[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Notices]
[Pages 55625-55626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27134]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36421; File No. SR-NYSE-95-35]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the New York Stock Exchange,
Inc. Relating to a Pilot Program to Display Price Improvement on the
Execution Report Sent to the Entering Firm
October 26, 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 October
20, 1995, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') 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 a pilot program, to be
implemented for six months, whereby the Exchange will test and evaluate
a means of calculating and displaying, on the execution reports sent to
member firms, the dollar amounts realized as savings to their customers
as a result of price improvement in the execution of their orders on
the Exchange. During the pilot program, the Exchange expects to work
with Merrill Lynch, Pierce, Fenner & Smith, Incorporated (``Merrill
Lynch'') in testing and evaluating the proposed methodology. Assuming
the results of the pilot program are successful, the Exchange will make
this program available to all its member organizations.
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 six month pilot program is to develop,
test, and evaluate a methodology and program for calculating and
displaying, on an execution report sent to member firms entering
orders, the dollar value saved by their customers as a result of price
improvement of orders executed on the Exchange. This program does not
in any way affect the actual execution of orders. The Exchange is
proposing to refer to this calculated dollar savings as the ``NYSE
PRIMESM.'' For the six months of the pilot, while the program is
being tested and evaluated, this feature will be available only for
certain orders entered by Merrill Lynch, which is the pilot firm with
which the Exchange is working. Should the pilot prove successful, this
program will be made available to all other member organizations.
\SM\NYSE PRIME is a service mark of the New York Stock Exchange,
Inc.
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The NYSE PRIME is proposed to be made available for intra-day
market orders entered via the Exchange's SuperDOT system that are not
tick sensitive and are entered from off the Floor.\1\ The NYSE PRIME
(amount of price improvement) is calculated in one of two ways: (1) In
comparison to the guaranteed (stopped) price for market orders that are
stopped; and (2) in comparison to the best bid and offer
[[Page 55626]]
displayed on the national market system at the time the order is
received.\2\
\1\Also excluded from the NYSE PRIME feature are booth entered
or booth routed orders, booked orders, combination orders (e.g.,
switch orders) and orders diverted to sidecar.
\2\For stocks that are not ITS-eligible, the NYSE quote is used.
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The following examples illustrate how NYSE PRIME is proposed to
work.
Assume the NYSE market quote is 50-50\1/4\.
Example 1 A market order to sell 1000 shares, entered on the
NYSE, is stopped at 50, meaning it is guaranteed to sell at 50 or a
better price. The quote is narrowed to 50-50\1/8\ and the order is
subsequently executed at 50\1/8\. This is an \1/8\ point savings
over the guaranteed (stopped) price of 50, which translates into
$125 savings over the guaranteed price. Thus, the execution report
would display NYSE PRIME $125.\3\
\3\The algorithm that calculates the savings per share can
calculate price improvement for a minimum of \1/32\ or $0.03125 per
share to a maximum of \96/32\ or $3.00 per share. If price
improvement exceeds $3.00 per share, the NYSE PRIME will be preceded
by a ``>'' sign and will equal $3.00 x the number of shares
traded.
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Assume the national market quote is 50-50\1/4\.
Example 2 A market order to buy 800 shares, entered on the NYSE,
is executed at 50\1/8\. This is an \1/8\ point savings over taking
the prevailing offer of 50\1/4\. The execution report would display
NYSE PRIME $100.
Assume the NYSE market quote is 50-50\1/8\-20,000 by 1,000.
Example 3 A market order to sell 1,000 shares is entered on the
NYSE. Because the large imbalance on the bid side suggests a
likelihood that the subsequent transaction will be on the offer
side, the sell order is stopped at 50, meaning it is guaranteed to
sell at 50 or a better price. The offer is increased to 2,000 shares
at 50\1/8\. Subsequently, another order comes in to buy 2,000 shares
at 50\1/8\ and the stopped order to sell is executed at 50\1/8\.
This is an \1/8\ point savings over the guaranteed (stopped) price
of 50, which translates into $125 savings over the guaranteed price.
Thus, the execution report would display NYSE PRIME $125.
Assume the national market quote is 50-50\1/8\-1,000 by 1,000.
Example 4 A market order to sell 1,000 shares, entered on the
NYSE, comes in at the same time as a market order to buy 2,000
shares. Both orders are executed at 50\1/8\. This is an \1/8\ point
price improvement for the 1,000 share sell order, which otherwise
would have been executed at the bid price of 50. Thus, its execution
report would display NYSE PRIME $125.
If there is no price improvement because either there was no
savings over the prevailing quote/guaranteed price or the order was not
eligible for the pilot, then no price improvement information would be
displayed on the execution report to the entering firm.
The Exchange believes that the NYSE PRIME can be expected to
enhance the information made available to investors and improve their
understanding of the auction market. The Exchange is proposing to test
and evaluate this service by conducting a six-month pilot to ensure
that the program is viable and that the data are accurate before making
the program available to all member organizations. During this period,
the Exchange will make whatever refinements are necessary to the
service before making it generally available to member firms.
2. Statutory Basis
The basis under the Act for this 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 a national
market system and, in general, to protect investors and the public
interest. This rule change is designed to perfect the mechanism of a
free and open market in that it enhances the information provided to
investors by displaying to them the dollar value of the price
improvement their orders may have received when executed on the NYSE.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. In fact, the Exchange believes
that the NYSE PRIME program can reasonably be expected to enhance
competition by disclosing to investors the amount of savings they may
realize as a result of the price improvement their orders may receive
with executed on the NYSE.
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 rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
This rule change is filed pursuant to paragraph (A) of Section
19(b)(3) of the Act, and paragraphs (e)(5) (i), (ii), and (iii) of Rule
19b-4 thereunder. The NYSE PRIME program will entail enhancements to
the Exchange's CMS (common message switch), SuperDOT and Post Trade
systems. This program does not significantly affect the protection of
investors or the public interest, does not impose any significant
burden on competition, and does not have the effect of limiting access
to or availability of any Exchange order enter or trading system. As
such, this rule change may take effect immediately upon filing with the
Commission. At any time within 60 days of the filing of such rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors or otherwise in
furtherance of the purposes of the Act.
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. Sec. 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-95-35 and should be
submitted by November 22, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27134 Filed 10-31-95; 8:45 am]
BILLING CODE 8010-01-M
