Self-Regulatory Organizations; Notice of Amendment Nos. 1 and 2 to Proposed Rule Change by National Association of Securities Dealers, Inc., to Obtain Permanent Approval of the OTC Bulletin Board Service

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34956; International Series Release No. 747; File No.

SR-NASD-92-7]

Self-Regulatory Organizations; Notice of Amendment Nos. 1 and 2

to Proposed Rule Change by National Association of Securities Dealers,

Inc., to Obtain Permanent Approval of the OTC Bulletin Board Service

November 9, 1994

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

(``Act'' or ``Exchange Act''), 15 U.S.C. 78s(b)(1), notice is hereby

given that on October 6, 1994, and on November 8, 1994, the National

Association of Securities Dealers (``NASD'' or ``Association'') filed

with the Securities and Exchange Commission (``SEC'' or ``Commission'')

Amendment Nos. 1 and 2 to File No. SR-NASD-92-7, respectively,\1\ 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, as amended, from interested

persons.

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\1\The proposed rule change as originally filed was published

for public comment in Release No. 34-30766 (June 1, 1992), 57 FR

24281 (June 8, 1992). Amendment No. 2 clarifies some of the language

used by the NASD in Amendment No. 1 to the proposal.

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

of the Proposed Rule Change

Purusant to Section 19(b)(1) of the Act, the NASD hereby proposes

to amend its pending rule change (File No. SR-NASD-92-7) regarding

permanent approval of the OTC Bulletin Board Service (``OTCBB'' or

``Service''). The amendment principally modifies Section 3 of the

Service Rules, which defines the universe of securities eligible for

quotation in the OTCBB. Specifically, the amendment would narrow the

subset of foreign equity securities including those represented by

American Depositary Receipts (hereinafter collectively referred to as

``Foreign Equity Securities'') that are OTCBB-eligible to those that

are registered with the Commission pursuant to Section 12 of the Act.

This requirement would be deemed effective as of the opening of

business on July 5, 1994. Any Foreign Equity Security quoted in the

OTCBB as of close of business on July 1, 1994 that is not registered

pursuant to Section 12 of the Act could remain OTCBB-eligible provided

that the issuer is exempt from the Section 12 registration pursuant to

Rule 12g3-2(b) under the Act. Unregistered Foreign Equity Securities

that are not exempt under Rule 12g3-2(b) as of December 30, 1994 would

be deleted from the OTCBB by that date. Foreign Equity Securities that

qualify for grandfathered status must continue to be exempt under Rule

12g3-2(b) and will remain subject to the twice-daily update limitation

currently imposed on all OTCBB market makers in such issues. Finally,

this amendment contains a technical change to Section 4 of the Service

Rules to achieve consistent terminology as a result of the substantive

changes to Section 3.

The amendatory language is set forth below: (New language is in

italics; deleted language is bracketed.).

OTC Bulletin Board Service Rules

* * * * *

OTCBB-Eligible Securities

Section 3. The following categories of securities shall be eligible

for quotation in the Service:

(a) (No Change); [and]

(b) any foreign equity security [or] including those represented by

American Depositary Receipts ([ADR] hereinafter collectively referred

to as ``Foreign Equity Securities'') that is [not listed on Nasdaq or a

registered national securities exchange in the U.S., except that

foreign equity securities or ADRs that are (i) listed on one or more

regional stock exchanges and (ii) do not qualify for dissemination of

transaction reports via the Consolidated Tape shall be considered

eligible.] registered with the Securities and Exchange Commission

(``SEC'') pursuant to Section 12 of the Securities Exchange Act of 1934

(``Exchange Act''), listed on one or more regional stock exchanges in

the U.S., and not qualified for dissemination of transaction reports

via the facilities of the Consolidated Tape;

(c) any Foreign Equity Security that is (i) registered with the SEC

pursuant to Section 12 of the Exchange Act, and (ii) not listed on The

Nasdaq Stock Market or a registered national securities exchange in the

U.S.; and

(d) any Foreign Equity Security that was quoted in the OTCBB as of

July 1, 1994, and that is exempt from the registration requirements of

Section 12 of the Exchange Act pursuant to Rule 12g3-2(b) [17 CFR

240.12g3-2(b)] thereunder, as of December 30, 1994; eligibility under

this subsection (d) is maintained only as long as the affected foreign

private issuer maintains its exemption from such registration

requirements pursuant to Exchange Act Rule 12g3-2(b).

