NASDAQ National Market System Grows to 2,709 Securities With 26 Voluntary Additions on December 16, 1986

TO: All NASD Members and Level 2 and Level 3 Subscribers

On Tuesday, December 16, 1986, 26 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,709. These 26 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

The 26 issues scheduled to join NASDAQ/NMS on Tuesday, December 16, 1986, are:

The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

Pending Additions

Once an ineligible person's registration with a member firm has been approved, the person will not be required to undergo eligibility proceedings in connection with any future applications for registration in the capacity in which his registration was approved, assuming that the individual is not otherwise ineligible. An additional eligibility proceeding would be required, for example, if an individual who was previously approved as a registered representative requested registration in a principal capacity.

The Board of Governors recognizes the significant constraints that the proposed amendments would create for persons subject to its provisions. It believes, however, that the NASD's careful review of such persons' participation in the events and circumstances that led to the liquidation of a broker-dealer as well as their proposed activities, prior to approving their association with another broker-dealer, will prove beneficial to public customers. The Board believes that the proposed amendments will help reduce the number of SIPA liquidations, aid in the preservation of the funds administered by SIPC to meet the obligations of insolvent broker-dealers, and reduce the inconvenience and risk that may be incurred by public customers as a result of SIPA liquidations.

The NASD encourages all members and other interested persons to comment on the proposed amendments. Comments should be directed to:

Mr. Lynn Nellius
Secretary
National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006-1506

Comments must be received no later than January 5, 1987. Comments received by this date will be considered by the NASD Qualifications Committee and the NASD Board of Governors. If the proposed amendments are approved by the Board, the amendments must be filed with and approved by the Securities and Exchange Commission before becoming effective.

Questions concerning this notice may be directed to Mary S. Head, NASD Office of General Counsel, at (202) 728-8284.

Sincerely,

Frank J. Wilson
Executive Vice President
Legal and Compliance

Attachment

Proposed Amendments to Article II, Sections 3, 4 and 5 of the NASD By-Laws*

Sec. 3 (a) No registered broker, dealer or municipal securities broker or dealer shall be admitted to membership, and no member shall be continued in membership, if such broker, dealer, municipal securities broker or dealer or member fails or ceases to satisfy the qualification requirements under Section 2 of this Article, or if such broker, dealer, municipal securities broker or dealer or member is or becomes subject to a disqualification under Section £ [41 of this Article.

(Remainder of Section 3 is unchanged.)

Sec. 4 If a person associated with a member or seeking to become associated with a member was an officer, director, general partner, limited principal — financial and operations, owner of ten (10) percent or more of the voting securities, or a controlling person (or a person performing similar functions) of a member that was the subject of proceedings under the Securities Investor Protection Act of 1970 ("SIPA") instituted during such person's association with the member or within six months after the termination of such person's association with the member, then such person shall be considered ineligible for registration in any capacity. Before such ineligible person may become or continue to be registered in any capacity, he shall make application for registration to the Board of Governors pursuant to Article VII of the NASD Code of Procedure; provided, however, that once such person's registration or continued registration with a member subsequent to the institution of SIPA proceedings has been approved in a particular capacity, no additional application or approval shall be required with respect to any future application for registration in the capacity approved.

(Renumber Section 4, Definition of Disqualification, as Section 5.)

NASDAQ NMS TRADE REPORTING RULE SUMMARY

When To Report

With the exception of transactions executed through the Computer Assisted Execution System (CAES) and odd lot transactions, all transactions in NASDAQ NMS securities should be reported within 90 seconds of execution. For a more detailed list of these exceptions, refer to Section XIV, Schedule D of the NASD By-Laws.

Who Reports

The following charts summarize who reports different types of transactions in NASDAQ NMS securities. In brief, the following rules apply:

• In transactions between two market makers, only the sell side reports.
• In transactions between a market maker and a non-market maker, only the market maker reports.
• In transactions between two non-market makers, only the sell side reports.
• In transactions between a member and a customer, the member reports.

