Notice To Members 92-8

Proposed Amendment to Rules of Fair Practice, Article III, New Section 46: Short-Sale Rule for Nasdaq/NMS Securities and New Section 47: Primary Nasdaq Market Makers; Last Voting Date: March 13, 1992

Published Date:
Last Voting Date: March 13, 1992

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MAIL VOTE

EXECUTIVE SUMMARY

The NASD invites members to vote on a new Section 46, Article III of the Rules of Fair Practice regarding adoption of a short-sale rule or "bid test" for Nasdaq National Market System (Nasdaq/NMS) securities. The proposed short-sale rule will prohibit members from effecting short sales at or below the bid for themselves or their customers when the current inside or best bid is below the previous inside bid. The rule will be in effect during normal, domestic market hours (9:30 a.m. to 4 p.m., Eastern Time) and includes an exemption for transactions by qualified Nasdaq market makers. Qualified or "primary" Nasdaq market makers are designated as such if they comply with the criteria set forth in new Section 47. The three primary criteria relate to dealer spread, time at the inside quotation, and quote changes in relation to trades. A supplemental criterion relates to the share of trading volume accounted for by a market maker. The NASD Board of Governors approved adoption of a short-sale rule in November 1991 and approved the primary market-maker qualifications in January 1992 following a year of comment and discussion among members, issuers, and institutional participants in the Nasdaq market.

The text of the proposed rules follow this notice.

BACKGROUND

In January 1991, the NASD solicited comment from the membership on the concept of a short-sale rule for the Nasdaq market. More than 100 comment letters supporting and opposed to the concept from members and issuers were submitted, along with hundreds of short form responses from issuers in support of the rule. Thereafter, the issue was referred to appropriate committees for consideration. During the past year, the Corporate Advisory Board and the Issuer Affairs, Institutional Investors, Corporate Financing, Marketing, and Trading Committees discussed the pros and cons of adopting a short-sale rule. In addition, joint meetings were held to address concerns of the different constituencies and representatives of the market-making community and of professional short sellers met with Board representatives.

Each committee that reviewed the short-sale issue submitted a positive recommendation for such a rule to the Board of Governors. While the committee votes were not unanimous on the issue, the consensus among committees and overwhelming support from Nasdaq issuers for a short-sale rule persuaded the Board to approve the rule.

The short-sale rule developed for the Nasdaq market is comparable to the short-sale rule for listed stocks in many ways. The SEC short-sale rule, Rule 10a-l, was adopted to prevent speculative selling in exchange-listed securities from accelerating a decline in the price of a security and to prevent a form of manipulation known as "bear raiding" or "piling on." Piling on occurs when short sellers exert pressure on a stock's price, forcing the price to drop precipitously, frequently within a single trading day. The SEC rule applies to exchange-listed securities but does not apply to Nasdaq securities.

Because of differences between exchange and Nasdaq markets, the short-sale rule for the Nasdaq market is based on a "bid test" rather than the exchange "tick test." A "tick" means the last reported sale price on the consolidated tape, and the SEC rule prohibits short sales of exchange-listed securities at prices below the previous reported last sale price (minus tick) or at the last sale price if that price is below the previous different last sale price (zero-minus tick). Since the substantial majority of trade reports in most exchange-listed securities occur on a single exchange floor, generally ensuring sequential trade reporting, the SEC short-sale rule is based on the last sale or tick.

Trade reporting in Nasdaq/NMS securities, on the other hand, may involve as many as 50 different market makers in a given stock, reporting trades from different locations to the NASD via computer interface or through Nasdaq WorkstationSM terminals. Although trades are required to be reported within 90 seconds after execution, they do not necessarily appear on the Nasdaq tape in sequential order. For this reason, the Nasdaq short-sale rule was designed as a bid test.

HOW THE NASD SHORT-SALE RULE WORKS

The NASD short-sale rule will operate to prohibit short sales at or below the bid when the current inside bid for a Nasdaq/NMS security is below the previous inside bid in the security. The Nasdaq system calculates the inside bid as the best bid from all market makers in the security, and the system will be configured to indicate on the screen whether the current bid is an "up bid" or a "down bid" so that members will have that information at their fingertips when effecting short sales. The NASD rule will also include many of the same exceptions contained in the SEC's short-sale rule (discussed below).

