# 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 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-28497 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** November 18, 1994 ## Text 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \4\17 CFR 200.30-3(a)(12) (1993). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-28497 Filed 11-17-94; 8:45 am] BILLING CODE 8010-01-M --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-28497. Public record. Not legal advice.