[Federal Register Volume 60, Number 14 (Monday, January 23, 1995)]
[Notices]
[Pages 4453-4454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1566]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35230; File No. SR-NYSE-94-45]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by New York Stock Exchange, Inc. Relating to Member Organization
Facilitation of Customer Stock or Program Orders
January 13, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
6, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'' or
``SEC'') the proposed rule change as described in Items I, II and III
below, which Items have been prepared by the self-regulatory
organization. On January 11, 1995, the Exchange submitted to the
Commission Amendment No. 1 to the proposed rule change in order to make
certain technical corrections to the text of the proposal.\1\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
\1\See letter from Donald Siemer, Director, Market Surveillance,
NYSE, to Beth Stekler, Attorney, Division of Market Regulation, SEC,
dated January 11, 1995 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change consists of an Information Memorandum
(``Memorandum'') that states the NYSE's policy regarding member
organization facilitation of customer stock or program orders.\2\
\2\NYSE Rule 80A defines the term ``program trading'' as (1)
index arbitrage or (2) any trading strategy involving the related
purchase or sale of a ``basket'' or group of 15 or more stocks
having a total market value of $1 million or more.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed Memorandum is to advise the Exchange's
membership of certain activities that the Exchange believes would be
inconsistent with just and equitable principles of trade.
The Memorandum describes a situation where a member organization
commits to sell securities to a customer, after the close, at the
closing price on the Exchange. To position itself to facilitate the
transaction, the member organization buys the stock(s) throughout the
day, in a proprietary account, assuming the risk of the market. To
reduce its risk, the member organization leaves a portion of the order
to be executed at the close. The Memorandum states that, if the size of
the transaction(s) that the member organization intends to execute at
the close can reasonably be expected to impact the closing price(s),
the member organization should not buy any stock related to that
position ``near the close.'' Whether or not the purchase would be
[[Page 4454]] deemed to be ``near the close'' would depend on the
degree of risk that could reasonably be attributed to the position
established by that trade, versus the reasonably anticipated impact the
trade at the close would have on the closing price. Generally, however,
trades executed after 3:40 p.m. would be considered to be ``near the
close.'' The Memorandum notes that the member organization would not be
precluded from executing the customer's order on an agency basis at any
time, including at or near the close, but cautions that this would not
preclude the Exchange from determining that such activity might be a
violation of the anti-manipulation provisions of the Act or Exchange
rules.
The Memorandum also restates that the Exchange would deem conduct
to be inconsistent with just and equitable principles of trade where a
member organization effects any transactions in a stock, knowing of the
imminent execution of a block, in order subsequently to liquidate the
position by participating on the contra-side of the block transaction.
The Memorandum also provides that a person should not disclose to any
other person trading strategies or customers' orders for the purpose of
that person taking advantage of the information for his or her personal
benefit or for the benefit of a member organization.
The Memorandum notes, however, that this would not preclude a
member organization from soliciting interest to trade with the contra-
side of a block in the normal course of engaging in block facilitation
activities.
Finally, the Memorandum reminds the Exchange's membership that they
are required to establish and maintain procedures reasonably designed
to review facilitation activities for compliance with Exchange rules
and federal securities laws. It also states that member organizations
must ensure that trading strategies engaged in by their proprietary
traders to facilitate customers' orders have an economic basis and are
not engaged in to mark the close or to mark the value of a position and
that before any at-the-close customer orders are transmitted to the
Floor, member organizations accepting such orders must exercise due
diligence to learn the essential facts relative to these orders.
2. Statutory Basis
The basis under the Act for the proposed rule change is the
requirement under section 6(b)(5) that an Exchange have rules that are
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and,
in general, to protect investors and the public interest. The proposed
Information Memorandum is consistent with these objectives in that it
enhances the Exchange's efforts to educate its membership about
practices that the Exchange believes are inconsistent with just and
equitable principles of trade.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
By no later than February 27, 1995, or within such other period (i)
as the Commission may designate up to 90 days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
(A) By order approve the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the NYSE. All
submissions should refer to File No. SR-NYSE-94-45 and should be
submitted by February 13, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1566 Filed 1-20-95; 8:45 am]
BILLING CODE 8010-01-M
