[Federal Register Volume 59, Number 60 (Tuesday, March 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7280]
[[Page Unknown]]
[Federal Register: March 29, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33803; File No. SR-NYSE-93-50]
March 22, 1994.
Self-Regulatory Organizations; Filing of Proposed Rule Change by
the New York Stock Exchange, Inc. Relating to the Off-Hours Trading
Facility and Matched MOC Order Procedures
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 December 23, 1993, 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. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested
persons.\3\
---------------------------------------------------------------------------
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
\3\Concurrently with this notice, the Commission is also
publishing for comment proposals submitted by the Chicago Stock
Exchange, Inc., the American Stock Exchange Inc., the Boston Stock
Exchange, Inc., the Philadelphia Stock Exchange, Inc. and the
Pacific Stock Exchange, Inc., to request permanent approval for
their respective programs which provide for executions of securities
after regular trading hours. See File Nos. SR-CHX-93-23; BSE-93-24;
SR-Amex-93-15; SR-Phlx-94-8; and SR-PSE-94-2.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Commission has approved on a temporary basis (i) the Exchange's
Crossing Session I and Crossing Session II initiatives\4\ (ii) its
pilot program for procedures regulating matched market-on-close orders
(``MOC'').\5\ The Commission several times extended the ``sunset'' date
for both Crossing Sessions I and II, and for the MOC order pilot
program, most recently until April 30, 1994.\6\ The proposed rule
change seeks permanent approval of the Exchange's Crossing Session I
and Crossing Session II initiatives, and its MOC order pilot program.
---------------------------------------------------------------------------
\4\See Securities Exchange Act Release No. 29237 (May 31, 1991),
56 FR 24853 (June 3, 1991) (File Nos. SR-NYSE-90-52 and SR-NYSE-90-
53) (``OHT Approval Order'').
\5\The Commission initially approved the matched MOC order
procedures on a pilot basis in June, 1990. In that order, the
Commission also granted an exemption from its short sale rule, Rule
10a-1, for matched MOC orders that are part of a program trading
strategy. See Securities Exchange Act Release No. 28167 (June 29,
1990), 55 FR 28117 (order granting temporary approval to File No.
SR-NYSE-89-10) and letter from Richard G. Ketchum, Director,
Division of Market Regulation, SEC, to James E. Buck, Senior Vice
President and Secretary, NYSE, dated July 2, 1990.
\6\The original one-year pilot program for the MOC procedures
was temporarily extended by the Commission for an additional six
months, until September 30, 1991, in order to give the Exchange the
opportunity to contrast the use of matched MOC orders with certain
program trading transactions effected in the Exchange's then
recently implemented Crossing Session II. See Securities Exchange
Act Release No. 29393 (July 1, 1991), 56 FR 30954 (order granting
temporary accelerated approval to File No. SR-NYSE-91-22).
Subsequently, the Commission granted accelerated approval to an
Exchange proposal to extend the pilot period until November 30,
1991. See Securities Exchange Act Release No. 29761 (September 30,
1991), 56 FR 50743 (order granting temporary accelerated approval to
File No. SR-NYSE-91-34). Thereafter, the Commission extended the
matched MOC order pilot program through May 24, 1993. See Securities
Exchange Act release No. 30004 (November 27, 1991), 56 FR 63533
(order granting temporary approval to File No. SR-NYSE-91-35). On
May 25, 1993, the Commission approved extensions of the NYSE's OHT
and MOC pilots until January 31, 1994. See Securities Exchange Act
Release No. 32362 (May 25, 1993), 58 FR 31565 (June 3, 1993). On
February 1, 1994, the pilots were extended until April 30,1994. See
Securities Exchange Act Release No. 33563 (February 1, 1994), 59 FR
5795 (February 8, 1994).
---------------------------------------------------------------------------
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) Crossing session initiatives. By order dated May 24, 1991,\7\
the Commission approved for a two-year temporary period the OHT
facility by which the Exchange offers its two off-hours trading
sessions. ``Crossing Session I'' permits the execution of single-stock,
single-sided closing-price orders and crosses of single-stock, closing-
price buy and sell orders. ``Crossing Session II'' allows the execution
of crosses of multiple-stock (portfolios of 15 or more securities)
aggregate price buy and sell orders.
---------------------------------------------------------------------------
\7\See OHT Approval Order, supra note 6.
---------------------------------------------------------------------------
The Exchange began offering the two sessions on June 13, 1991. On
May 25, 1993, the Commission approved an extension of the Pilot until
January 31, 1994 (``Extension Order'').\8\ On February 1, 1994, the
Commission approved an extension of the Pilot until April 30, 1994.\9\
The proposed rule change seeks permanent approval of Crossing Session I
and Crossing Session II. When the Exchange first introduced its
crossing sessions, it sought to accomplish the following goals: (1) To
repatriate much of the program trading of U.S. securities that had
moved overseas; (2) to respond to competitive alternatives, both
foreign and domestic; (3) to provide an alternative trading structure
that might provide a useful experience for the design of future trading
initiatives; and (4) to provide an appropriate and useful method for
the Exchange to extend its trading hours.
---------------------------------------------------------------------------
\8\See Securities Exchange Act Release No. 32362, supra note 6.
