as Nasdaq National Market securities, see Section 2 of

Part III of Schedule D to the NASD By-Laws. For the numerical

listing criteria for securities eligible to be listed on the NYSE

see sections 102.01-102.03 and 103.01-103.05 of the NYSE's Listed

Company Manual.

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Standard Applicable to SEEDS Offerings

In order to ensure adequate liquidity in the markets for SEEDS each

issuance of a SEEDS must have: (1) A minimum public distribution of one

million SEEDS; (2) a minimum of 400 holders of the SEEDS; (3) a minimum

market value of $4 million; and (4) a term of two to seven years

(although a SEEDS on a sponsored ADR can not have a term longer than

three years).

Standards Applicable to the Underlying Linked Security

In order to help ensure that SEEDS will not have a disruptive

effect on the markets for the securities underlying the SEEDS, the NASD

proposes that the securities underlying SEEDS must have sufficiently

large market capitalizations and high trading volumes. Specifically, a

security underlying a SEEDS must have: (1) A market capitalization of

at least $3 billion and a trading volume in the United States of at

least 2.5 million shares in the one-year period preceding the listing

of the SEEDS; or (2) a market capitalization of at least $1.5 billion

and a trading volume in the United States of at least 20 million shares

in the one-year period preceding the listing of the SEEDS; or (3) a

market capitalization of at least $500 million and a trading volume in

the United States of at least 80 million shares in the one-year period

preceding the listing of the SEEDS. In addition, if an issuer proposes

to issue SEEDS on a security that does not meet the market

capitalization and trading volume standards set forth above, the NASD,

with the concurrence of the staff of the Commission, may evaluate the

trading volume, public float, and market capitalization of that

security, as well as other relevant factors, and determine on a case-

by-case basis that it is appropriate to list SEEDS overlying that

security.\7\

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\7\See Amendment No. 1, supra note 1. Depending on the proposed

facts, the Commission may require the NASD to submit a rule filing

to the Commission pursuant to section 19(b) of the Act to address

the regulatory issues raised by any proposed offering of SEEDS that

does not satisfy the market capitalization and/or trading volume

requirements discussed above. In this connection, the Commission

notes that any proposal to list a SEEDS linked to a security with a

market capitalization of less than $500 million would raise

significant regulatory concerns for which a section 19(b) rule

filing would be required.

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The NASD believes that the $500 million market capitalization/80

million share trading volume standard and the flexibility, with the

concurrence of the Commission, to list issues of SEEDS that do not

satisfy the market capitalization and trading volume requirements, are

the only significant modifications to the SEEDS listing standards from

those currently in place for the listing of ELDS at the NYSE and for

the listing of ELNs at the Amex.\8\ The additional tier for trading

volume and market capitalization is warranted, the NASD believes,

because trading volume is a better barometer for market liquidity than

market capitalization. Accordingly, the NASD believes imposing a higher

trading volume standard and a lower market capitalization standard will

not jeopardize the integrity of the market for the linked security.

Moreover, the NASD notes that the minimum market capitalization

requirement will still be $500 million, assuring that the linked

security is issued by a sufficiently large company capable of

underlying SEEDS without any disruption to the market for its common

stock. The NASD also believes that the flexibility to list issues of

SEEDS not satisfying the objective criteria is appropriate for those

cases where the NASD, with the concurrence of the staff of the

Commission, determines, based on factors including, among others,

public float and affiliations between the issuer of the SEEDS and the

issuer of the linked security, in addition to market capitalization and

trading volume, that the listing of the SEEDS does not raise any

material market manipulation or investor protection concerns.

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\8\See Equity-Linked Note Approval Orders, supra note 4.

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In addition to the market capitalization and trading volume

requirements, the issuer of the linked security must be a reporting

company under the Act. The underlying linked security also must be

traded through Nasdaq or on a national securities exchange and be

subject to last sale reporting pursuant to Rule 11Aa3-1 under the Act.

In addition, consistent with the Amex and NYSE proposals recently

approved by the Commission,\9\ the NASD proposes to permit SEEDS on

certain non-U.S. companies\10\ subject to reporting requirements under

the Act whose securities are traded in the United States either as

ordinary shares or sponsored ADRs, provided there are at least 2,000

holders of the underlying linked security.\11\

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\9\See Exchange Act Release Nos. 34545 and 34549, supra note 4.

\10\The NASD defines a non-U.S. company as any company formed or

incorporated outside of the U.S.

