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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

Release No. 34-35323;  File No. S7-4-95

RIN 3235-AG28

Unlisted Trading Privileges

AGENCY:   Securities and Exchange Commission

ACTION:   Proposed Rulemaking

SUMMARY:  The Securities and Exchange Commission ("Commission")
is proposing new rules and amendments to existing rules
concerning unlisted trading privileges ("UTP") in listed initial
public offerings ("IPOs").  The proposed rules would reduce the
period that exchanges have to wait before extending UTP to any
listed IPO security, from the third trading day, to the first
trade reported by the listing exchange to the Consolidated Tape. 
The proposed rules also would require exchanges to have rules and
oversight mechanisms in place to ensure fair and orderly markets
and the protection of investors with respect to UTP in the
securities.  

DATES:  Comments should be submitted on or before [insert date 30
days after publication in the Federal Register].

ADDRESSES:  Interested persons should submit three copies of
their written data, views and opinions to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., D.C. 20549, and should refer to File No. S7-4-95.  All
submissions will be made available for public inspection and
copying at the Commission's Public Reference Room, Room No. 1024,
450 Fifth Street, N.W., Washington, D.C. 20549. 

FOR FURTHER INFORMATION CONTACT:  Betsy Prout, 202/942-0170,
Attorney, Office of Self-Regulatory Oversight and Market
Structure, Division of Market Regulation, Securities and Exchange
Commission, (Mail Stop 5-1), 450 5th Street, N.W., Washington
D.C.  20549.
SUPPLEMENTARY INFORMATION:

I.  BACKGROUND
     On October 22, 1994, the Unlisted Trading Privileges Act of
1994 ("UTP Act") became effective.  The UTP Act amends Section
12(f) of the Securities Exchange Act of 1934 ("Exchange Act"). 
Section 12(f) governs when a national securities exchange
("exchange") may trade a security that is not listed and
registered on that exchange, i.e. by extending unlisted trading
privileges ("UTP") to the security.  Pursuant to the UTP Act, the
Commission today is proposing rules under Section 12(f).     
     A.   Section 12(f) Prior to the UTP Act
     Prior to the UTP Act, Section 12(f) required exchanges to
apply to the Commission before extending UTP to a particular
security. -[1]-  An exchange application for the extension of UTP
named the security (or frequently, securities) for which the
applicant exchange sought Commission approval for UTP.  The
Commission was required to provide interested parties with at
                                                                 

-[1]-     When  an  exchange  "extends UTP"  to  a  security, the
          exchange allows its members to trade the security as if
          it were listed on the exchange.  For discussions of the
          history of UTP in U.S. markets and Section 12(f) of the
          Exchange Act, see,  e.g., Stephen  L. Parker &  Brandon
          Becker, Unlisted  Trading Privileges, 14 Rev. Sec. Reg.
          853 (1981);   and  Walter Werner,  Adventure in  Social
          Control of  Finance:   The National  Market System  for
          Securities, 75 Colum. L. Rev. 1233 (1975). 
 
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least ten days notice of the application, which the Commission
accomplished by publishing each UTP application for comment in
the Federal Register at least ten days prior to approving UTP for
a security.  In addition, prior to approving the UTP application,
the Commission had to find that the extension of UTP to each
security named, if listed and registered on another exchange
("listed security" on a "listing exchange"), would be consistent
with the maintenance of fair and orderly markets and the
protection of investors.  If so, the Commission published an
approval order in the Federal Register.  
     Section 12(f) gave interested parties an opportunity to
comment and to participate in a hearing regarding the extension
of UTP to any security.  Pursuant to Section 12(f), the
Commission processed hundreds of exchange applications for the
extension of UTP each year, yet comments on the applications were
extremely rare.  Indeed, virtually no comments have been
submitted to the Commission on a UTP application in over ten
years.  
     As a consequence of the application, publication, and
approval process, applicant exchanges had to wait several weeks
before competing with listing exchanges that already were trading
the securities.  Moreover, while exchanges were required to await
Commission approval before competing with the listing exchange,
dealers trading off an exchange could trade any security
immediately upon its effective registration with the Commission.
-[2]-
     As noted above, Section 12(f) also required the Commission
to review each UTP application to ensure the maintenance of fair
and orderly markets and the protection of investors with respect
to the extension of UTP to the securities named in the
application.  Pursuant to this standard of review, the staff
identified, over time, certain areas of particular concern as
they relate to UTP.  Accordingly, the staff reviewed each
application to ensure, among other things, that the applicant
exchange had proper trading rules in place to provide a fair and
orderly market in each security named and had sufficient
standards for regulatory oversight of each security to provide
for the protection of investors.  While Commission review of the
applications led to occasional discoveries of material
deficiencies and errors in the applications, the overwhelming
majority of applications raised no substantive issues and over
99% of the applications were approved.  
     In response to the Concept Release that initiated the Market
2000 Study, -[3]-  resulting in the Division of Market
Regulation's ("Division") report, Market 2000:  An Examination of
Current Equity Market Developments, some commenters noted that
the regulatory process for UTP could be a potential area for




