Order Execution Obligations

SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
[Release No. 34–38246; File No. S7–30–95] RIN 3235–AG66 Order Execution Obligations AGENCY: Securities and Exchange Commission. ACTION: Revised compliance dates; exemptive order. SUMMARY: The Securities and Exchange Commission is revising the compliance dates and is providing exemptive relief to responsible brokers and dealers, electronic communications networks, exchanges, and associations with respect to certain Nasdaq securities to be phased-in under Rule 11Ac1–4 (‘‘Limit Order Display Rule’’) and amendments to Rule 11Ac1–1 (‘‘ECN Amendment’’) (cumulatively ‘‘Order Execution Rules’’). DATES: Effective: February 5, 1997. Compliance Dates: Compliance with the Order Execution Rules shall continue to be required with respect to exchange￾listed securities and the 50 Nasdaq securities that were phased-in on January 20, 1997. The phase-in schedule with respect to the next 100 Nasdaq securities shall be as follows: (1) 50 Nasdaq securities shall be phased-in on February 10, 1997; (2) an additional 50 Nasdaq securities shall be phased-in on February 24, 1997. Exemptive Relief: The Commission is exempting responsible brokers and dealers, electronic communications networks, exchanges, and associations, until April 14, 1997, from the requirements of the Order Execution Rules with respect to the Nasdaq securities not phased-in under such rules as of February 24, 1997.

Federal Register / Vol. 62, No. 29 / Wednesday, February 12, 1997 / Rules and Regulations 6469 1See Securities Exchange Act Release Nos. 37619A (September 6, 1997) (‘‘Adopting Release’’), 37972 (November 22, 1996), 38110 (January 2, 1997), and 38139 (January 8, 1997). The Commission notes that a broker-dealer’s duty of best execution discussed in the Adopting Release applies whether or not the security has been phased-in under the Order Execution Rules. 2See letter from Bernard L. Madoff, Securities Industry Association, to Richard R. Lindsey, dated January 30, 1997, and letter from John N. Tognino, Securities Traders Association, to Richard R. Lindsey, dated January 31, 1997. 3The Commission also amended subsection (a)(25)(ii) of the Quote Rule, thereby expanding the coverage of the Quote Rule to all exchange-traded securities. Thereafter, the Commission determined that it was appropriate to make this aspect of the amendments effective April 10, 1997. See Securities Exchange Act Release No. 38110, supra note 1. The present order does not change that date and, therefore, the effective date of subsection (a)(25)(ii) of the Quote Rule remains April 10, 1997. 4Currently, compliance with the Order Handling Rules is required for 50 of the 1000 Nasdaq securities with the highest average daily trading volume. These 50 securities have been identified by Nasdaq. Similarly, Nasdaq is to identify the next two groups of 50 stocks to be phased-in under the Order Handling Rules. FOR FURTHER INFORMATION CONTACT:
Betsy Prout Lefler, Special Counsel, Gail Marshall-Smith, Special Counsel, or David Oestreicher, Special Counsel, (202) 942–0158, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, NW., Mail Stop 5–1, Washington, DC 20549. SUPPLEMENTARY INFORMATION:
Background
On August 28, 1996, the Securities and Exchange Commission (‘‘Commission’’) adopted Rule 11Ac1–4, the ‘‘Limit Order Display Rule,’’ and amendments to Rule ‘‘Ac1–1, the ‘‘ECN Amendment,’’ to require OTC market makers and exchange specialists to display certain customer limit orders, and to publicly disseminate the best prices that the OTC market maker or exchange specialist has placed in certain electronic communications networks (‘‘ECNs’’), or to comply indirectly with the ECN Amendment by using an ECN that furnishes the best market maker and specialist prices therein to the public quotation system. On January 20, 1997, the Order Execution Rules became effective. As of that date, compliance with the rules became mandatory for all exchange￾traded securities and 50 Nasdaq securities. Compliance with the rules for the remaining Nasdaq securities is to be completed in accordance with a
schedule established by the
Commission.1 Under the previously announced schedule, compliance with the Order Handling Rules would have been required with respect to another 100 Nasdaq securities on February 7, 1997, and another 850 Nasdaq securities on February 28, 1997. In addition, on March 28, 1997, compliance would have been required with respect to all remaining Nasdaq securities under the ECN Rule, and with respect to another 1500 Nasdaq securities under the Limit Order Display Rule. Thereafter, compliance under the Limit Order Display Rule was to be phased-in over several months. The Commission has been closely monitoring the implementation of the Order Execution Rules, and recently received two letters from representatives of numerous industry participants (‘‘Industry Letters’’) requesting that the Commission adopt a more conservative
schedule for implementing the Order
Execution Rules.2 Accordingly, the Commission has determined that it is appropriate to modify the schedule to provide a more gradual phase-in to allow market participants more time to adapt to the Order Execution Rules.3 The new schedule is as follows: On February 10, 1997, 50 Nasdaq securities, and on February 24, 1997, an additional 50 Nasdaq securities, shall be phased-in for compliance under the Order Execution Rules.4 Furthermore, in response to the Industry Letters, the Commission is exempting responsible brokers and dealers, electronic communications networks, exchanges, and associations, until April 14, 1997, from the requirements of the ECN Amendment with respect to all Nasdaq securities not phased-in as of February 24, 1997, and from the requirements of the Limit Order Display Rule with respect to the 2350 Nasdaq securities that will not be phased-in as of February 24, 1997. Under the prior schedule, all Nasdaq securities would have been phased-in by March 28, 1997 for compliance with the requirements of the ECN Amendment. Likewise, 850 of these securities would have been phased-in on February 28, and another 1500 on March 28, 1997, for compliance with the Limit Order Display Rule. The Commission believes it is imperative to continue to phase-in implementation of the Order Execution Rules with respect to additional Nasdaq securities. The Commission has granted exemptive relief to monitor operation of the rules carefully, and will develop a further phase-in schedule for the Nasdaq securities not phased-in as of February 24, 1997. The Commission finds that the modifications of the compliance dates described above, and the exemptive relief provided herein to responsible brokers and dealers, electronic communications networks, exchanges, and associations are consistent with the public interest, the protection of investors and the removal of impediments to and perfection of the mechanism of a national market system. For the Commission, by the Division of Market Regulation, pursuant to delegated authority, 17 CFR 200.30(a)(28), (61), and (62). Dated: February 5, 1997. Margaret H. McFarland, Deputy Secretary. [FR Doc. 97–3432 Filed 2–11–97; 8:45 am] BILLING CODE 8010–01–M