\11\Specifically, a SEEDS could be listed on a non-U.S. company

that is subject to reporting requirements in the U.S. when ordinary

shares or sponsored ADRs representing that company are traded in the

United States if: (1) The NASD has a comprehensive surveillance

sharing agreement in place with the primary exchange in the country

where the security is primarily traded (in the case of an ADR, the

primary exchange on which the security underlying the ADR is

traded); or (2) the combined trading volume of the underlying

security and other related securities occurring in the U.S. market

represents (on a share equivalent basis for any ADRs) at least 50%

of the combined worldwide trading volume in the underlying security,

other related securities, and other classes of common stock related

to the underlying security over the six-month period preceding the

date of designation. See Exchange Act Release Nos. 34545 and 34549,

supra note 4; and Amendment No. 1, supra note 1.

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Limitations of the Size of Particular SEEDS Offerings

Without the approval of the Commission, the issuance of SEEDS

relating to any underlying U.S. security may not exceed five percent of

the total outstanding shares of such underlying security. Without the

approval of the Commission, the issuance of SEEDS relating to any

security (including sponsored ADRs) that is traded in the United States

and is issued by a non-U.S. company subject to U.S. reporting

requirements may not exceed: (A) Two percent of the total shares

outstanding worldwide if at least 30 percent of the worldwide trading

volume in the underlying security occurs in the U.S. market during the

six-month period preceding the date of designation; (B) three percent

of the total shares outstanding worldwide if at least 50 percent of the

worldwide trading volume in the underlying security occurs in the U.S.

market during the six-month period preceding the date of designation;

or (C) five percent of the total shares outstanding worldwide if at

least 70 percent of the worldwide trading volume in the underlying

security occurs in the U.S. market during the six-month period

preceding the date of designation.\12\ If an issuer proposes to issue

SEEDS that relate to more than the allowable percentages of the

underlying security specified above, however, then the NASD, with the

concurrence of the staff of the Commission, will evaluate, on a case-

by-case basis, the maximum percentage of SEEDS that may be issued.\13\

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\12\In no event may a SEEDS be linked to a security issued by a

non-U.S. company (including a sponsored ADR) subject to reporting

requirements under the Act where less than 30 percent of the

worldwide trading volume in the underlying security and all related

securities occurs in the U.S. market. See Amendment No. 2, supra

note 1. As with the market capitalization and trading volume

requirements, the Commission notes that based on the proposed facts,

the NASD may be required to submit a rule filing to the Commission

pursuant to section 19(b) of the Act to address regulatory issues

raised by any NASD proposal to list a SEEDS related to more than the

allowable percentages of outstanding shares of the underlying

security.

\13\See Amendment No. 1, supra note 1.

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Finally, because SEEDS are linked to price movements in another

security, the NASD proposes three safeguards that are designed to

satisfy the investor protection concerns raised by the trading of

SEEDS. First, for each SEEDS, the NASD will distribute a circular to

the membership providing guidance concerning member firm compliance

responsibilities (including suitability recommendations and account

approval) when handling transactions in SEEDS. Second, the NASD

reiterates that, pursuant to the NASD's customer suitability rule found

at Section 2, Article III of the NASD Rules of Fair Practice, members

will have a duty of due diligence to learn the essential facts relating

to every customer trading SEEDS prior to their first SEEDS transaction.

In addition, consistent with Section 2, Article III, of the NASD Rules

of Fair Practice, the NASD will require that a member specifically

approve a customers's account for trading SEEDS prior to, or promptly

after, the completion of its first SEEDS transaction. In this

connection the NASD has also proposed to amend the Policy of the NASD

Board of Governors issued under Article III, section 2 of the NASD

Rules of Fair Practice to highlight members' obligations to deal fairly

with their customers when making recommendations or accepting orders

concerning SEEDS.

Therefore, the NASD believes the proposed rule change is consistent

with section 15A(b)(6) of the Act. Section 15A(b)(6) requires that the

rules of a national securities association be designed to prevent

fraudulent and manipulative acts and practices, to promote just and

equitable principles of trade, to foster cooperation and coordination

with persons engaged in regulating, clearing, settling, processing

information with respect to, and facilitating transactions in

securities, to remove impediments to and perfect the mechanism of a

free and open market and a national market system and in general to

protect investors and the public interest. Specifically, the NASD

believes the proposal strikes an appropriate balance between the NASD's

need to adapt and respond to innovations in the securities markets and

the NASD's concomitant need to ensure the protection of investors and

the maintenance of fair and orderly markets. The NASD believes the

proposed numerical, quantitative listing standards should ensure that

only substantial companies capable of meeting their contingent

obligations created by SEEDS are able to list such products on Nasdaq.

