[Federal Register Volume 60, Number 1 (Tuesday, January 3, 1995)]
[Notices]
[Pages 156-157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-32252]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35139; File No. SR-NYSE-94-34]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by New York Stock Exchange, Inc. Relating to Amendment of
Exchange Rule 92 To Permit Trading Along With Customers
December 22, 1994.
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
September 27, 1994, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change, and on December 20, 1994,
submitted amendment no. 1 to the proposed rule change, as described in
Items I, II and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change consists of an amendment to Exchange Rule
92 to permit member organizations to trade along with customers when
liquidating a block facilitation position, subject to specified
conditions.
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 [[Page 157]] 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
Currently, Exchange Rule 92 provides that members may not trade for
their own accounts at a price at which they hold executable customer
orders. The rule does not contain any exceptions for any type of
proprietary transactions, including transactions where a member firm
trades for its own account along with a customer's block-size order
when liquidating a proprietary block facilitation position, even if the
customer has given permission for the firm to trade along with the
order.
The ability to liquidate a block facilitation position in such
circumstances, however, is generally perceived by positioning firms and
their institutional customers as a reasonable aspect of the block
facilitation business, provided there is disclosure to customers and
customer consent. The inability to liquidate such positions in these
circumstances may impede the block facilitation business, as firms may
be reluctant to assume block facilitation positions if they cannot
liquidate them, subject to appropriate safeguards, while representing
customer orders.
The Exchange is proposing to amend Rule 92 to permit member
organizations to trade along with a customer, when liquidating a block
facilitation position, subject to the following conditions:
The customer is not an individual investor;
The customer's order is for 10,000 shares or more;
The customer has given express permission for the member
organization to trade along with the order, including an understanding
of the relative price and size of allocated execution reports;
The member organization is liquidating a position acquired
in the course of facilitating a block transaction; and
The member organization's orders are for an account used
to record transactions whereby the member organization acquires
positions in the course of facilitating customer orders of 10,000
shares or more (a ``proprietary facilitation account'').
The Exchange intends to inform members and member organizations
that, although the amended rule does not outline a specific method of
record keeping evidencing that a customer has given permission to trade
along, the burden of proof to demonstrate that customer consent was
obtained will fall on the member or member organization.
Paragraph (a) of the proposed rule change extends the provisions of
Rule 92 to trades by an Exchange member or member organization on ``any
other market center.'' This provision means that, for Exchange members,
the broad concepts of agency law and fiduciary duty codified in
paragraph (a) of Rule 92 are intended to apply to all agency
representation, irrespective of market center. The limited exception
provided in paragraph (b), however, is intended to apply only to
transactions by members on the Exchange. Other market centers may
choose to adopt, or not adopt, a comparable exception.
The supplementary material in section .10 of the proposed rule
change imputes knowledge of customer orders to members or employees
engaged in proprietary trading for a member or member organization,
unless that organization has a functional separation of the area doing
the proprietary trading from other areas of the organization (e.g., as
between a broker dealer operating with an exemption from certain
specialist rules pursuant to Exchange Rule 98 and an affiliated
specialist unit).
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 rule change will enable member organizations to add depth and
liquidity to the Exchange's market, while continuing to provide
customer protection through the requirement of customer approval for
trading along situations.
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
Within 35 days of the publication of this notice in the Federal
Register 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, NW., Washington, DC 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, NW.,
Washington, DC 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-94-34 and should be
submitted by January 24, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-32252 Filed 12-30-94; 8:45 am]
BILLING CODE 8010-01-M