                                                                 

-[2]-     As a technical matter, Section 12(a) limits the trading
          of securities on  an exchange to those  securities that
          are listed and  registered on  that exchange.   Section
          12(f),  both prior  to  and  following this  amendment,
          makes an exemption from this requirement for securities
          traded  pursuant  to  UTP.    Over-the-counter  ("OTC")
          dealers are not  subject to  the Section 12(a)  listing
          requirement because they do not transact business on an
          exchange.

-[3]-     See Securities Exchange Act Release No. 30920 (July 14,
          1992), 57 FR 32587 ("Concept Release").
 
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reform. -[4]- Shortly after publication of the Concept Release,
the Telecommunications and Finance Subcommittee of the House
Committee on Energy and Commerce ("Subcommittee") began working
on draft legislation to amend Section 12(f). -[5]-  These
efforts, along with the efforts and support of the various self-
regulatory organizations, ultimately led to the UTP Act.   
     B.  Statutory Changes Under Amended Section 12(f)
     The UTP Act, among other matters, removes the application,
notice, and Commission approval process from Section 12(f) of the
Exchange Act, except in cases of Commission suspension of UTP in
a particular security on an exchange.  Thus, the amendment
generally allows an exchange to extend UTP to any security when
it becomes listed and registered on another exchange or included
in Nasdaq, -[6]- subject to certain limitations.       
     First, the UTP Act contains special provisions for the
extension of UTP to any listed security that is the subject of an
initial public offering ("listed IPO security"). -[7]-  The
                                                                 

-[4]-     See letter from  William G.  Morton, Jr., Boston  Stock
          Exchange, John L. Fletcher, Midwest (currently Chicago)
          Stock Exchange, Leopold Korins, Pacific Stock Exchange,
          and Nicholas A. Giordano,  Philadelphia Stock Exchange,
          to  Jonathan  G.  Katz,  Secretary,  Commission,  dated
          December  11,  1992.    See  also, Division  of  Market
          Regulation, Securities and Exchange  Commission, Market
          2000:     An  Examination   of  Current  Equity  Market
          Developments (January 1994).

-[5]-     The Subcommittee held a hearing on  the UTP Act on June
          22,  1994,  at  which  a  Division  representative  and
          representatives     of     several      self-regulatory
          organizations appeared and  submitted written  comments
          on  the legislation.   The Unlisted  Trading Privileges
          Act of 1994 and Review of  the SEC's Market 2000 Study:
          Hearing Before  the Subcomm. on  Telecommunications and
          Finance of the House Comm. on Energy and Commerce, 103d
          Cong., 2d Sess. (1994) ("UTP Hearing").

-[6]-     Section 12(f), as amended, also removes the application
          and   approval   requirements  for   exchange   UTP  in
          securities  that  are  registered under  12(g)  of  the
          Exchange Act  (generally, "OTC securities").   Exchange
          extensions of  UTP to OTC securities,  and specifically
          to Nasdaq/National  Market securities,  are subject  to
          limitations provided in  Section 12(f) and provided  in
          an on-going pilot program.  See Securities Exchange Act
          Release No. 34371 (July 13, 1994),  59 FR 37103.  While
          the UTP Act removed the relevant application procedures
          for Nasdaq stocks,  UTP in OTC securities  continues to
          be  subject  to  the  on-going  pilot program  and  the
          limitations  it  provides.     For  that   reason,  the
          Commission  will  consider   issues  involved  in   UTP
          extensions  to   OTC  securities   as  the   Commission
          continues its on-going  review of the operation  of the
          pilot program.   

