Notice To Members 89-15

Adoption of Rule Amendment to Permit Withdrawal of Quotations from NASDAQ for Market-Maker Vacations — Effective December 20, 1988

Published Date:

SUGGESTED ROUTING*

Senior Management
Legal & Compliance
Operations
Trading

*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

The Securities and Exchange Commission (SEC) recently approved an amendment to Paragraph (b), Part VI, Section 7, Schedule D to the NASD By-Laws. The amendment permits market makers with three or fewer NASDAQ Level 3 terminals to receive excused withdrawals from NASDAQ for vacations, provided the request is submitted to the NASD in writing 20 business days prior to the effective date of withdrawal from the NASDAQ system and the request includes a list of securities for which withdrawal is requested.

BACKGROUND AND SUMMARY

The SEC approved on June 9, 1988 amendments to Part VI, Schedule D to the NASD By-Laws setting forth requirements applicable to NASDAQ market makers1. In part, the rule amendments deleted vacations from the list of reasons for which NASDAQ market makers would be permitted to withdraw their quotations from the NASDAQ system. Since the rule amendments became effective, a number of market makers have written to the NASD to request that Schedule D be amended to permit excused withdrawals for vacations. The market makers requesting the rule amendment were from smaller firms that believe the Schedule D provisions on excused withdrawals place them at a competitive disadvantage to larger firms that are able to provide adequate coverage for traders who are on vacation. After considering the market makers' request, the NASD concluded that firms with a limited number of personnel are most affected by the excused withdrawal provisions under Schedule D because these firms are unable to assign stocks to other experienced personnel during a trader's absence. The NASD thus filed a proposed rule amendment with the SEC October 31, 1988. The rule amendment was approved by the SEC December 20, 1988.

The new rule change permits market makers with three or fewer NASDAQ Level 3 terminals to receive excused withdrawals from NASDAQ for vacation, provided that the request for withdrawal is submitted to the NASD in writing 20 business days prior to the effective date of withdrawal from the NASDAQ system and the request includes a list of the securities for which withdrawal is requested.

Any questions regarding this notice may be directed to Eneida Rosa, NASD Assistant General Counsel, at (202) 728-8284.

SCHEDULE D TO THE NASD BY-LAWS

(Note: New language is underlined.)

Part VI

Requirements Applicable to NASDAQ Market Makers

Sec. 7 Withdrawal of Quotations

(b) Excused withdrawal status based on physical circumstances beyond a market maker's control may be granted for up to five (5) business days, unless extended by NASDAQ Operations. Excused withdrawal status based on demonstrated legal or regulatory requirements, supported by appropriate documentation and accompanied by a representation that the condition necessitating the withdrawal of quotations is not permanent in nature, may, upon written request, be granted for not more than sixty (60) days. Excused withdrawal status based on religious holidays may be granted only if notice is received by the Association five (5) business days in advance and is approved by the Association. Excused withdrawal status based on vacation may be granted only if: (1) the request for withdrawal is received by the NASD twenty (20) business days in advance, and is approved by the NASD; (2) the request includes a list of the securities for which withdrawal is requested; and (3) the request is made by a market maker with three (3) or fewer NASDAQ Level 3 terminals. The withdrawal of quotations because of pending news, a sudden influx of orders or price changes, or to effect transactions with competitors shall not constitute acceptable reasons for granting excused withdrawal status.

1 File No. SR-NASD-88-1, Securities Exchange Act Release No. 34-25791.