Similarly, by providing for the distribution of circulars to the

membership concerning member firm compliance responsibilities and

requirements, the NASD believes the proposal addresses any potential

sales practice concerns that may arise in connection with SEEDS. The

NASD also believes that the trading of SEEDS will provide investors

with important investment and hedging benefits that will serve to

satisfy better their investment and portfolio management needs.

Moreover, the NASD believes that SEEDS represent innovative financing

techniques that provide issuers with increased flexibility to raise

capital at potentially lower costs, in return for assuming some market

volatility risk. Finally, the NASD believes that listing SEEDS on

Nasdaq will also facilitate members and investors desiring to trade

SEEDS in a dealer environment.

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

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

any burden on competition.

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

Rule Change Received From Members, Participants or Others

No written comments were either solicited or received with respect

to the proposed rule change.

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

Commission Action

The NASD has requested that the proposed rule changes be given

accelerated effectiveness pursuant to Section 19(b)(2) of the Act.

The Commission finds that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to a national securities exchange, and, in

particular, the requirements of section 15A(b)(6) of the Act.\14\

Specifically, the Commission believes that providing for the listing

and trading of SEEDS will offer a new and innovative means of

participating in the securities markets. In particular, the Commission

believes that the availability of SEEDS will permit investors to more

closely approximate their desired investment objectives through, for

example, shifting some of the opportunity for upside gain in return for

additional income.\15\ Accordingly, for these reasons, as well as the

reasons stated in the Commission's Equity-Linked Note Approval

Orders,\16\ the Commission finds that the NASD standards for the

listing and trading of SEEDS are consistent with the Act and that the

listing and trading of SEEDS is in the public interest.

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\14\15 U.S.C. 78o(b)(6) (1982).

\15\Pursuant to section 15A(b) of the Act the Commission must

predicate approval of trading for new products upon a finding that

the introduction of the product is in the public interest. Such a

finding would be difficult with respect to a product that served no

investment, hedging, or other economic function, because any

benefits that might be derived by market participants would likely

be outweighed by the potential for manipulation, diminished public

confidence in the integrity of the markets, and other valid

regulatory concerns.

\16\See Equity-Linked Note Approval Orders, supra note 4. The

discussions articulated in the Equity-Linked Note Approval Orders

are incorporated herein.

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As with ELNs and ELDS, SEEDS are not leveraged instruments. Their

price, however, will still be derived and based upon the underlying

linked security. Accordingly, the level of risk involved in the

purchase or sale of a SEEDS is similar to the risk involved in the

purchase or sale of traditional common stock. Nonetheless, in

considering the Amex's and the NYSE's respective proposals to list and

trade ELNs and ELDS, the Commission had several specific concerns with

this type of product because the final rate of return of an ELN is

derivatively priced, based on the performance of the underlying

security. The concerns included: (1) Investor protection concerns, (2)

dependence on the credit of the issuer of the instrument, (3) systemic

concerns regarding position exposure of issuers with partially hedged

positions or dynamically hedged positions, and (4) the impact on the

market for the underlying linked security.\17\ The Commission

concluded, however, that the Amex and the NYSE proposals adequately

addressed each of these issues such that the Commission's regulatory

concerns were adequately minimized.\18\ Similarly, in this proposal,

the NASD has proposed safeguards, as described above, which the

Commission finds to be equivalent to those approved for the trading of

ELNs and ELDS. In particular, by imposing the listing standards,

suitability, disclosure, and compliance requirements noted above, the

NASD has adequately addressed the potential public customer concerns

that could arise from the hybrid nature of SEEDS. Further, the

Commission believes that the listing standards and issuance

restrictions should help to reduce the likelihood of any adverse market

impact on the securities underlying SEEDS.

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\17\Id.

\18\Id.

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Except in two respects, the Commission finds that the proposal and

Amendment Nos. 1 and 2 to the proposal are substantially identical to

rule changes already approved by the Commission with respect to the

listing and trading of ELNs on the Amex and ELDS on the NYSE.\19\ The

two new items included in this proposal are: (1) The new requirement

that allows the listing of SEEDS linked to an underlying security with

a minimum market capitalization of $500 million and a trading volume in

the year prior to listing of at least 80 million shares; and (2)