A sale is considered "short" if the seller does not own the stock, or if the seller owns the stock but delivers borrowed stock to the buyer at settlement. To determine whether the seller is long or short overall, the seller must net all positions in the security just as is required in short sales for listed securities.

The NASD short-sale rule applicable to Nasdaq/NMS securities will:

(1) be based on the inside bid as displayed in the Nasdaq system;
(2) prohibit short sales at or below the inside bid when the current inside bid is lower than the preceding bid (short sales could be made at all times by offering stock at prices higher than the bid);
(3) include exemptions for certain situations comparable to those exemptions available for listed stock in the SEC's short-sale rule;
(4) include exemptions from the rule's provisions for qualified Nasdaq market makers, with clearly delineated standards or criteria establishing qualifications for exempt Nasdaq market makers;
(5) prohibit market makers from using their exemption to bypass the rule or to do indirectly what is prohibited directly by the rule;
(6) include a provision for tracking future exemptions, where applicable, to the SEC short-sale rule for listed securities; and
(7) be applicable only during normal domestic market hours (9:30 a.m. to 4 p.m., ET).

The Board of Governors has also authorized, simultaneous with adoption of a rule applicable to NASD members, submission of a petition to the SEC to amend its short-sale rule, Rule 10a-1, to include Nasdaq/NMS securities so that short-sale restrictions will apply to all market participants.

COMPARISON WITH SEC SHORT-SALE RULE

In order to reduce compliance burdens for members, the NASD rule incorporates the exemptions in Rule 10a-1 that are relevant to trading in the Nasdaq market. Specifically, the rule exempts:

(1) a broker/dealer from a sale that is for an account in which it has no interest and that is marked long;
(2) any sale by a market maker to offset odd-lot orders of customers;
(3) any sale by a market maker to liquidate a long position, which is less than a round lot, provided the sale does not change the dealer's position by more than one unit of trading (100 shares);
(4) certain short-sale arbitrage transactions, in special arbitrage accounts by a person who owns another security or presently will be entitled to acquire an equivalent number of securities of the same class as the securities sold (provided the sale, or purchase which the sale offsets, is made for the bona fide purpose of profiting from a current price difference between the security sold and the security owned) and that the right of acquisition was originally attached to the security or was issued to all holders of any class of securities of the issuer;
(5) transactions made as part of an international arbitrage opportunity. The seller must have a bona fide purpose to profit from the price difference between a security on an international market outside the jurisdiction of the U.S. and a security listed as a Nasdaq/NMS security. For the purposes of this section, a depositary receipt (e.g., ADR) for a security shall be deemed the same as the security represented by the receipt;
(6) short sales by an underwriter or any member of the distribution syndicate in connection with the over-allotment of securities, or any lay-off sale by a person with a distribution of securities pursuant to a rights offering (Rule 10b-8) or a standby underwriting commitment;
(7) liquidations of blocks by block positioners that are not currently registered as Nasdaq market makers even if the block positioner does not have a net long position in the security if and to the extent that its net short position in such security is the subject of one or more offsetting positions created in the course of bona fide arbitrage, risk arbitrage, or bona fide hedge activities.

Because the definition of short sale fails to take into account all economically equivalent securities in defining a long position, the liquidation of index arbitrage positions was covered by the literal language of Rule 10a-l. To alleviate this problem, in 1986 the SEC took a "no action" position that allows broker/dealers to sell short on a down tick while liquidating index arbitrage positions under certain conditions. The SEC stated that a broker/dealer could effect sales of long positions in stocks that are offset by short positions in stock index futures and/or options in connection with the unwinding of index arbitrage positions without regard to the short-sale rule. The exemption applies when the firm has a net short position in any of those stocks that is attributable to unrelated arbitrage, risk arbitrage, or hedge activities.

In 1990, the SEC clarified the application of the 1986 no-action position. Relief is available only when unwinding index arbitrage positions that were established in compliance with Rule 3b-3 (the SEC rule defining short sales that require netting) and Rule 10a-l, and where action is taken to reverse both sides of the position as nearly simultaneously as practicable. The NASD would recognize this exemption. The proposed rule also contains a provision that would allow the NASD to adopt SEC amendments to Rule 10a-1 that are applicable to the Nasdaq market without recourse to membership vote.

