Joint Industry Plan; Solicitation of Comments and Order Partially Approving Amendment No. 6 to Reporting Plan for Nasdaq/National Market Securities Traded on an Exchange on an Unlisted or Listed Basis, Submitted by the National Association of Securities Dealers, Inc., and the Boston, Chicago and Philadelphia Stock Exchanges

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36481; File No. S7-24-89]

Joint Industry Plan; Solicitation of Comments and Order Partially

Approving Amendment No. 6 to Reporting Plan for Nasdaq/National Market

Securities Traded on an Exchange on an Unlisted or Listed Basis,

Submitted by the National Association of Securities Dealers, Inc., and

the Boston, Chicago and Philadelphia Stock Exchanges

November 13, 1995.

On November 13, 1995, the National Association of Securities

Dealers, Inc., and the Boston, Chicago, and Philadelphia Stock

Exchanges (collectively, ``Participants'') \1\ submitted to the

Commission proposed Amendment No. 6 to a joint transaction reporting

plan (``Plan'') for Nasdaq/National Market securities traded on an

exchange on an unlisted or listed basis.\2\ The Commission is approving

the proposed amendment to the Plan insofar as the proposal requests an

extension of the effectiveness of the Plan. The Commission, however, is

partially approving the proposal by approving operation of the Plan and

trading pursuant to the Plan on a temporary basis to expire on December

12, 1995, and not through the entire period requested which would have

been through December 29, 1995.

\1\ The signatories to the Plan, i.e., the National Association

of Securities Dealers, Inc. (``NASD''), and the Chicago Stock

Exchange, Inc. (``Chx'') (previously, the Midwest Stock Exchange,

Inc.), Philadelphia Stock Exchange, Inc. (``Phlx''), and the Boston

Stock Exchange, Inc. (``BSE''), are the ``Participants.'' The BSE,

however, joined the Plan as a ``Limited Participant,'' and reports

quotation information and transaction reports only in Nasdaq/

National Market (previously referred to as ``Nasdaq/NMS'')

securities listed on the BSE. Originally, the American Stock

Exchange, Inc., was a Participant to the Plan, but did not trade

securities pursuant to the Plan, and withdrew from participation in

the Plan in August 1994.

\2\ The Commission notes that Section 12(f) of the Act describes

the circumstances under which an exchange may trade a security that

is not listed on the exchange, i.e., by extending unlisted trading

privileges (``UTP'') to the security. Section 12(f) was amended on

October 22, 1994, 15 U.S.C. Sec. 78l (1991) (as amended 1994). Prior

to the amendment, Section 12(f) required exchanges to apply to the

Commission before extending UTP to any security. In order to approve

an exchange UTP application for a registered security not listed on

any exchange (``OTC/UTP''), Section 12(f) required the Commission to

determine that various criteria had been met concerning fair and

orderly markets, the protection of investors, and certain national

market initiatives. These requirements operated in conjunction with

the Plan currently under review. The recent amendment to Section

12(f), among other matters, removes the application requirement and

permits OTC/UTP only pursuant to a Commission order or rule. The

order or rule is to be issued or promulgated under essentially the

same standards that previously applied to Commission review of UTP

applications. The present order fulfills these Section 12(f)

requirements.

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I. Background

The Commission originally approved the Plan on June 26, 1990.\3\

The Plan governs the collection, consolidation and dissemination of

quotation and transaction information for Nasdaq/National Market

securities listed on an exchange or traded on an exchange pursuant UTP.

The Commission originally approved trading pursuant to the Plan on a

one-year pilot basis, with the pilot period to commence when

transaction reporting pursuant to the Plan commenced. Consequently, the

pilot period commenced on July 12, 1993. As requested by the

Participants in Amendment Nos. 1, 2, 3, 4, and 5 to the Plan, the

Commission has extended the effectiveness of the Plan five times.

Accordingly, the effectiveness of the Plan was scheduled to expire on

November 12, 1995.\4\

\3\ See Securities Exchange Act Release No. 28146 (June 26,

1990), 55 FR 27917 (``1990 Approval Order''). For a detailed

discussion of the history of UTP in OTC securities, and the events

that led to the present plan and pilot program, see 1994 Extension

Order, infra note 4.

\4\ See Securities Exchange Act Release No. 34371 (July 13,

1994), 59 FR 37103 (``1994 Extension Order''). See also Securities

Exchange Act Release No. 35221, (January 11, 1995), 60 FR 3886

(``January 1995 Extension Order''), Securities Exchange Act Release

No. 36102 (August 14, 1995), 60 FR 43626 (``August 1995 Extension

Order''), Securities Exchange Act Release No. 36226 (September 13,

1995), 60 FR 49029 (``September 1995 Extension Order''), and

Securities Exchange Act Release No. 36368 (October 13, 1995), 60 FR

54091 (``October 1995 Extension Order'').

