[Federal Register Volume 61, Number 199 (Friday, October 11, 1996)]
[Notices]
[Pages 53473-53475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26173]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37786; File No. SR-NYSE-96-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc. Relating to the Entry of
Limit-at-the-Close Orders
October 4, 1996.
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 July 31,
1996, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change and on October 2, 1996, filed Amendment No. 1 to
the proposed rule change,\1\ 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
[[Page 53474]]
comments on the proposed rule change from interested persons.
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\1\ See letter and Form 19b-4 from James E. Buck, Senior Vice
President and Secretary, NYSE, to Ivette Lopez, Assistant Director,
Division of Market Regulation, SEC, dated September 27, 1996.
Amendment No. 1 expands the purpose section of the filing to provide
a more detailed explanation of the reasons the Exchange is seeking
to permit limit-at-the-close (``LOC'') orders to be entered in any
stock at any time during the trading day up to 3:40 p.m. on
expiration days and 3:50 p.m. on non-expiration days. Thereafter, as
with market-on-close (``MOC'') orders, LOC orders could be entered
only to offset published imbalances. This proposed revision of the
LOC pilot would subject LOC orders to the same type of order entry
and cancellation restrictions currently imposed on MOC orders.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change would permit limit-at-the-close (``LOC'')
orders to be entered in any stock at any time during the trading day up
to 3:40 p.m. on expiration days, and 3:50 p.m. on non-expiration days.
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
A LOC order is one that is entered for execution at the closing
price, provided that the closing price is at or within the limit
specified. LOC orders are executed behind conventional limit orders at
the same price and behind market-on-close (``MOC'') \2\ orders. The
Exchange had originally proposed to amend its policy regarding LOC
order entry along with its request to extend the LOC pilot for one
year.\3\ At the request of Commission staff, the Exchange is hereby
filing its proposal to amend its LOC order entry policy as a separate
rule change to allow for a full notice and comment period. The Exchange
proposes to amend its policy regarding LOCs to permit their entry at
any time during the trading day up to 3:40 p.m. on expiration days, and
3:50 p.m. on non-expiration days. Thereafter, as with MOC orders, LOCs
could be entered only to offset published imbalances.
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\2\ An MOC order is a market order to be executed in its
entirety at the closing price on the Exchange. See NYSE Rule 13.
\3\ See Securities Exchange Act Release No. 37507 (July 31,
1996) (File No. SR-NYSE-96-18 and Amendment No. 1 thereto).
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Currently, LOC orders may be entered only to offset published
imbalances of MOC orders. MOC imbalances of 50,000 shares or more must
be published on the tape in the so-called ``pilot'' stocks \4\ and in
stocks being added to and dropped from an index and may be published in
any other stock with the approval of a Floor Official as soon as
practicable after 3:40 p.m. on expiration days \5\ and as soon as
practicable after 3:50 p.m. on non-expiration days. LOC orders must be
entered between 3:40 and 3:55 p.m. on expiration days and between 3:50
and 3:55 p.m. on non-expiration days. On expiration days, LOC orders
may not be cancelled after 3:40 p.m., except for legitimate errors. On
non-expiration days, LOC orders may not be cancelled after 3:55 p.m.,
except for legitimate errors.
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\4\ The term ``pilot stocks'' refers to the Expiration Friday
pilot stocks plus any additional QIX Expiration Day pilot stocks.
Specifically, the Expiration Friday pilot stocks consist of the 50
most highly capitalized Standard & Poors (``S&P'') 500 stocks and
any component stocks of the Major Market Index (``MMI'') not
included therein. The QIX Expiration Day pilot stocks consist of the
50 most highly capitalized S&P 500 stocks, any component stocks of
the MMI not included therein and the 10 highest weighted S&P Midcap
400 stocks.
\5\ The term ``expiration days'' refers to both (1) the trading
day, usually the third Friday of the month, when some stock index
options, stock index futures and options on stock index futures
expire or settle concurrently (``Expiration Fridays'') and (2) the
trading day on which end of calendar quarter index options expire
(``QIX Expiration Days'').
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LOCs were expanded from five stocks to all stocks in June 1995 in
the hope that this would stimulate use of this order type. LOCs have
been approved by the SEC on a pilot basis.\6\ To date, the use of LOCs
have remained limited. LOCs are restricted by time of entry and by the
fact that they must offset published MOC imbalances. It appears that
the narrow order entry window, along with the requirement that LOCs
offset published MOC imbalances, makes the opportunities for their
entry too limited to justify for many member firms the programming
necessary to support their use.
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\6\ The pilot program for LOC orders expires on July 31, 1997.
See Securities Exchange Act Release No. 37507, supra note 2.
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The expansion of the LOC pilot to allow such orders to be entered
throughout the day (up until the cut-off time) would allow investors
the possibility of using LOC orders as another investment strategy.
This could attract additional LOC orders, thereby increasing liquidity
and potentially reducing volatility at the close. In that regard, the
Exchange believes that it is appropriate to amend its LOC pilot as
described above to encourage the entry of LOC orders.
The Exchange believes that the LOC order type may prove to be a
useful means to help address the prospect of excess market volatility
that may be associated with an imbalance of MOC orders at the close.
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 perfects the mechanism of a free and open market
by providing investors with the ability to use LOC orders as a vehicle
for managing risk at the close.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participant, or Others
No written comments were either solicited or received.
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 longer 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
[[Page 53475]]
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
Exchange. All submissions should refer to File No. SR-NYSE-96-21 and
should be submitted by November 1, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26173 Filed 10-10-96; 8:45 am]
BILLING CODE 8010-01-M
