[Federal Register Volume 63, Number 23 (Wednesday, February 4, 1998)]
[Notices]
[Pages 5829-5830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2691]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39583; File No. SR-NYSE-97-38]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc. to Amend its Rule 13 to
Create a New Percentage Order Type to be Called ``Immediate Execution
or Cancel Election''
January 27, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 2, 1998, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared by the NYSE.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change seeks to amend Rule 13 to provide that if
a percentage order is marked ``Immediate Execution or Cancel
Election,'' the elected portion of a percentage order with this
designation is to be executed immediately in whole or in part at the
price of the electing transaction. If the elected portion cannot be so
executed, the election shall be deemed cancelled, and shall revert back
to the percentage order and be subject to subsequent election or
conversion. The text of the proposed rule change is available at the
Office of the Secretary, the NYSE, and at the Commission.
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 NYSE 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 NYSE 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, NYSE Rule 13 provides for three types of percentage
orders: straight limit, last sale (which pursuant to a recently
approved amendment, can be further designated ``last sale cumulative
volume''), and ``buy minus/sell plus.'' The election provisions of each
type of percentage order operate as follows:
Straight Limit: When a trade takes place, an amount of shares
equal to the size of that trade is ``elected'' as a limit order, and
becomes a ``held'' order executable at a price within the overall
limit on the order. Typically, the limit price is above the market
when the order is entered (in the case of an order to buy), or below
the market (in the case of an order to sell).
Last Sale: When a trade takes place, an amount of shares equal
to the size of that trade is ``elected'' as a limit order, and
becomes a ``held'' order executable at the price of that trade, or
at a better price, within the overall limit of the order. If the
order is further designated ``last sale cumulative volume,'' an
elected portion of such order can move with the market and become a
held limit order executable at the price of subsequent transactions
that are higher (in the case of a buy order) or lower (in the case
of a sell order), within the overall limit price on the order.
Typically, the limit price is above the market when the order is
entered (in the case of a buy order) or below the market (in the
case of a sell order).
``Buy Minus/Sell Plus'': When a trade takes place, an amount of
shares equal to the size of the trade is elected, and becomes a
``held'' order executable only on stabilizing ticks. An order of
this type must be further qualified by placing an overall limit
price on the order.
The Exchange believes that the application of the election
provisions do not meet the interests of some investors placing
percentage orders, particularly straight limit and last sale percentage
orders:
Straight Limit: Investors entering percentage orders seek to
trade along with the trend of the market, without initiating price
changes or otherwise influencing the equilibrium of buying and
selling interest. When a straight limit percentage order is elected,
it will typically receive an execution in one of two ways:
(1) There is sufficient additional liquidity at the price of the
electing transaction for the elected portion to receive an immediate
execution at the price of the electing transaction; or
(2) If the order cannot receive an immediate execution at the
price of the electing transaction, it is, as a held order whose
limit is above the market (in the case of a buy order) or below the
market (in the case of a sell order), required to be immediately
executed (or stopped) against the contra side of the market.
[[Page 5830]]
An execution pursuant to (2) above may initiate a price change,
contrary to the ``go along'' expectations of the customer. In most
instances percentage orders represent a desire to trade along with,
rather than ahead of, the market.
Last Sale: Investors entering last sale percentage orders also
seek to trade along with the trend of the market. When a last sale
percentage order is elected, it will typically receive an execution
in one of three ways:
(1) There is sufficient additional liquidity at the price of the
electing transaction for the elected portion to receive an immediate
execution at the price of the electing transaction; or
(2) If the order cannot receive an immediate execution at the
price of the electing transaction, it is sequenced with other limit
orders at that price, and will receive an execution when there is
sufficient contra side interest for trades to be effected at that
price; or
(3) In the case of a last sale cumulative volume percentage
order, the order's executable price can move to the level of prices
of subsequent trades, but the order will receive an execution only
when there is sufficient contra side interest for trades to be
effected at those subsequently established prices.
Executions pursuant to (2) and (3) above may not always be able to
be effected, as the market trend may continue to move away from the
price at which the order may be executed. Elected portions of the last
sale percentage order may lag behind movement of the market, which
defeats the investor's purpose in entering the order.
In response, the Exchange is proposing a new percentage order type
called ``immediate execution or cancel election.'' The Exchange
believes that consistent with the underlying philosophy of the
percentage order rules, any proposed approach to accommodating
investors should limit the specialist's discretion in representing such
orders, while still allowing a degree of flexibility to meet the needs
of those entering the orders. The Exchange notes that ``Immediate or
Cancel'' is a recognized order type under Exchange Rule 13. By placing
this designation on the percentage order, the investor would require
the specialist to treat an election as cancelled unless the elected
portion can be executed immediately (in whole or in part) at the price
of the electing transaction. If the order cannot be so executed, the
election would be cancelled, and the unexecuted elected portion would
revert to the percentage order, subject to subsequent election (and
execution/cancellation as above) or conversion. The NYSE believes that
this approach sets forth objective criteria to guide the specialist's
representation of the order, while ensuring that the elected portion
does not lead the market by initiating any significant price change,
thereby defeating the investor's objectives. The investor's
instructions, not the specialist's discretion, would dictate how the
order is handled. The Exchange notes that an investor seeking to have a
percentage order executed under current rules would be free to continue
to do so by simply designating the order as one of the three currently
existing order types.
2. Statutory Basis
The NYSE believes the proposed rule change is consistent with the
requirements of Section 6(b)(5) of the Act \3\ 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. The Exchange believes that the
proposed rule change will remove impediments to and perfect the
mechanism of a free and open market to accommodate investors by
requiring the specialist to treat an election as cancelled unless the
elected portion can be executed immediately at the price of the
electing transaction.
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\3\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposal does not 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 of Comments on the Proposed
Rule Change Received From Members, Participants or Others
Comments were neither solicited nor 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 such 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, including whether the proposed rule
change is consistent with the Act. 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 this 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 Number SR-NYSE-97-38 and should be
submitted by February 25, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2691 Filed 2-3-98; 8:45 am]
BILLING CODE 8010-01-M