EXEMPTION FOR QUALIFIED NASDAQ MARKET MAKER

Since an exemption from the short-sale rule for bona fide market-making activity is considered fundamental to avoid disrupting traditional dealer activity, defining qualifications for exempt Nasdaq market makers is critical to such a rule. The NASD proposal contains an exemption for qualified market makers so that dealer activities that provide liquidity and continuity to the Nasdaq market will continue uninterrupted.

The Trading Committee and its Quality of Markets Subcommittee developed objective, quantitative criteria that could be applied equitably to all market makers regardless of size and, most importantly, that would be within the market maker's ability and control to satisfy. The primary criteria include amount of time at the inside bid or ask quotation, comparison of an individual market maker's spread to the average dealer spread in each stock, and frequency of dealer quotation updates without a corresponding execution in the security.

Using these components, in order to be considered a primary market maker in the Nasdaq system, market makers must satisfy two out of the three specific threshold standards:

(1) a market maker must maintain the best bid or best offer as shown in the Nasdaq system no less than 35 percent of the time;
(2) a market maker must maintain a spread no greater than 102 percent of the average dealer spread; or
(3) no more than 50 percent of a market maker's quotation updates may occur without being accompanied by a trade execution of at least one unit of trading.

In addition, recognizing that overall volume is also indicative of quality market making, the committees added a supplemental test based on proportionate volume which is met if a market maker accounts for 1½ times its proportionate share of volume in the stock. That is, if there are 10 market makers in a stock, each dealer's proportionate share should be 10 percent; therefore 1½ times proportionate share would mean 15 percent of the overall volume.

Where a market maker meets the proportionate volume test, it may be designated as a primary Nasdaq market maker if it also satisfies one of three criteria set forth above. For example, if a market maker kept its bid or offer at the inside quote at least 35 percent of the time, but maintained a ½ point spread in the stock when the other dealers averaged a ¼ point spread and changed its quote three times on average for every trade, then the market maker would have to meet the proportionate volume test in order to qualify as a primary market maker.

A market maker satisfying these criteria will be designated as a primary market maker in the Nasdaq system, and that "primary" or "P" designation will be displayed on the Nasdaq screen.

The time frame for review of market-maker performance in each criterion under consideration will be a calendar month. Compliance with the criteria will be tracked through the Nasdaq system, which will enable market makers to review their status in each criterion in each stock and will also provide members with notice of their compliance with the standards at set intervals.

The committees also sought to identify situations that warrant special or unique treatment, such as secondary offerings. The NASD believes that the time period after secondary offerings have been announced is so sensitive to short-selling pressure that special time frames and eligibility criteria for primary market makers are warranted. To be a primary market maker in stocks involved in secondary offerings requires registration in the security prior to announcement or filing of the registration statement for the secondary offering, or the market maker must satisfy the criteria for 40 business days prior to becoming a primary market maker.

Additionally, separate criteria have been developed for other registration situations, such as for qualifying when registering in an existing security, in an initial public offering, or in a merger or acquisition situation. These special criteria permit market makers with a proven track record (e.g., they have primary market maker status in 80 percent of the stocks they have registered in for the past year) to be afforded the primary designation upon initiation of quotations. If dealers cannot meet the 80 percent test, then other avenues are set forth in the proposed rule to permit them to qualify.

If a Nasdaq market maker does not satisfy the qualification criteria, then it remains a market maker in the Nasdaq system, but it is not a primary market maker in the stock, and it cannot take advantage of the exemption from the short-sale rule. The NASD will provide a forum for review if market makers wish to request reconsideration of their failure to meet the primary market-maker standards. Because the standards are objective rather than subjective, however, requests for reconsideration will be limited to consideration of system failures, excused withdrawals, or related activity in derivative or convertible securities that may affect a market maker's compliance with the criteria.

To analyze the effect that the proposed criteria and threshold standards would have on Nasdaq market makers, the committees reviewed members' performance on selected days. If members are interested in reviewing statistical data regarding their performance involving the proposed criteria during the review period, please contact Tim McCormick, Corporate Communications, NASD, 1735 K Street, NW, Washington DC 20006-1506, or call him at (202) 728-6910.

Finally, the NASD is sensitive to the fact that there may be unforeseen consequences or unfavorable treatment to a class of members or investors that may necessitate modifications to the proposals. To ensure that the NASD maintains the ability to make adjustments on an expeditious basis, the rule permits the NASD Board to rescind or modify the threshold levels of the criteria if necessary. Similarly, the Board has retained the authority to separately modify the market-maker exemption criteria if necessary to achieve SEC approval of the rule.