-[7]-     Section   12(f)(1)(B),   read   jointly  with   Section
          12(f)(1)(A)(ii),  as  amended, provides  this exception
          for listed IPO securities.  In defining securities that
          fall   within   the   exception,    new   subparagraphs
          12(f)(1)(G)(i) and (ii) provide:

                                                   (continued...)
 
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amendment includes a temporary provision that requires exchanges
to wait until the third day of trading in any listed IPO security
on the listing exchange before they may allow their members to
trade the security pursuant to UTP.  This provision also requires
the Commission to prescribe by rule or regulation, within 180
days of the enactment of the UTP Act (or before April 21, 1995),
the mandatory delay (or, "duration of the interval"), if any,
that should apply to UTP extensions to listed IPO securities.
-[8]- 
     Second, Section 12(f)(1)(D) provides the Commission with
rulemaking authority to prescribe, by rule or regulation,
additional procedures or requirements for extending UTP to any
security.  
     Third, new Section 12(f)(2) allows the Commission summarily
to suspend UTP in a security at any time within 60 days of the
commencement of trading on the relevant exchange pursuant to UTP.

Upon suspension, the exchange must cease trading in the security.
                                                                 

-[7]-(...continued)
               (i)  a security is the subject of  an initial
               public offering if--
                    (I)    the   offering  of  the   subject
                    security   is   registered   under   the
                    Securities Act of 1933; and
                    (II)   the   issuer  of   the  security,
                    immediately   prior   to    filing   the
                    registration statement  with respect  to
                    the  offering,  was not  subject  to the
                    reporting requirements of section  13 or
                    15(d) of this title; and
               (ii)  an  initial  public  offering  of  such
               security commences at the opening of  trading
               on  the day on  which such security commences
               trading on the  national securities  exchange
               with which such security is registered.

          15 U.S.C. 78l(f)(1)(G).   

-[8]-     Specifically, amended Section 12(f)(1)(C) provides:

               Not  later  than  180  days   after  the  date  of
               enactment of  the Unlisted Trading  Privileges Act
               of 1994,  the Commission shall prescribe,  by rule
               or  regulation,  the  duration  of  the   interval
               referred to in  this subparagraph (B), if  any, as
               the  Commission  determines  to  be  necessary  or
               appropriate  for  the  maintenance  of  fair   and
               orderly markets,  the protection of  investors, or
               otherwise in  furtherance of the  purposes of this
               title.  Until the earlier of the effective date of
               such rule or  regulation, or  240 days after  such
               date of enactment,  such interval  shall begin  at
               the opening  of trading on  the day on  which such
               security   commences   trading  on   the  national
               securities exchange  with which  such security  is
               registered and end  at the conclusion of  the next
               trading day.

          In short, this provision requires  exchanges (until the
          earlier of the effective date of a  Commission rule, or
          240 days after  the enactment of  the UTP Act) to  wait
          until the  third trading day  in a listed  IPO security
          before trading the security pursuant to UTP.   
 
