First, what’s a “non-NASDAQ security?”

NASD Systems and Programs Rule 6710(c) defines a Non-NASDAQ security as

[A]ny security that is neither included in the NASDAQ Stock Market nor traded on any national securities exchange. . .

Are there any requirements pertaining to a member’s submission of a “priced quotation?”

What is a quotation medium?

Well, to beg the question, then what’s an inter-dealer quotation system?

Pursuant to new Rule 2320(g)(3), an inter-dealer quotation system is one of general circulation to brokers or dealers that regularly disseminates real-time quotations of identified brokers or dealers.

Some of the subtle points you might miss.

QUESTION: Supposing that Dealer1 has one quote for XYZ on the OTC Bulletin Board (OTCBB) and a second quote on the Electronic Quotation Service operated by Pink Sheets LLC (the Pink Sheets) and a third quote on some other quotation system. Does Dealer1 have three quotes for purpose of Rule 2320?

ANSWER: No!

Why does that matter?

Well, you could not reference the three separate quotes as evidence of the threshold “two or more priced quotations” for purposes of avoiding the contact and obtain obligation. Each dealer’s quotes are deemed as one quote, for purposes of Rule 2320. Additionally, NASDR has specifically noted in Notice to Members 00-78 (November 2000, Three Quote Rule) that

Members that display different priced quotations in different quotation mediums for the same security can be confusing and misleading to other market participants, and, more importantly, to public investors. Moreover, requiring that members display consistent priced quotations in multiple quotation mediums will enhance the ability of other market participants to ascertain the best inter-dealer market for a security.

What happens to the obligation under Rule 3110(b)(2) to indicate on the order ticket for each non-NASDAQ transaction the name of each dealer contacted and the quotation received?

NASDR Conduct Rule 3110(b)(2){Books and Records) Marking of Customer Order Tickets required members to indicate on the order ticket for a non-Nasdaq security the name of each dealer contacted and the quotation received to determine the best inter-dealer market. This undertaking will be eliminated November 24, 2000:

when two or more priced quotations are displayed
in an inter-dealer quotation system
IF the system permits real-time quotation updates
AND NASDR has access to the quotation data.

Although NASDR has such data for OTCBB, it does not presently have similar documentation for the Pink Sheets. Accordingly, a proposed rule change is pending (SR-NASD-00-42) to require members publishing quotes in the Pink Sheets or any similar automated quotation system to record and maintain priced quotations and unpriced indications of interest data and to report such to NASDR upon request.

Consequently, effective November 24, 2000, a member would not be required under Rule 2320(g) to call a market maker to verify a firm quotation in the electronic Pink Sheets; however, the member would still be required to undertake the Rule 3110 order ticket notation of the dealer’s name, the quotation received, and the identity of the applicable inter-dealer quotation system.

Under NASD Code of Procedure Rule 9610 {Procedures for Exemptions} Application, a member may seek an exemption from the Three Quote Rule by filing a written request with NASD Staff.