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As originally approved by the Commission, the Plan required the

[[Page 58120]]

Participants to complete their negotiations regarding revenue sharing

during the one-year pilot period. The January 1995 Extension Order

approved the effectiveness of the Plan through August 12, 1995, and

since that time the Commission has expected the Participants to

conclude their financial negotiations promptly (at that time, before

January 31, 1995), and to submit a filing to the Commission that

reflected the results of the negotiations.\5\ To date, the Participants

have not completed their financial negotiations.

\5\ See January 1995 Extension Order, id, at n. 6.

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Proposed Amendment No. 6 to the Plan would have extended the

effectiveness and the negotiation period through December 29, 1995. In

light of the lack of progress that has been made by the Participants in

finalizing their negotiations, as evidenced by their failure to file a

proposed amendment for revenue sharing under the Plan, the Commission

believes it is appropriate only to approve the proposal partially by

extending the effectiveness of the pilot program for an additional

month. This should serve to continue the pilot program in place while

the Commission awaits the requisite filing.\6\

\6\ The NASD, in its letter attached to the present filing,

states that all Plan Participants have made a good faith effort to

reach a final agreement on revenue sharing under the Plan, but that

the Chx has requested a limited amount of time to conclude

internally its consideration of the most recent draft of the

financial plan amendment. See letter from Robert E. Aber, NASD, to

Jonathan Katz, Commission, dated November 9, 1995. The Participants

are reminded that they currently are in violation of the

Commission's August 1995 Extension Order that required the

Participants to submit a filing concerning revenue sharing on or

before August 31, 1995. The Commission continues to urge the

Participants to comply with the Commission's request for the filing

promptly.

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II. Extension of Certain Exemptive Relief

In conjunction with the Plan, on a temporary basis scheduled to

expire on November 12, 1995, the Commission granted an exemption from

Rule 11Ac1-2 under the Act regarding the calculated best bid and offer

(``BBO''), and granted the BSE an exemption from the provision of Rule

11Aa3-1 under the Act that requires transaction reporting plans to

include market identifiers for transaction reports and last sale data.

While the Participants have requested that these exemptions be extended

through December 29, 1995, this order extends these exemptions only

through December 12, 1995. Further, this extension will remain in

effect only if the Plan continues in effect through that date pursuant

to a Commission order.\7\ The Commission continues to believe that

exemptive relief from these provisions is appropriate through December

12, 1995.

\7\ In the October 1995 Extension Order, the Commission extended

these exemptions from October 12, 1995, through November 12, 1995.

Pursuant to a request made by the NASD, this order further extends

the effectiveness of the relevant exemptions but only from October

12, 1995, through November 12, 1995. See letter dated November 9,

1995, id.

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III. Comments on the Operation of the Plan

In the January 1995 Extension Order, the August 1995 Extension

Order, the September 1995 Extension Order, and the October 1995

Extension Order, the Commission solicited, among other things, comment

on: (1) whether the BBO calculation for the relevant securities should

be based on price and time only (as currently is the case) or if the

calculation should include size of the quoted bid or offer; and (2)

whether there is a need for an intermarket linkage for order routing

and execution and an accompanying trade-through rule. The Commission

continues to solicit comment on these matters.

IV. Solicitation of Comment

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. Sec. 552, will be available for inspection and copying at

the Commission's Public Reference Room. All submissions should refer to

File No. S7-24-89 and should be submitted by December 15, 1995.

V. Conclusion

The Commission finds that proposed Amendment No. 6 to the Plan to

extend the operation of the Plan and the financial negotiation period,

but only for an additional month, is appropriate and in furtherance of

Section 11A of the Act. The Commission finds further that extensions of

the exemptive relief through December 12, 1995, as described above,

also is consistent with the Act and the Rules thereunder. Specifically,

the Commission believes that these extensions should serve to provide

the Participants with more time to conclude their financial

negotiations and with more information to evaluate the effects of and

proposed course of action for the pilot program. This, in turn, should

further the objects of the Act in general, and specifically those set

forth in Sections 12(f) and 11A of the Act and in Rules 11Aa3-1 and

11Aa3-2 thereunder.

The Commission currently believes, however, that extension beyond

December 12, 1995, of the effectiveness of the Plan and the related

exemptive relief is not necessary or in furtherance of the Act because

such an extension would not maximize the incentives for the

Participants to complete their negotiations and file a financial

amendment to the Plan, as described above. Thus, the Commission

believes that partial approval of the proposal by limiting the

effectiveness of the present approval order through December 12, 1995,

is appropriate.

It is therefore ordered, pursuant to Sections 12(f) and 11A of the

Act and (c)(2) of Rule 11Aa3-2 thereunder, that Amendment No. 6 to the

Joint Transaction Reporting Plan for Nasdaq/National Market securities

traded on an exchange on an unlisted or listed basis is hereby

partially approved and trading pursuant to the Plan is hereby approved

on a temporary basis through December 12, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority, 17 CFR 200.30-3(a)(29).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-28621 Filed 11-22-95; 8:45 am]

BILLING CODE 8010-01-M