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Pursuant to Section 12(f)(2)(A)(ii), an exchange seeking to
reinstate its ability to extend UTP to the security, following a
Commission suspension, must file an application with the
Commission.  The exchange must apply pursuant to procedures that
the Commission may prescribe by rule or order for the maintenance
of fair and orderly markets, the protection of investors and the
public interest, or otherwise in furtherance of the purposes of
the Exchange Act.  New Section 12(f)(2) requires public notice
and Commission review of applications to reinstate UTP that has
been suspended summarily by the Commission.  The procedures and
Commission standard of review for approval of a reinstatement
application are substantially similar to the application and
review process that previously preceded an exchange's initial
extension of UTP to a security under former Section 12(f) and the
rules thereunder. 
     These amendments to Section 12(f) reduce the waiting period
that previously delayed exchange extensions of UTP to securities
listed on other exchanges, or to certain securities traded OTC. 
In addition, the amendments direct the Commission to prescribe
rules for UTP in listed IPO securities, and otherwise empowers
the Commission to establish rules for UTP generally as the
Commission deems appropriate in furtherance of the purposes of
the Exchange Act.     
II.  PROPOSED RULES AND AMENDMENTS TO EXISTING RULES PURSUANT
TO
     AMENDED SECTION 12(f)
     As described in more detail below, the Commission is
proposing two new rules and amendments to and rescissions of
existing rules.  Specifically, the Commission is proposing new
Rule 12f-2 concerning UTP in listed IPO securities, and is
soliciting comment on alternatives to the proposed rule that
would be consistent with the UTP Act.  The Commission also is
proposing and soliciting comment on new Rule 12f-5 regarding
exchange rules to ensure the maintenance of fair and orderly
markets and the protection of investors for all securities traded
pursuant to UTP.  To provide consistency between the amendments
to Section 12(f) and the rules thereunder, the Commission also is
proposing to amend existing Rules 12f-1 and 12f-3 and to rescind
existing Rules 12f-2 and 12f-6.  Finally, the Commission is
soliciting comment on whether other Commission action concerning
intermarket linkages, as they affect UTP in listed securities, is
necessary to facilitate the operation of the UTP Act.
     A.   Listed Securities that are the Subject of an Initial
          Public Offering (Proposed Rule 12f-2)
     As discussed above, the UTP Act generally allows exchanges
to extend UTP to securities when they become listed and
registered on another exchange or included in Nasdaq, except in
the case of listed IPO securities.  In this regard, the UTP Act
establishes a temporary provision that requires exchanges to wait
until the third day of trading in the security on the listing
exchange before extending UTP to the security.  Before April 21,
1995, the Commission must prescribe by rule or regulation the
appropriate waiting period, if any, that would apply before an
exchange may extend UTP to any listed IPO security following the
commencement of its IPO.     
     The Commission is proposing new Rule 12f-2 under the
Exchange Act to establish the waiting period that would govern
the extension of UTP to a security that is the subject of an IPO.

Proposed Rule 12f-2 would provide that an exchange may extend UTP
to a listed IPO security when at least one transaction in the
subject security has been effected on the listing exchange and
the transaction has been reported pursuant to an effective
transaction reporting plan as defined in Rule 11Aa3-1 under the
 
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Exchange Act. -[9]-  The proposed rule, therefore, would shorten
the mandatory waiting period (or "interval," as it is described
in the UTP Act) for UTP in listed IPO securities from two trading
days, as temporarily specified by amended Section 12(f), to the
time that it takes to effect and report the initial trade in the
security on a listing exchange. 
     Rule 12f-2 would define the term "subject security" to mean
a security that is the subject of an initial public offering, as
that term is defined in Section 12(f)(1)(G) of the Exchange Act. 
To ensure that the proposed rule would not provide any means to
circumvent other Section 12(f) objectives and requirements, the
proposed rule also would provide that the extension of UTP
pursuant to the rule would be subject to all the provisions set
forth in Section 12(f) of the Exchange Act, as amended, and any
rule or regulation promulgated thereunder, or which may be
promulgated thereunder while the extension is in effect.
     The Commission preliminarily believes that it is appropriate
to minimize regulatory restraints on competition for trading
listed IPO securities.  Shortening the interval for UTP in listed
IPO securities should enhance the ability of exchanges to compete
for order flow in the subject securities, especially in light of
the fact that OTC dealers may trade IPO securities immediately
upon effective registration with the Commission.  Accordingly, in
the absence of a compelling reason to impose a restriction that
would inhibit competition among exchanges, the Commission
initially believes that competing exchanges should be able to
extend UTP to a listed IPO security after the first trade in the
security on the listing exchange has been effected and reported. 

     The Commission is proposing a one-trade interval before
exchanges may extend UTP to a listed IPO security because the
Commission preliminarily believes that the first transaction in
an IPO, as disseminated on the consolidated tape, conveys
essential information to the public concerning the pre-evaluated
offering price of the security.  In addition, the timing of the
initial trade and commencement of trading in a new issue entail
significant coordination involving the issuer, the listing
exchange, and the underwriters of the public offering of the
security.  If competing exchanges were to allow their members to
trade a listed IPO security before it initially trades on the
listing exchange, it may be difficult to ensure that all the
preparation for the IPO had been completed before public trading
in the security commenced. 
     During the legislative process preceding the UTP Act,
conflicting views arose among interested parties concerning the
appropriate waiting period, if any, for UTP in listed IPO
securities.  At the UTP Hearing, testimony and evidence were
presented to show the negative impact that a mandatory waiting
period for UTP has on competition. -[10]-  At the same time,
however, one interested party asserted that listed IPO securities
should trade in a central location for a "short" period of time
to help ensure market efficiency immediately following an IPO,





                                                                 

-[9]-     17 CFR 240.11Aa3-1 (1991).

