6540. Requirements Applicable to Market Makers
This rule is no longer applicable. NASD Rule 6540 has been superseded by FINRA Rules 5190, 6470 and 6540. Please consult the appropriate FINRA Rules.
(a) Market-maker participation in the OTCBB is voluntary and open to any NASD member firm that satisfies the financial/operational requirements applicable to member firms engaged in over-the-counter market making; subscribes to the service designated by NASD that permits OTCBB quotations; and demonstrates compliance with (or qualifies for an exception from) SEC Rule 15c2-11 at the time of initiating (or resuming) the quotation of any OTCBB-eligible security in the Service. Rule 6640 sets forth the procedure for demonstrating compliance with SEC Rule 15c2-11.
(b) An alternative trading system (ATS), as defined in Regulation ATS, Rule 300(a), or electronic communications network (ECN) as defined in SEC Rule 600(b)(23), shall be eligible to participate in the Service, provided however, that such ATS or ECN is an NASD member and otherwise meets the requirements for participation set forth in the OTC Bulletin Board Rules. Where used in the OTC Bulletin Board Rules, the term "market maker" shall be construed to include a participating ATS or ECN.
(c) A participating ATS or ECN shall reflect non-subscriber access or post-transaction fees in the ATS's or ECN's posted quote in the OTC Bulletin Board montage.
(d) OTCBB-eligible securities that meet the frequency-of-quotation requirement for the so called "piggyback" exception in SEC Rule 15c2-11(f)(3)(i) are identified in the Service as "active" securities. A member can commence market making in any active security by registering as a market maker through the service designated by NASD that permits OTCBB quotations. In all other instances, a member must follow the procedure contained in this Rule to become qualified as a market maker in a particular OTCBB-eligible security.1
(1) Permissible Quotation Entries
(A) A member firm that has qualified as a market maker in a particular OTCBB-eligible security may enter into the Service a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" and "offer wanted" indications) or a bid or offer accompanied by a modifier to reflect unsolicited customer interest. Every quotation entry must include the appropriate telephone number for the firm's trading desk.
(B) A priced bid and/or offer entered into the Service for a domestic equity security must be firm up to the minimum quotation size specified in Rule 6650. This firmness requirement applies only during normal business hours, i.e., 9:30 a.m. to 4:00 p.m. Eastern Time.
(C) A priced bid and/or offer entered into the Service for a Direct Participation Program security shall be non-firm.2 Moreover, a market maker is only permitted to update quotation entries in such securities twice daily, i.e., once between 8:30 a.m. and 9:30 a.m. Eastern Time, and once between noon and 12:30 p.m. Eastern Time.3
(D) Any member that intends to be a distribution participant in a distribution of securities subject to SEC Rule 101, or is an affiliated purchaser in such distribution, and is entering quotations in an OTCBB-eligible security that is the subject security or reference security of such distribution shall, unless another member has assumed responsibility for compliance with this paragraph:
(i) provide written notice to Operations Department prior to the pricing of the distribution that includes the intended date and time of the pricing of the offering;
(ii) withdraw all quotations in the OTCBB-eligible security to comply with the applicable restricted period under SEC Rule 101 and not enter a stabilizing bid pursuant to SEC Rule 104 in the OTCBB;
(iii) provide written notice to the Corporate Financing Department of NASD of its intention to impose a penalty bid or to conduct syndicate covering transactions pursuant to SEC Rule 104 prior to imposing the penalty bid or engaging in the first syndicate covering transaction. Such notice shall include information as to the date the penalty bid or first syndicate covering transaction will occur; and
(iv) provide written notice to the Market Regulation Department by the close of business on the day the offering terminates that includes the date and time of the pricing of the offering, the offering price, and the time the offering terminated.
(E) The written notice required by subparagraphs (d)(1)(D)(i), (iii) and (iv) of this Rule may be submitted on the Underwriting Activity Report provided by the Market Regulation Department.
(F) For purposes of subparagraph (d)(1)(D), SEC Rules 100, 101, 103 and 104 are rules of the Commission adopted under Regulation M and the following terms shall have the meanings as defined in SEC Rule 100: "affiliated purchaser," "distribution," "distribution participant," "penalty bid," "reference security," "restricted period," "stabilizing," "subject security," and "syndicate covering transaction."
(2) Impermissible Quotation Entries
(A) No member or person associated with a member shall enter into the Service a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" or "offer wanted" indications), or a bid or offer accompanied by a modifier to reflect unsolicited customer interest in any security that does not satisfy the requirements of Rule 6530.
(B) No member or person associated with a member shall enter into the Service a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" or "offer wanted" indications), or a bid or offer accompanied by a modifier to reflect unsolicited customer interest in any security of an issuer that does not make filings with the Commission through the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") system (or in paper format, if specifically permitted by Commission Rules) unless the member:
(i) notifies NASD of the issuer of the security's schedule for the filing of all periodic reports or financial reports required pursuant to the Act or regulatory authority, respectively, and the identity of the regulatory authority with which such reports are filed, or ensures that such notice is provided; and
(ii) provides to NASD the issuer's periodic reports required pursuant to the Act, or the issuer's financial reports required by regulatory authority, prior to the expiration of the grace period described in Rule 6530(a)(3), or ensures that the required periodic reports are provided to NASD within that time period.