SUMMARY

The Board believes that short-sale abuse is not merely a perception problem for issuers. A year ago, qualitative market research conducted among issuers and professional investors indicated that the lack of a short-sale rule in the Nasdaq market was a factor among those who expressed negative attitudes toward Nasdaq. While research and studies may show no difference in long-term short-interest positions between exchange-listed or Nasdaq stocks, issuers are concerned that instances of extreme intraday volatility may inhibit existing shareholders' ability to sell their stock if professional short sellers are in the market before them, exacerbating downward pressure on stocks, and reducing liquidity in the marketplace.

Issuers also report that they feel disadvantaged in secondary offerings on Nasdaq because of the increased potential for short selling to adversely affect the price at which the offering is conducted. Accordingly, the Board believes that adoption of the proposed short-sale rule will assure both issuers and investors that they are subject to at least equivalent protection from inappropriate short selling in the Nasdaq market as they are on an exchange.

The Board recognizes that a short-sale rule must be formulated in a manner to preserve market-maker depth and liquidity in Nasdaq/NMS securities. Qualified market makers must have the unfettered ability to effect short sales to balance their positions at any time during the trading day, and therefore the proposed rule has been designed to include an exemption that does not hamper a dealer's ability to buy and sell stock. Additionally, the Board is committed to implementing a short-sale rule that does not adversely affect a market maker's ability to manage risk. Dealers must be permitted the flexibility to sell short when necessary so that they will not be forced to reduce the number of stocks in which they make markets. The market-maker exemption and the criteria for qualification are firmly embedded in the short-sale rule so that the exemption will not be eroded in the future and the rule will not unduly affect the way in which market makers perform their roles.

The Board believes that the new Rules of Fair Practice regarding short sales and primary Nasdaq market makers are necessary and appropriate and recommends that members vote their approval. Please mark the attached ballot according to your convictions and return it in the enclosed, stamped envelope to the Corporation Trust Company. Ballots must be postmarked no later than March 13, 1992. Questions concerning this notice may be directed to Gene L. Finn, Chief Economist, at (202) 728-8243, Glen R. Shipway, Senior Vice President, Market Operations, at (212) 858-4448, or Beth E. Weimer, Associate General Counsel, at (202) 728-6998.

TEXT OF PROPOSED RULES

Rules of Fair Practice

(Note: All language is new.)