\9\See supra note 6.
---------------------------------------------------------------------------
The Exchange has had a positive experience with the crossing
sessions. Both have continued to grow since inception and have
succeeded in meeting each of the Exchange's original objectives.
In 1993, Crossing Session I averaged 175,000 shares per day and has
averaged nearly 260,000 shares per day thus far in the fourth quarter
of 1993. The marketplace has found Crossing Session I especially useful
for particular types of business. Thus, members use Crossing Session I
primarily for the execution of small, two-sided baskets which are
ineligible for Crossing Session II and, most recently, for index
rebalancing. Over 200 firms have received executions in Crossing
Session I. In addition, the Exchange's experience to date with Crossing
Session I suggests that it has no detrimental effect on the 9:30 a.m.
to 4 p.m. trading session.
Crossing Session II has averaged approximately 3.9 million shares
per day in 1993. To date, there have been 11 days where volume has
exceeded 15 million shares, with the record being 57 million shares.
Crossing Session II has successfully repatriated business from foreign
after-hours markets; the Exchange's member firms have executed
approximately 50 percent of all post-4 p.m. program trades in Crossing
Session II. The Exchange believes that this repatriation of trading
serves the public interest because it once again subjects this business
to the U.S. regulatory umbrella.
The Exchange is also seeking permanent approval of the two crossing
sessions because the sessions have become popular among many Exchange
members. The Exchange's feedback from members has been nothing but
favorable. In a number of instances, members have volunteered--without
Exchange solicitation--their interest in having the Exchange continue
the sessions. For all of these reasons, the Exchange believes that the
level of acceptance of the two crossing sessions by the investing
public warrants its approval on a permanent basis. The Commission
requested in its order extending the pilot until April 30, 1994, that
the Exchange submit to the Commission by March 15, 1994, an updated
report concerning the pilot activity through February 28, 1994. This
updated report will assist the Commission in considering the Exchange's
request for permanent approval prior to the April 30, 1994 expiration
of the pilot program.
(b) Matched MOC orders. In File No. SR-NYSE-91-35, the Exchange
requested that procedures for using matched MOC orders and the
exemption from SEC rule 10a-1 (relating to short sales of
securities)\10\ for such orders (which had originally been filed as
part of the pilot extending expiration Friday pricing procedures for
MOC orders for every trading day) run concurrently with the temporary
period for the Exchange's OHT facility. In its order approving this
filing, the Commission stated that ``it is appropriate to allow the
Exchange additional time to compare and contrast the matched MOC
procedures with Crossing Session II.''\11\ On May 25, 1993, the
Commission approved an Exchange request to extend the pilot program for
matched MOC procedures until January 31, 1994.\12\ On February 1, 1994,
the Commission approved an Exchange request to extend the pilot program
until April 30, 1994.\13\
---------------------------------------------------------------------------
\10\Pursuant to rule 10a-1 under the Act, 17 CFR 240.10a-1
(1991), and Exchange Rule 440B, a short sale on the Exchange may not
be effected at a price either (1) below the last reported price or
(2) at the last reported price unless that price is higher than the
last reported price.
\11\See Securities Exchange Act Release No. 30004, supra note 6.
\12\See supra note 6.
\13\See supra note 6.
---------------------------------------------------------------------------
The Exchange has reviewed program trading activity by its member
firms through December 17, 1993, but has not found any instances of
firms entering matched MOC orders during that period.
The proposed rule change seeks permanent approval of the Exchange's
matched MOC order procedures. The matched MOC order procedures permit
firms to enter a buy MOC order paired with a sell MOC order in the same
security to be executed at the closing price on the Exchange. The
procedures also provide an exemption from SEC rule 10a-1 as to the
entry of an MOC order to sell short where (i) the member firm has also
entered an MOC order to buy the same amount of stock and (ii) both MOC
orders are part of a program trading strategy.
The matched MOC order provisions are intended to facilitate program
trading strategies, such as exchanges for physicals (``EFPs''), where a
firm accommodates a customer who wishes to convert a futures position
into a stock position by swapping futures for stock. The Exchange
believes that the matched MOC procedures should be granted permanent
approval in order to provide member firms with a variety of vehicles
(e.g., matched MOCs, Crossing Session II) in which to carry out program
trading strategies. The Commission requested in its order extending the
pilot until April 30, 1994, that the Exchange continue to inform the
Commission of its members' use, if any, of the MOC procedures and to
assess the impact of MOC orders on overall market quality and on any
possible displacement of orders on the specialist's book or in the
trading crowd.
2. Statutory Basis
The basis under the Act for the Exchange's OHT facility and the
matched MOC order procedures, and for this extension of approval of the
facility and those procedures, is the requirement under section 6(b)(5)
that an exchange have rules that are designed to prevent fraudulent and
manipulative acts and practices, 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change 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 on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on the proposed rule change. The Exchange has not received any
unsolicited written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of 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, 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 Room, 450 Fifth Street, NW., Washington,
DC 20549. Copies of the 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-93-50 and should be submitted by April 19,
1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\17 CFR 200.30-3(a)(12) (1991).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7280 Filed 3-28-94; 8:45 am]
BILLING CODE 8010-01-M