allowing flexibility for the NASD, with the concurrence of the staff of

the Commission, to determine on a case-by-case basis to list SEEDS that

do not satisfy one of the three objective listing tiers with respect to

market capitalization and trading volume. The Commission believes that

neither of these proposals raises any significant regulatory issues

that were not addressed in the Equity-Linked Note Approval Orders. The

Commission finds that the proposal to add an additional market

capitalization and trading volume requirement for eligible linked

securities will expand the number of securities that can be linked to

these equity-linked products while maintaining the requirement that the

linked security be an actively traded common stock issued by a highly

capitalized issuer. While the proposal introduces a third alternative

for ELN eligibility that reduces the minimum market capitalization

requirement for the linked security, the stock of such an issuer (or

sponsored ADR related thereto) could only be linked to a SEEDS issue if

its trading volume for the prior one-year period is at least 80 million

shares, which is four times higher than the current minimum trading

volume for these products as currently allowed on the Amex and the

NYSE. Moreover, in recently approving proposals by the NYSE and the

Amex to list and trade ELDS and ELNs, respectively, linked to

securities (including sponsored ADRs) issued by non-U.S. companies

subject to reporting requirements under the Act, the NYSE and the Amex

represented to the Commission that no problems had been reported to

either exchange regarding the listing and trading of these

products.\20\ Furthermore, the Commission believes that together, the

new capitalization and trading volume requirements will continue to

ensure that SEEDS are only issued on highly liquid securities of

broadly capitalized companies and that these requirements should help

to reduce the likelihood of any adverse market impact on the securities

underlying SEEDS.

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\19\Id.

\20\See Exchange Act Release Nos. 34545 and 34549, supra note 4.

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Additionally, allowing the NASD, with the concurrence of the staff

of the Commission, to approve, on a case-by-case basis, an issue of

SEEDS that does not satisfy one of the existing requirements regarding

market capitalization and trading volume,\21\ or that exceeds the

maximum allowable percentage of shares of the underlying security,\22\

merely adds flexibility to the proposed rule change. The Commission

believes that this portion of the proposal does not raise any

regulatory concerns, particularly given the requirement of obtaining

the concurrence of the staff of the Commission prior to listing.\23\

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\21\See supra note 7.

\22\See supra note 12.

\23\If the NASD proposed a SEEDS that raised unique or

significant regulatory concerns, the staff of the Commission would

require the NASD to submit a rule filing to the Commission pursuant

to section 19(b) of the Act.

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Finally, the NASD represents that a number of issuers, including

Nasdaq listed companies, have expressed an interest in listing SEEDS on

Nasdaq. In light of the Commission's approval of the listing of ELNs on

the Amex and ELDS on the NYSE, accelerating approval of this proposal

will ensure that the NASD is allowed to compete on an equal basis with

the Amex and NYSE with regard to these equity-linked products.

The Commission finds good cause for approving the proposed rule

change and Amendment Nos. 1 and 2 to the proposed rule change prior to

the thirtieth day after the date of publication of notice thereof in

the Federal Register in order to allow the NASD to begin listing SEEDS

without delay. As discussed above, except for two aspects the proposal

merely provides the NASD with the ability to list equity-linked debt

securities on the same basis as the NYSE and the Amex. Moreover, the

Commission notes that the proposals by the NYSE and the Amex to list

and trade equity-linked debt securities were published by the

Commission for the full comment period without any comments being

received by the Commission. With respect to the two aspects of the

SEEDS proposal which expand on the standards previously approved for

the NYSE and the Amex, for the reasons discussed above, the Commission

believes that no significant regulatory issues are raised that were not

adequately address in the Equity-Linked Note Approval Orders.\24\

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\24\See Equity-Linked Note Approval Orders, supra note 4.

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Finally, Amendment No. 1 to the proposal also eliminates the

minimum holder requirement for securities which are listed pursuant to

Article III, Section 2 of the NASD Rules of Fair Practice but which

trade in thousand dollar denominations. The Commission notes that this

amendment merely conforms the NASD's rules to those of the NYSE which

do not contain a minimum holder requirement for hybrid debt

securities.\25\ Accordingly, the Commission believes that this

amendment does not raise any significant regulatory issues.

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\25\See section 703.19 of the NYSE Listed Company Manual.

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For the above reasons, the Commission believes it is consistent

with section 15A(b)(6)\26\ and 19(b)(2)\27\ of the Act to approve the

proposed rule change and Amendment Nos. 1 and 2 to the proposal on an

accelerated basis.

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\26\15 U.S.C. 78o-3(b)(6) (1988).

\27\15 U.S.C. 78s(b)(2) (1988).

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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 Section, 450 Fifth Street, NW.,

Washington, DC. 20549. 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-94-49 and should be

submitted by October 27, 1994.

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

Act,\28\ that the proposed rule change (SR-NASD-94-49), as amended, is

approved.

\28\15 U.S.C. 78s(b)(2) (1982).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\29\

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\29\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-24795 Filed 10-5-94; 8:45 am]

BILLING CODE 8010-01-M