-[10]-    See  prepared  testimony   of  Nicholas  A.   Giordano,
          President  and  Chief  Executive Officer,  Philadelphia
          Stock Exchange, UTP Hearing, supra note 5.
 
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and that immediate UTP in listed IPO securities could increase
the cost of raising capital for issuers. -[11]-  
     In a report to Congress on the UTP Act, the House Committee
on Energy and Commerce provided guidance concerning specific
matters it considered relevant to the present Commission
rulemaking and resolution of the above concerns:  

     The Committee expects that, in undertaking the IPO
     rulemaking authorized under the bill, the Commission
     will seek comments on the benefits associated with
     streamlining the regulatory process and enhancing
     competitive opportunities among market centers with
     respect to UTP in IPOs, and the identification of the
     negative effects if any that granting immediate UTP
     might have on the distribution of these securities. 
     The Committee further expects the Commission to
     consider the experience of the third market trading in
     listed IPOs in the course of its examination of these
     questions.  Finally, the Committee expects the markets
     to cooperate in providing the Commission with data
     regarding the nature and effect of trading activity
     (including, for example, any volatility effects on the
     security) in connection with IPO listings in order to
     enable the Commission to determine whether the benefits
     of confining early trading in IPOs to one marketplace
     are outweighed by the benefits of removing regulatory
     delays that inhibit competition among market. -[12]-

     The Commission seeks comment on each of these matters.  The
Commission believes that identification and analysis of the
potential harms and benefits that would result from either no
waiting period, or from a longer waiting period than that
proposed by the Commission, would be particularly useful in its
review.  
     The Commission also seeks comment on the one-trade waiting
period as proposed.  To the extent that commenters believe a
waiting period is appropriate, the Commission requests that they
provide data to illustrate the potential negative effects on the
pricing of an IPO.  Commenters also may wish to provide an
analysis of the effects of the current two-day waiting period. 
Finally, the Commission would be interested in receiving
alternative proposed rules from commenters who believe that
either no waiting period or a longer waiting period is
appropriate.  
      B.  Exchange Rules for Securities to which Unlisted Trading
          Privileges are Extended (Proposed Rule 12f-5) 
     Section 12(f)(1)(D), as amended, authorizes the Commission
to prescribe, by rule or regulation, such additional procedures
or requirements for extending UTP to any security as the
Commission deems necessary or appropriate for the maintenance of
fair and orderly markets, the protection of investors and the
public interest, or otherwise in furtherance of the purposes of
the Exchange Act.  Pursuant to this authority, the Commission is
proposing Rule 12f-5, which would prohibit an exchange from
extending UTP to any security unless the exchange has in effect a
rule or rules providing for transactions in the class or type of
security to which the exchange extends UTP.   
                                                                 

-[11]-    See  prepared   testimony  of  Edward   A.  Kwalwasser,
          Executive  Vice President,  Regulation, New  York Stock
          Exchange, UTP Hearing, id.

-[12]-    H.R. Rep. No. 626, 103d Cong., 2d Sess. (1994).  
 
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     This rule is intended to preserve a benefit of Commission
review of UTP applications prior to the UTP Act.  Previously, the
Commission reviewed each UTP application to ensure that the
applicant exchange had rules in place to cover the trading of the
product class of the security for which the exchange applied.  In
general, applicant exchanges had listing rules in place that
provided for transactions for most product classes of securities.

