Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating To Small Order Execution System Tier Size Classifications

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36932; File No. SR-NASD-96-7]

Self-Regulatory Organizations; Notice of Filing and Immediate

Effectiveness of Proposed Rule Change by National Association of

Securities Dealers, Inc. Relating To Small Order Execution System Tier

Size Classifications

March 6, 1996.

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

(``Act'')\1\ Notice is hereby given that on March 1, 1996, the National

Association

[[Page 10049]]

of Securities Dealers, Inc. (``NASD'' or ``Association'') filed with

the Securities and Exchange Commission (``Commission'' or ``SEC'') 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\ 15 U.S.C. 78s(b)(1) (1988).

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

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

of the Proposed Rule Change

The NASD is submitting this filing to effectuate The Nasdaq Stock

Market, Inc.'s (``Nasdaq'') periodic reclassification of Nasdaq

National Market (``NNM'') securities into appropriate tier sizes for

purposes of determining the maximum size order for a particular

security eligible for execution through Nasdaq's Small Order Execution

System (``SOES'') and the minimum quote size requirements for Nasdaq

market makers in NNM securities. Specifically, under the proposal,

1,024 NNM securities will be reclassified into a different SOES tier

size effective April 1, 1996. Since the NASD's proposal is an

interpreation of existing NASD rules, there are no language changes.

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

The purpose of the rule change is to effectuate Nasdaq's periodic

reclassification of NNM securities into appropriate tier sizes for

purposes of determining the maximum size order for a particular

security eligible for execution through SOES and the minimum quote size

requirements for Nasdaq market makers in NNM securities. Nasdaq

periodically reviews the SOES tier size applicable to each NNM security

to determine if the trading characteristics of the issue have changed

do as to warrant a tier size adjustment. Such a review was conducted

using data as of December 31, 1995, pursuant to the following

established critiia:\2\

\2\ The classification criteria is set forth in footnote 1 to

Section(a)(7) of the SOES Rules and Section 2(a) of Part V of

Schedule D to the NASD By-Laws.

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

NNM securities with an average daily non-block volume of

3,000 shares or more a day, a bid price less than or equal to $100, and

three or more market makers are subject to a minimum quotation size

requirement of 1,000 shares and a maximum SOES order size of 1,000

shares;

NNM securities with an average daily non-block volume of

1,000 shares or more a day, a bid price less than or equal to $150, and

two or more market makers are subject to a minimum quotation size

requirement of 500 shares and a maximum SOES order size of 500 shares;

and

NNM securities with an average daily non-block volume of

less than 1,000 shares a day, a bid price less than or equal to $250,

and less than two market makers are subject to a minimum quotation size

requirement of 200 shares and a maximum SOES order size of 200 shares.

Pursuant to the application of this classification criteria, 1,024

NNM securities will be reclassified effective April 1, 1996. These

1,024 NNM securities are set out in the NASD's Notice To Members 96-17

(March 1996).

In ranking NNM securities pursuant to the established

classification criteria, Nasdaq followed the changes dictated by the

criteria with two exceptions. First, an issue was not moved more than

one tier size level. For example, if an issue was previously

categorized in the 1,000-share tier size, it would not be permitted to

move to the 200-share tier even if the reclassification criteria showed

that such a move was warranted. In adopting this policy, Nasdaq was

attempting to maintain adequate public investor access to the market

for issues in which the tier size level decreased and help ensure the

ongoing participation of market makers in SOES for issues in which the

tier size level increased. Second, for securities priced below $1 where

the reranking called for a reduction in tier size, the tier size was

not reduced.

The NASD believes that the proposed rule change is consistent with

Section 15A(b)(6) of the Act. Section 15A(b)(6) requires, among other

things, that the rules of the NASD governing the operation of The

Nasdaq Stock Market be designed to foster cooperation and coordination

with persons engaged in regulating, clearing, settling, processing

information with respect to, and facilitating transactions in

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

free and open market. The NASD believes that the reassignment of NNM

securities within SOES tier size levels and minimum quotation size

levels will further these ends by providing an efficient mechanism for

small, retail investors to execute their orders on Nasdaq and providing

investors with the assurance that they can effect trades up to a

certain size at the quotations displayed on Nasdaq.

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

The NASD believes that the proposd rule change will not result in

any burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act.

C. Self-Regulatory Organization's 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

The proposed rule change has become effective immediately pursuant

to Section 19(b)(3)(A)(i) of the Act and subparagraph (e) of Securities

Exchange Act Rule 19b-4 because the reranking of NNM securities into

appropriate SOES tier sizes was done pursuant to the NASD's stated

policy and practice with respect to the administrative and enforcement

of two existing NASD rules. Further, in the SOES Tier Size Order, the

Commission requested that the NASD provide this information as an

interpretation of an existing NASD rule under Section 19(b)(3)(A) of

the Act. At any time within 60 days of the filing of such rule change,

the Commission may summarily abrogate such rule change if it appears to

the Commission that such action is necessary or appropriate in the

public interest, for the protection of investors, or otherwise in

furtherance of the purposes of the Act.

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

[[Page 10050]]

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 withhel 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 the file number in the caption above and

should be submitted by April 3, 1996.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\3\

\3\ 17 CFR 200.30-3(a)(12) (1995).

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

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-5846 Filed 3-11-96; 8:45 am]

BILLING CODE 8010-01-M