Section 46 — Short Sales

(a) No member shall effect a short sale for the account of a customer or for its own account in a Nasdaq National Market System security at or below the current best (inside) bid when the current best (inside) bid as displayed by the Nasdaq system is below the preceding best (inside) bid in the security.
(b) In determining the price at which a short sale may be effected after a security goes ex-dividend, ex-right, or ex-any other distribution, all quotation prices prior to the "ex" date may be reduced by the value of such distribution.
(c) The provisions of subsection (a) shall not apply to:
(1) Sales by a qualified market maker registered in the security in the Nasdaq system in connection with bona fide market-making activity. For purposes of this subsection, risk arbitrage, index arbitrage, and other transactions unrelated to normal market-making activity will not be considered bona fide market-making activity.
(2) Sales by a member, for an account in which he has no interest, pursuant to an order to sell which is marked "long" in which the member does not know, or have reason to know, that the beneficial owners of the account have a short position in the security.
(3) Sales by a member to offset odd-lot orders of customers.
(4) Sales by a member to liquidate a long position which is less than a round lot, provided that such sale does not change the position of the member by more than one unit of trading.
(5) Sales by a member of a security for a special arbitrage account if the member then owns another security by virtue of which the member is, or presently will be, entitled to acquire an equivalent number of securities of the same class of securities sold; provided such a sale, or the purchase which such sale offsets, is effected for the bona fide purpose of profiting from a current difference between the price of the security sold and the security owned and that such right of acquisition was originally attached to or represented by another security or was issued to all the holders of any such class of securities of the issuer.
(6) Sales by a member of a security effected for a special international arbitrage account for the bona fide purpose of profiting from a current difference between the price of such security on a securities market not within or subject to the jurisdiction of the United States and on such a securities market subject to the jurisdiction of the United States; provided the member at the time of such sale knows or, by virtue of information currently received, has reasonable grounds to believe that an offer enabling him to cover such sale is then available to him in such foreign securities market and intends to accept such offer immediately.
(7) Sales by an underwriter, or any member of a syndicate or group participating in the distribution of a security, in connection with an over-allotment of securities, or any lay-off sale by such a person in connection with a distribution of securities through rights pursuant to SEC Rule 10b-8 or a standby underwriting commitment.
(d) No member shall effect a short sale for the account of a customer or for its own account indirectly or through the offices of a third party for the purpose of avoiding the application of this section.
(e) No member shall knowingly, or with reason to know, effect sales for the account of a customer or for its own account for the purpose of avoiding the application of this section.
(f) A member that is not currently registered as a Nasdaq market maker in a security and that has acquired a security while acting in the capacity of a block positioner shall be deemed to own such security for the purposes of this rule notwithstanding that such member may not have a net long position in such security if and to the extent that such member's short position in such security is the subject of one or more offsetting positions created in the course of bona fide arbitrage, risk arbitrage, or bona fide hedge activities.
(g) For purposes of this section, a depositary receipt of a security shall be deemed to be the same security as the security represented by such receipt.
(h) Upon application or on its own motion, the Association may exempt either unconditionally, or on specified terms and conditions, any transaction from the provisions of this section.
(i) From time to time, the Securities and Exchange Commission may amend Rule 10a-1, Rule 3b-3, or Rule 3b-8 under the Securities Exchange Act of 1934. The Board of Governors reserves the authority to alter, amend, modify, or supplement this section in accordance with amendments to Rule 10a-l, Rule 3b-3, or Rule 3b-8 or as otherwise deemed appropriate or necessary for Nasdaq/NMS securities without recourse to membership for approval as required by Article XII to the By-Laws.
(j) Definitions:
(1) The term "short sale" shall have the same meaning as contained in SEC Rule 3b-3, adopted pursuant to the Securities Exchange Act of 1934, reprinted as follows: The term "short sale" means any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller. A person shall be deemed to own a security if: (1) he or his agent has title to it; or (2) he has purchased, or has entered into an unconditional contract, binding on both parties thereto, to purchase it but has (1) not yet received it; or (3) he owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange; or (4) he has an option to purchase or acquire it and has exercised such option; or (5) he has rights or warrants to subscribe to it and has exercised such rights or warrants; provided, however, that a person shall be deemed to own securities only to the extent that he has a net long position in such securities.
(2) The term "block positioner" shall have the same meaning as contained in SEC Rule 3b-8 for "Qualified Block Positioner" adopted pursuant to the Securities Exchange Act of 1934, reprinted as follows: (c) The term "Qualified Block Positioner" means a dealer who: (1) is a broker or dealer registered pursuant to Section 15 of the Act, (2) is subject to and in compliance with Rule 15c3-1, (3) has and maintains minimum net capital, as defined in Rule 15c3-1 of $1,000,000 and (4) except when such activity is unlawful, meets all of the following conditions: (i) he engages in the activity of purchasing long or selling short, from time to time, from or to a customer (other than a partner or a joint venture or other entity in which a partner, the dealer, or a person associated with such a dealer, as defined in Section 3(a)(18) of the Act, participates) a block of stock with a current market value of $200,000 or more in a single transaction, or in several transactions at approximately the same time from a single source to facilitate a sale or purchase by such customer, (ii) he has determined in the exercise of reasonable diligence that the block could not be sold to or purchased from others on equivalent or better terms, and (iii) he sells the shares comprising the block as rapidly as possible commensurate with the circumstances.
(3) The term "qualified market maker" shall mean a registered Nasdaq market maker that meets the criteria for a Primary Nasdaq Market Maker as set forth in Article III, Section 47 of the Rules of Fair Practice.