(3) Voluntary Termination of Registration
A market maker can voluntarily terminate its registration in an OTCBB-eligible security by withdrawing its quotations in that security from the Service. The firm may re-register to quote the security by satisfying the requirements specified above.
(4) More Than One Trading Location
In cases where a market maker has more than one trading location, a fifth-character, geographic indicator shall be appended to the market maker's identifier for that security. Indicators are established by NASD and published from time to time in the Nasdaq/CQS symbol directory.
(5) Clearance and Settlement
(A) A market maker shall clear and settle transactions in OTCBB-quoted securities through the facilities of a registered clearing agency that uses a continuous net settlement system. This requirement applies only to transactions in OTCBB securities that are clearing eligible.
(B) The foregoing requirement may be satisfied by direct participation, use of direct clearing services, or by entry into a correspondent clearing arrangement with another member that clears trades through such an agency.
(C) Notwithstanding subparagraph (A) hereof, transactions in OTCBB-quoted securities may be settled "ex-clearing" provided that both parties to the transactions agree.
(e) Compliance with Market Maker Requirements
Failure of a member or a person associated with a member to comply with this Rule may be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade, in violation of Rule 2110.
1(1) On February 28, 1992, the Commission granted the Association's request to create a limited exemption from SEC Rule 15c2-11 that permits a broker/dealer to publish in or submit to a quotation medium quotations for a security immediately after such security is no longer authorized for quotation in The Nasdaq Stock Market, without having information specified by that Rule. This exemption is only available if all the following conditions are satisfied:
(a) the security's removal was attributable solely to the issuer's failure to satisfy the revised maintenance standards approved in Release No. 34-29638 (August 30, 1991), 56 F.R. 44108 (September 6, 1991);
(b) the security must have been quoted continuously in Nasdaq during the thirty calendar days preceding its delisting, exclusive of any trading halt not exceeding one day to permit the dissemination of material news concerning the security's issuer;
(c) the issuer must not be the subject of bankruptcy proceedings;
(d) the issuer must be current in its reporting pursuant to Section 13(a) or 15(d) of the Act; and
(e) a broker/dealer relying upon this exemption must have been a market maker registered with the Association in the security during the thirty day period preceding its removal from Nasdaq.
(2) By letter dated December 20, 1993, the Commission granted the Association's request for a limited exemption from SEC Rule 15c2-11 under the Act for broker/dealers that publish or submit quotations for publication in the OTCBB Service for certain OTC equity securities. This exemption is not available for American Depositary Receipts or OTC equities issued by a foreign private issuer, within the meaning of SEC Rule 3b-4. Regarding domestic OTC equities, the exemption is available to a broker/dealer, subject to the following conditions at the time such broker/dealer submits or initiates quotations in the OTCBB:
(a) The security is eligible for piggybacking pursuant to SEC Rule 15c2-11(f)(3) in another interdealer quotation system;
(b) A broker/dealer relying upon this exemption must itself have published quotations in the security in that interdealer quotation system on at least 12 business days during the preceding 30 calendar days, with not more than four consecutive business days without quotations;
(c) The issuer of the security is not the subject of bankruptcy proceedings;
(d) The issuer of the security is not delinquent in any of its reporting obligations under the Act or rules thereunder, if subject to Section 13(a) or 15(d) of the Act; and
(e) If at any time the Commission subsequently suspends trading in a domestic OTC equity security pursuant to Section 12(k) of the Act, no broker or dealer will initiate or resume quotations in that security in the OTCBB unless the broker/dealer complies with SEC Rule 15c2-11.
2 The non-firm or indicative nature of a priced entry is specifically identified on the montage of market maker quotations for this subset of OTCBB-eligible securities.
3 Examples of entries that would be considered an update include a market maker inserting a new, non-firm priced quotation, substituting an unpriced indication for a non-firm priced entry, or an initial registration without a price.
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Amended by SR-NASD-2006-091 eff. March 5, 2007. Amended by SR-NASD-2005-087 eff. Aug. 1, 2006. Amended by SR-NASD-2003-75 eff. July 9, 2003. Amended by SR-NASD-2001-44 eff. May 10, 2002. Amended by SR-NASD-98-51 eff. Jan. 4, 1999. Amended by SR-NASD-92-7 eff. April 1, 1998. Amended by SR-NASD-97-38 eff. Oct. 29, 1997. Amended by SR-NASD-97-18 eff. Mar. 14, 1997. Amended by SR-NASD-97-15 eff. Mar. 4, 1997. Amended by SR-NASD-96-08 eff. Jan. 7, 1997. Selected Notices: 98-7, 99-15, 99-43, 99-76. |