What Price To Report

• For agency transactions, the member should report the number of shares only once, and report the price excluding the commission charged.

Example: Buy as agent 100 shares at 40 plus a commission of $12.50. Report 100 shares at 40

• For dual agency transactions, the member should report the number of sharesonly once, and report the price excluding the commission charged.

Example: Buy as agent 100 shares at 40 plus a commission of $12.50. Sell as agent 100 shares at 40 less a commission of $12.50. Report 100 shares at 40

• For principal transactions, except as provided below, the members should report each purchase and sale transaction separately and report the number of shares and the price. For principal transactions executed at a price which includes a mark-up, mark-down or service charge, the price reported shall exclude the mark-up, mark-down or service charge. The reported price should be reasonably related to the prevailing market, taking into consideration all relevant circumstances including, but not limited to, market conditions with respect to the security, the number of shares involved in the transaction, the published bids and offers with size at the time of the execution (including the reporting firm's own quotation), the cost of execution and the expenses involved in clearing the transaction.

Examples: Buy as principal 100 shares from another member at 40 (no mark-down included). Report 100 shares at 40
Buy as principal 100 shares from a customer at 39 7/8, which includes a 1/8 mark-down from the prevailing market of 40. Report 100 shares at 40
Sell as principal 100 shares to a customer at 40 1/8, which includes a 1/8 mark-up from the prevailing market of 40. Report 100 shares at 40
Buy as principal 10,000 shares from a customer at 39 3/4, which includes a 1/4 mark-down or service charge from the prevailing market of 40. Report 10,000 shares at 40

• A "riskless" principal transaction in which a member that is not a market maker in the security after having received from a customer an order to buy, purchases the security as principal from another member or customer to satisfy the order to buy or, after having received from a customer an order to sell, sells the security as principal to another member or customer to satisfy the order to sell, shall be reported as one transaction in the same manner as an agency transaction,excluding the mark-up or mark-down.

Examples: Sell as principal 100 shares to another member at 40 to fill an existing order. Buy as principal 100 shares from a customer at 40 minus a mark-down of $12.50. Report one transaction of 100 shares at 40

Aggregating or "Bunching" Trade Reports

• For NASDAQ NMSsecurities only, aggregating or "bunching" transaction reports at the same price is permitted for certain simultaneous and non-simultaneous executions. Simultaneous executions are defined to include:

• Pre-opening orders that are executed at market opening;
• Orders received during quotation or trading halts and executed once trading begins again;
• Limit orders that are executed when the limit price is reached; and,
• A branch office relaying combined customer orders which are executed simultaneously by the trading department.

• For non-simultaneous executions, bunching is permitted if all of the following four conditions are met:

• All orders to be bunched must be executed within 60 seconds of the initial execution and effected at the same price.
• All executions must be reported within 90 seconds of the initial execution;
• The transaction must not be initiated by the trader; and,

The individual transactions to be aggregated must involve orders of less than 5,000 shares each.

SCHEDULE D

ARTICLE XIV

Reporting Transactions in NASDAQ National Market System Designated Securities

This Part has been adopted pursuant to Article XVI of the Corporation's By-Laws and applies to the reporting by all members of transactions in NASDAQ National Market System securities ("designated securities") through the Transaction Reporting System. These securities have been designated pursuant to the "National Market System Securities Designation Plan With Respect to NASDAQ Securities" ("Plan") which has been approved by the Securities and Exchange Commission pursuant to Rule HAa2-l.

Section 1 — Definitions

Section 2 — Transaction Reporting

* NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.

** This issue is scheduled to commence trading in the NASDAQ System concurrently with its designation as a NASDAQ/NMS security on December 16, 1986.

*** This company was originally scheduled to enter NASDAQ/NMS on December 2, 1986. It has been rescheduled to enter on December 16, 1986.

* New language is underscored; deleted language is bracketed.

^1/ Defined as a NASDAQ registered market maker in the security.

^2/ In the case of dual agency transactions where customers are on both sides, the member reports one transaction exclusive of commissions.