Section 47 — Primary Nasdaq Market Maker

(a) A member registered as a Nasdaq market maker pursuant to Part VI, Schedule D of the NASD By-Laws may be deemed to be a Primary Nasdaq Market Maker in Nasdaq National Market System securities if the market maker complies with threshold standards (as established and published by the Association from time to time) in the following qualification criteria:
(1) amount of time a dealer maintains a quotation that represents the best bid or best offer as shown in the Nasdaq system;
(2) relation of individual dealer spread to average dealer spread; and
(3) frequency of dealer quotation updates without a corresponding execution in the security occurring within three minutes before or after a quotation update.1
(b) A market maker for a Nasdaq/NMS security must satisfy the threshold standards in at least two of the criteria in section (a) in order to be designated a Primary Nasdaq Market Maker in that security; provided however, that if a market maker satisfies only one of the criteria, it may qualify as a Primary Nasdaq Market Maker if it also accounts for a threshold level of proportionate volume in the security (as established and published by the Association from time to time).2
(c) The review period for review of market maker performance in each of the qualification criteria in section (a) shall be one calendar month.
(d) If, after the review period, a market maker does not satisfy the threshold standards for the criteria in section (a), the Primary Nasdaq Market Maker designation shall be withheld commencing on the next business day following notice of failure to comply with the standards.
(e) Market makers may requalify for designation as a Primary Nasdaq Market Maker by satisfying the threshold standards for the next review period.
(f) A market maker may request reconsideration of the notice to withhold the Primary Nasdaq Market Maker designation.
(1) Grounds for requests for reconsideration shall be limited to:
(i) system failure;
(ii) excused market maker withdrawal status; or
(iii) where a market maker failed to qualify under the criteria set forth in subsection (a)(3) because of activity in a related derivative or convertible security.
(2) Requests for reconsideration must be sent in writing to Nasdaq Operations within 24 hours of the determination to withhold the Primary Nasdaq Market Maker designation.
(3) Requests for reconsideration will be reviewed by the Market Operations Review Committee, whose decisions are final and binding on the members.
(g) In registration situations:
(1) To register and immediately become a Primary Nasdaq Market Maker in a Nasdaq/NMS security, a member must be a Primary Nasdaq Market Maker in 80% of the securities in which it has registered during the preceding 12 months. If the market maker is not a Primary Nasdaq Market Maker in 80% of its stocks, it may qualify as a Primary Nasdaq Market Maker in that stock if:
(i) the market maker registers in the stock but does not enter quotes for five days; or
(ii) the market maker registers in the stock as a regular Nasdaq market maker and satisfies the qualification criteria for the next review period.
(2) Notwithstanding subsection (g)(1) above, after an offering in a stock has been publicly announced or a registration statement has been filed, no market maker may register in the stock as a Primary Nasdaq Market Maker unless it meets the requirements set forth below:
(a) For secondary offerings:
(i) the secondary offering has become effective and the market maker has satisfied the qualification criteria in the time period between registering in the security and the offering becoming effective; or (ii) the market maker has satisfied the qualification criteria for 40 business days.
(b) For initial public offerings:
(i) the market maker may register in the offering and immediately become a Primary Nasdaq Market Maker if it is a Primary Nasdaq Market Maker in 80% of the securities in which it has registered during the preceding 12 months; provided however, that if, at the end of the first review period, the Primary Nasdaq Market Maker has withdrawn on an unexcused basis from the security or has not satisfied the qualification criteria, it shall not be afforded a Primary Nasdaq Market Maker designation on any subsequent initial public offerings for the next 20 business days; or
(ii) the market maker registers in the stock as a regular Nasdaq market maker and satisfies the qualification criteria for the next review period.
(3) Notwithstanding subsection (g)(1) or (g)(2) above, after a merger or acquisition has been publicly announced, a Primary Nasdaq Market Maker in one of the two affected securities may immediately register as a Primary Nasdaq Market Maker in the other merger or acquisition security pursuant to the same-day registration procedures in Part VI, Schedule D to the By-Laws.
(h) The Board of Governors reserves the authority to alter, amend, modify, or supplement this section as deemed appropriate or necessary for Nasdaq/NMS securities without recourse to membership for approval as required by Article XII to the By-Laws.

1 The threshold standards initially shall be established as:

(a) a market maker must maintain the best bid or best offer as shown in the Nasdaq system no less than 35% of the time;

(b) a market maker must maintain a spread no greater than 102% of the average dealer spread;

(c) no more than 50% of a market maker's quotation up dates may occur without being accompanied by a trade execution of at least one unit of trading.

The NASD Board of Governors reserves the authority to rescind or modify one or more of the threshold standards immediately upon a finding that the standard is operating in a manner that is unfair to a class of investors or members, or that continued imposition of the standard results in a substantial adverse impact on the liquidity or market quality of the Nasdaq market.

2 The threshold proportionate volume standard initially shall require a market maker to account for volume of at least 1 ½ times its proportionate share of overall volume in the stock for the review period.