Occasionally, however, an exchange would submit a UTP application
to the Commission to trade a new or unusual product class of
securities that had been approved for trading on the listing
exchange, but had not been approved for trading on the applicant
exchange. -[13]-  
     For example, the Commission would approve a proposed rule
change to the Commission, pursuant to Section 19(b) of the
Exchange Act, by an exchange to list and trade a new type of
security.  The proposed rule change established exchange rules to
ensure the maintenance of fair and orderly markets in the
securities and sufficient mechanisms for regulatory oversight of
the named securities to provide for the protection of investors. 
A regional stock exchange occasionally filed a UTP application
for the security without submitting a similar proposed rule
change pursuant to Section 19(b) of the Exchange Act.  The
Commission's review procedures for UTP applications identified
those instances so that necessary rules would be in place on the
applicant exchange in order to ensure the maintenance of fair and
orderly markets and the protection of investors.  
     The Commission is proposing Rule 12f-5 to require exchanges
to ensure that these rules and oversight mechanisms exist on
their exchanges for the relevant securities before extending UTP
to the securities.  The proposed rule reconfirms to exchanges
their obligation to evaluate their extensions of UTP before
allowing their members to trade the securities.  
     In soliciting comment on the proposed rule, the Commission
is particularly interested in the views of market participants
and other commenters concerning the need for the rule and whether
it would, in practice, help ensure that an exchange has all the
necessary rules in place to provide for fair and orderly markets
in all securities to which the exchange extends UTP.  
     C.   Proposed Amendments to Existing Rules 12f-1 and 12f-3,
          and Proposed Rescission of Existing Rules 12f-2 and
          12f-6
     Several of the rules prescribed under former Section 12(f)
concerned the application process for extensions of UTP.  The
Commission is proposing to amend or rescind these rules to
reflect statutory changes, and is soliciting comment on whether
these proposed changes are appropriate.  
     First, the Commission is proposing to amend Rule 12f-1,
-[14]- to limit its operation to an exchange's application to
reinstate UTP after a Commission suspension.  Section 12(f), as
amended, requires an exchange to apply to the Commission for UTP
if the Commission has suspended the exchange's extension of UTP
to the security.  The proposed amendment would require
                                                                 

-[13]-    Prior to the  UTP Act, exchanges were  not permitted to
          apply to the  Commission for  UTP in  any security  for
          which the  applicant exchange had  not adopted  listing
          standards and proper trading rules, pursuant to Section
          19(b) of the  Exchange Act  and Rule 19b-4  thereunder.
          Proposed Rule 12f-5 would make  explicit the obligation
          to have the  necessary rules in place  before extending
          UTP to a specific type of security.   

-[14]-    17 CFR 240.12f-1 (1991).
 
-------------------- BEGINNING OF PAGE #9 -------------------

essentially the same format for applications to reinstate UTP as
was required by the rule under former Section 12(f) for
applications to extend UTP.   Second, the Commission is proposing
to rescind existing Rule 12f-2 and remove Form 27 referred to in
the rule. -[15]-  This rule and form dealt with instances where
an exchange might have been required to cease extending UTP, and
to reapply for UTP, in a security that was "changed" immaterially
for those purposes.  The rule and form provide an exemption from
reapplication for UTP in these cases.  The Commission is
proposing to rescind the rule because the application procedures,
from which the rule provided an exemption, no longer exist.   
     Third, the Commission is proposing to rescind the last
sentence of paragraph (b) of Rule 12f-3. -[16]-  Rule 12f-3
allows the issuer of a security that is traded pursuant to UTP,
or any broker or dealer who makes a market in the security, or
any other person having a bona fide interest in the question of
termination or suspension of UTP in the security, to apply to the
Commission for the termination or suspension of UTP in the
security.  The Rule also identifies the categories of information
that should be provided in the application, which includes the
applicant's statement that it has sent a copy of the application
to the exchange from which the suspension or termination is
sought.  Thereafter, the Rule provides that the exchange may
terminate or suspend UTP in the security in accordance with its
rules.  Finally, the Rule requires the exchange, upon suspension
or termination, promptly to file Form 28 with the Commission. 
     The Commission believes this final requirement no longer is
necessary because exchanges are no longer required to apply to
the Commission to extend UTP to a security.  Thus, notifying the
Commission of termination or suspension of UTP serves no purpose.

The Commission, therefore, is proposing to rescind that last
requirement from the Rule concerning Form 28, and to remove Form
28, in order to conform further with efforts to streamline the
regulatory process concerning UTP.  
     Finally, the Commission is proposing to rescind Rule 
12f-6. -[17]-  This rule exempts a merged exchange from the UTP
application process in certain circumstances.  The exemption no
longer is necessary because the waiting period that restrained
exchanges from extending UTP to most securities has been
eliminated by the UTP Act.
     The Commission is soliciting comment on each of these
proposed Commission rule changes.  The Commission is interested
in comments on whether the proposed amendments and rescissions
accomplish the Commission's goals with respect to the amendments
or rescissions.  The Commission also is interested in receiving
comments concerning the continued necessity of other provisions
of the rules, given the recent amendment to Section 12(f) of the
Exchange Act. 
     D.   Solicitation of Comment on Structural Implications of
          Immediate UTP 
     The Commission is seeking comment on whether any Commission
action is necessary under Section 12(f), in order to carry out
the congressional objectives of linked markets as required by




                                                                 

-[15]-    17 CFR 240.12f-2 (1991).