* * * * *

Requirements Applicable to Market Makers

Section 4(a)3. A priced bid and/or offer entered into the Service

for a F[f]oreign E[e]quity S[s]ecurity [or ADR] eligible pursuant to

Section 3(d) above shall be non-firm.\2\

* * * * *

\2\The non-firm or indicative nature of a priced entry in a

F[f]oreign Equity Security [or ADR issue] eligible pursuant to

Section 3(d) above is specifically identified on the montage of

market maker quotations accessible through the Nasdaq Workstation

Service for this subset of OTCBB-eligible securities.

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

1. Purpose

The NASD is proposing a clarifying amendment to its pending rule

proposal that requests permanent approval of the OTCBB Service. The

amendatory language does not affect the operational characteristics of

the Service. Instead, it restricts the eligibility of unregistered

Foreign Equity Securities for quotation in the Service. Retroactive to

July 5, 1994, no Foreign Equity Security would be classified as OTCBB-

eligible unless the issuer had registered the security with the

Commission under Section 12 of the Act. Any unregistered Foreign Equity

Security that had been admitted to the OTCBB on or after July 5th would

be deleted no later than December 30, 1994. However, an exception will

be provided for unregistered Foreign Equity Securities that were quoted

in the OTCBB as of the close of business on July 1, 1994. These issues

could remain eligible for inclusion in the Service provided that the

issuer is exempt as of December 30, 1994, and continues to be exempt

from the registration requirements under Section 12 of the Act,

pursuant to Rule 12g3-2(b) thereunder. Any issue that does not meet

this requirement for grandfathered status would be deleted from the

OTCBB no later than December 30, 1994.

The inclusion of unregistered Foreign Equity Securities in the

OTCBB has been a point of contention since the OTCBB was initially

approved as a pilot program in the first half of 1990.\2\ Indeed, this

has been the principal factor preventing approval of the Service on a

permanent basis. The substance of this amendment reflects an

intermediate position designed to obtain permanent approval of the

OTCBB in the near term.

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\2\See Securities Exchange Act Release No. 27975-A (May 30,

1990), 55 FR 23161 (June 6, 1990). The Commission notes that the

OTCBB currently is operating on a temporary pilot basis schedule to

expire on December 31, 1994. See Securities Exchange Act Release No.

34766 (September 30, 1994), 59 FR 50947 (October 6, 1994) (order

approving on a temporary basis File No. SR-NASD-94-52).

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2. Statutory Basis

The NASD believes that this proposed rule change, as amended, is

consistent with Sections 11A(a)(1), 15A(b) (6) and (11) of the Act.

Section 11A(a)(1) sets forth the Congressional findings and policy

goals respecting operational enhancements to the securities markets.

Basically, the Congress found that new data processing and

communications techniques should be applied to improve the efficiency

of market operations, broaden the distribution of market information,

and foster competition among market participants. Section 15A(b)(6)

requires, among other things, that the NASD's rules promote just and

equitable principles of trade, facilitate securities transactions, and

protect public investors. Subsection (11) thereunder authorizes the

NASD to adopt rules governing the form and content of quotations for

securities traded over-the-counter for the purposes of producing fair

and informative quotations, preventing misleading quotations, and

promoting orderly procedures for collecting and disseminating

quotations. To the extent that certain unregistered Foreign Equity

Securities will remain eligible for the Service on a grandfathered

basis, the non-firm quotation information collected on these issues

will be distributed electronically through commercial vendor channels.

As such, the information will be accessible on desktop terminals and

may assist retail investors and their brokers in entering orders in the

affected securities. Likewise, the electronic capture of non-firm

quotation information on these same issues will assist the NASD staff

responsible for trading surveillance. Finally, if the modified

eligibility criteria for OTCBB inclusion were proposed without a

provision for grandfathered treatment, the NASD believes that investors

and brokers would be disadvantaged by the elimination of many Foreign

Equity Securities from the Service.

B. Self-Regulatory Organizations Statement on Burden on Competition

The NASD believes that the instant proposal will not create any

burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act.

C. Self-Regulatory Organizations Statement on Comments on the Proposed

Rule Change Received From Members, Participants, or Others

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.\3\

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\3\The Commission notes that the NASD has submitted to the

Commission a letter extending the period for Commission action on

File No. SR-NASD-92-07 through January 1, 1995. See letter from

Michael J. Kulczak, Associate General Counsel, NASD, to Elizabeth L.

Prout, Esq., Attorney, Commission, dated November 1, 1994. The

Commission believes that this extension logically also would apply

to Commission consideration of the present amendments to File No.

SR-NASD-92-07.

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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, N.W., 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 the filing will also be

available for inspection and copying at the principal office of the

NASD. All submissions should refer to the file number in the caption

above and should be submitted by December 9, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\4\

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\4\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-28497 Filed 11-17-94; 8:45 am]

BILLING CODE 8010-01-M