-[16]-    17 CFR 240.12f-3 (1991).

-[17]-    17 CFR 240.12f-6 (1991).
 
-------------------- BEGINNING OF PAGE #10 -------------------

Section 11A(a)(1)(D), -[18]- to make changes to the consolidated
quotation, trade reporting, and routing of customer and principal
interest in securities that are traded pursuant to UTP, now that
exchanges and linking facilities will have less time to prepare
for multiple exchange market trading in the securities.  The
Commission is particularly interested in comments concerning any
existing procedural delays that should be corrected by Commission
action in order to ensure that the operation of amended Section
12(f) is not impeded.

III.  INITIAL REGULATORY FLEXIBILITY ANALYSIS
     The Commission has prepared an Initial Regulatory
Flexibility Analysis ("IRFA") in accordance with 5 U.S.C.   603
regarding the proposed rules.  The following summarizes the
conclusions of the IRFA.
     The IRFA uses certain definitions of "small businesses"
adopted by the Commission for purposes of the Regulatory
Flexibility Act ("RFA").  As described in Section II, above, the
Commission is proposing rules and changes to existing rules under
Section 12(f) to comply with the UTP Act directives and to
further the objectives of this recent amendment.  Proposed Rule
12f-2 would require exchanges to wait, before extending UTP to
such a security, until the listing exchange effects and reports
the first transaction in the security.    
     Proposed Rule 12f-2 primarily has an impact on competitive
initiatives of the self-regulatory organizations, which are not
small businesses for the purposes of the RFA. -[19]-  The
proposed rules also may have some economic effect on some
businesses that may be, from time to time, small businesses for
the purposes of the RFA.  Specifically, the proposed rule may
affect the order-routing choices available to broker-dealer firms
and would designate the moment at which regional exchange
specialist firms may compete for order flow in any listed IPO
security.  Some broker-dealers and some regional specialist firms
                                                                 

-[18]-    Section 11A(a)(1)(D) of the Exchange Act provides:

               The  linking  of  all  markets  for
               qualified     securities    through
               communication  and  data processing
               facilities will  foster efficiency,
               enhance  competition, increase  the
               information  available  to brokers,
               dealers, and  investors, facilitate
               the   offsetting    of   investors'
               orders,  and  contribute   to  best
               execution of such orders.


-[19]-    The  relevant  rule  under the  Act,  17  CFR 240.0-10,
          provides  that,  for the  purposes  of the  RFA, "small
          business" (when referring to a  broker or dealer) shall
          mean a broker or dealer that  had total capital of less
          than $500,000 on the  date in the prior fiscal  year as
          of  which   its  audited   financial  statements   were
          prepared, or  if not required  to be  prepared, on  the
          last  business day of the preceding fiscal year.  Also,
          "small business" does  not include  any entity that  is
          affiliated  with  another entity  that  is not  a small
          business.   
 
-------------------- BEGINNING OF PAGE #11 -------------------

may be small businesses.  The Commission believes, however, that
the economic impact of the rule may not be "significant" and the
number of "small businesses" that would be affected by the rule
may not be "substantial," as contemplated by the RFA.  In this
regard, the Commission notes, among other things, that listed IPO
securities comprise only a fraction of the overall number of
securities available for order-routing by broker-dealers and for
trading by regional specialist firms, and only a small number of
those firms are "small businesses."  Furthermore, neither small
nor large businesses would be subject to reporting,
recordkeeping, or other compliance requirements under the
proposal. 
     The other proposals would restate existing standards for
exchange extensions of UTP, and would amend existing rules under
Section 12(f) to conform to the UTP Act and, therefore, should
have no economic impact for the purposes of the RFA.
     A copy of the Initial Regulatory Flexibility Analysis may be
obtained by contacting Betsy Prout, Attorney, Office of Market
Supervision, Division of Market Regulation, Securities and
Exchange Commission, Washington, D.C. 20549, (202) 942-0170.    

IV.  EFFECTS ON COMPETITION   
     Section 23(a)(2) of the Exchange Act -[20]- requires the
Commission, in adopting rules under the Exchange Act, to consider
any anti-competitive effects of the rules and to balance these
effects against the regulatory benefits gained in furthering the
purposes of the Act.  As discussed in more detail above, the
extension of unlisted trading privileges allows exchanges to
compete with the listing exchange, other exchanges, and with
dealers for order flow in the relevant securities.  The rules
promulgated under Section 12(f), therefore, may directly affect
competition among market centers and their members.  In addition,
firms sending orders to the market centers for execution may also
be affected by limitations that the proposed rules may place on
their order-routing practices.  The Commission is soliciting
comment on the effect the proposed rules, and the proposed
changes to existing rules, may have on exchanges, associations,
their members, and order-routing firms.   

List of Subjects in 17 CFR Parts 240 and 249
Reporting and recordkeeping requirements, Securities.

     For the reasons set out in the preamble, the Commission
proposes to amend Part 240 of Chapter II of Title 17 of the Code
of Federal Regulations to read as follows:
PART 240 -- GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE
ACT OF 1934
     1.  The authority citation for Part 240 continues to read in
part as follows:
     Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29,
80a-37, 80b-3, 80b-4, and 80b-11, unless otherwise noted.  
                        *   *   *   *   *
     2.  By amending   240.12f-1 by revising the section heading
and introductory text of paragraph (a), redesignating paragraphs
(a)(5) and (a)(6) as (a)6) and (a)(7), adding paragraph (a)(5),
and revising newly designated (a)(6), to read as follows:
  240.12f-1.  Applications for Permission to Reinstate Unlisted
Trading Privileges.
     (a) An application to reinstate unlisted trading privileges
may be made to the Commission by any national securities exchange
for the extension of unlisted trading privileges to any security 

-[20]-    15 U.S.C. 78w(a)(2).
 
-------------------- BEGINNING OF PAGE #12 -------------------

for which such unlisted trading privileges have been suspended by
the Commission, pursuant to section 12(f)(2)(A).  One copy of
such application, executed by a duly authorized officer of the
exchange, shall be filed and shall set forth:
     (1)   *   *   *
     (5) The date of the Commission's suspension of unlisted
trading privileges in the security on the exchange;
     (6) Any other information which is deemed pertinent to the
question of whether the reinstatement of unlisted trading
privileges in such security is consistent with the maintenance of
fair and orderly markets and the protection of investors;  and
                        *   *   *   *   *
     3.  By revising   240.12f-2 to read as follows: 
  240.12f-2.  Extending Unlisted Trading Privileges to a Security
that is the Subject of an Initial Public Offering.
     (a) General Provision - A national securities exchange may
extend unlisted trading privileges to a subject security when at
least one transaction in the subject security has been effected
on the national securities exchange upon which the security is
listed and the transaction has been reported pursuant to an
effective transaction reporting plan as defined in   240.11Aa3-
1.
     (b) The extension of unlisted trading privileges pursuant to
this section shall be subject to all the provisions set forth in
Section 12(f) of the Act (15 U.S.C. 78l(f)), as amended, and any
rule or regulation promulgated thereunder, or which may be
promulgated thereunder while the extension is in effect.
     (c) Definition.  For purposes of this section, the term
subject security shall mean a security that is the subject of an
initial public offering, as that term is defined in section
12(f)(1)(G) of the Act (15 U.S.C. 78l(f)(1)(G)).

     4.  By amending   240.12f-3 by revising paragraph (b) to
read as follows:
  240.12f-3.  Termination or Suspension of Unlisted Trading
Privileges.
     (a)  *  *  *
     (b)  Unlisted trading privileges in any security on any
national securities exchange may be suspended or terminated by
such exchange in accordance with its rules.   

     5.  By adding   240.12f-5, to read as follows:
  240.12f-5.  Exchange Rules for Securities to which Unlisted
Trading Privileges are Extended.
     A national securities exchange shall not extend unlisted
trading privileges to any security unless the national securities
exchange has in effect a rule or rules providing for transactions
in the class or type of security to which the exchange extends
unlisted trading privileges.

     6.  By removing and reserving   240.12f-6.

PART 249 - FORMS, SECURITIES EXCHANGE ACT OF 1934

     7.  The authority citation for Part 249 continues to read in
part as follows:
     Authority:  15 U.S.C. 78a, et seq., unless otherwise noted; 

     8.  By removing   249.27 and   248.28.
By the Commission.

                                   Jonathan G. Katz
                                   Secretary
 
-------------------- BEGINNING OF PAGE #13 -------------------

Dated:  February 2, 1995