[Federal Register Volume 64, Number 116 (Thursday, June 17, 1999)]
[Notices]
[Pages 32595-32596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15355]
[[Page 32595]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41497; File No. SR-NYSE-98-42]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Approving Proposed Rule Change and Amendment No. 1 to the
Proposal Amending MOC/LOC Order Entry and Cancellation Procedures
During Regulatory Halts
June 9, 1999.
I. Introduction
On November 25, 1998, the New York Stock Exchange, Inc. (``NYSE''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend market-on-close
(``MOC'') and limit-on-close (``LOC'') order entry and cancellation
procedures during regulatory halts. On March 19, 1999, the Exchange
submitted Amendment No. 1 to the proposed rule change.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Letter from Donald Seimer, Director, Market Surveillance,
NYSE, to Richard Strasser, Assistant Director, Division of Market
Regulation (``Division''), SEC, dated March 15, 1999 (``Amendment
No. 1''). In Amendment No. 1, the Exchange provided information
regarding the Exchange's regulatory trading halt policy and
clarified that the Exchange does not seek to amend its regulatory
trading halt policy in the current proposed rule change.
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The proposed rule change, including Amendment No. 1, was published
for comment in the Federal Register on April 29, 1999.\4\ The
Commission received no comments on the proposal. This order approves
the proposal, as amended.
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\4\ Securities Exchange Act Release No. 41315 (April 20, 1999),
64 FR 23142.
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II. Description of the Proposal
The Exchange utilizes special order entry and cancellation
procedures for MOC/LOC orders.\5\ This proposed rule change amends the
Exchange's MOC/LOC order entry and cancellation procedures during
regulatory halts.\6\
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\5\ A description of the Exchange's current procedures can be
found in Securities Exchange Act Release No. 40094 (June 15, 1998),
63 FR 38230 (July 15, 1998); and Exchange Information Memo No. 98-20
(June 22, 1998).
\6\ A regulatory condition may exist if news is pending about
the stock or if time is needed for news dissemination about a stock.
The exchange follows procedures contained in the section on Trading
Halt and Suspension Procedures of the Consolidated Tape Association
Plan. See Securities Exchange Act Release No. 10787 (May 10, 1974),
39 FR 17799; and Securities Exchange Act Release No. 16983 (July 16,
1980), 45 FR 49414 (July 24, 1980).
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1. Cancellation of MOC/LOC Orders During Regulatory Halts
Current MOC/LOC procedures product Exchange members from canceling
MOC and LOC orders after 3:40 p.m., except when a member entering an
order has made a legitimate error or a member must cancel an order to
comply with NYSE Rule 80A(c).\7\ Therefore, if a stock is subject to a
regulatory halt at 3:40 p.m. or if a regulatory halt is instituted
after that time, market participants are prohobited from canceling
their MOC or LOC coders in such stock, regardless of whether the stock
reopens at a price substantially different from the last sale.
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\7\ Exchange Rule 80A(c) requires index arbitrage orders in any
stock in the Standard & Poor's 500 Stock Price Index entered on the
Exchange to be stabilizing (i.e., the order must be marked either
buy minus or sell plus) when the Dow Jones Industrial Average
advances or declines by the 2% point level determined by the
Exchange each quarter. Securities Exchange Act Release No. 41041
(February 11, 1999), 64 FR 8424 (February 19, 1999). When Rule
80A(c) goes into effect, a MOC index arbitrage order without the
appropriate tick restriction must be canceled unless it is related
to an expiring derivative index product.
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The proposed rule change amends this policy by allowing market
participants to cancel MOC or LOC orders if a regulatory halt \8\ is in
effect at 3:40 p.m. or later. Exchange members will be permitted to
cancel MOC or LOC orders until 3:50 p.m. or the reopening of the stock,
whichever occurs first.
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\8\ The proposed rule change does not amend existing MOC/LOC
procedures with respect to non-regulatory halts.
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2. Entry of MOC/LOC Orders During Regulatory Halts
Currently, Exchange procedures only allow members to enter MOC and
LOC orders after 3:40 p.m. to offset a published imbalance. If any type
of trading halt is in effect at 3:40 p.m., however, MOC/LOC imbalances
are not published.\9\ Accordingly, no MOC or LOC orders could be
entered after 3:40 p.m. during a trading halt. In addition, if a
regulatory halt occurs after an imbalance has been published at 3:40
p.m., market conditions may differ substantially from those that
existed at the time the imbalance was published.
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\9\ Specialists are required to publish tape indications to
reopen a stock after a trading halt. Current Exchange policy
concerning tape indications requires a minimum of ten minutes to
elapse between the first indication and the reopening of a stock,
and a minimum of five minutes to elapse between the last indication
and the reopening of a stock, provided that a minimum of ten minutes
has elapsed since the first indication. See Securities Exchange Act
Release No. 38225 (January 31, 1997), 62 FR 5875 (February 7, 1997);
and Exchange Information Memo No. 97-23 (May 8, 1997).
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The proposed rule change amends the Exchange's MOC/LOC order entry
procedures when a regulatory halt is in effect at 3:40 p.m. or later.
If a regulatory halt is in effect at 3:40 p.m. or later, market
participants would be permitted to enter MOC and LOC orders on either
side of the market until 3:50 p.m. or until the stock reopens,
whichever occurs first. If an order imbalance is published following a
regulatory halt, however, MOC and LOC orders may only be entered to
offset any imbalance.
3. Order Imbalance Publication After any Trading Halt
Current Exchange policy requires that if a stock reopens at or
before 3:50 p.m. following any type of trading halt, the specialist
will publish imbalances of 50,000 shares or more (or less than 50,000
shares with the approval of a Floor Official) as soon as practicable
after 3:50 p.m. The proposed rule change amends this policy to provide
that a specialist must publish imbalances of 50,000 shares or more (or
less than 50,000 with Floor Official approval) for stocks opening after
3:50 p.m., if practicable.\10\ If a halt occurs after 3:50 p.m., the
stock will not reopen on that day and MOC and LOC orders will not be
executed.
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\10\ The decision of whether an imbalance shall be published for
a stock opening after 3:50 p.m. will be made by an Exchange Floor
Director or other Exchange Floor Official. Telephone call between
Betsy Lampert Minkin, Senior Project Specialist, NYSE, and Kelly
McCormick, Attorney, Division, SEC, on January 13, 1999.
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III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\11\ In particular, the Commission finds the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act \12\ which requires, among other thigns, that the rules of an
exchange be 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.
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\11\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f(b)(5).
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The proposed changes to the Exchange's MOC/LOC order cancellation
procedures should allow market participants to make informed trading
decisions in response to information disseminated during regulatory
halts. Current Exchange
[[Page 32596]]
policy prohibits market participants from canceling MOC or LOC orders
after 3:40 p.m. unless a legitimate error was made or the member had to
comply with Rule 80A(c). This policy, by precluding market participants
from canceling MOC/LOC orders based on information generated during a
regulatory halt even if the stock reopened at a price substantially
different from the last sale could unnecessarily expose market
participants' positions to market risk.
The proposed rule change will allow market participants with
pending MOC or LOC orders to react to news generated during a
regulatory halt put into effect at 3:40 p.m. or later by enabling them
to cancel such orders. A member's ability to cancel a MOC/LOC order
after a regulatory halt put into effect at 3:40 p.m. or later is
limited, however, to only allow cancellations to be made by 3:50 p.m.
or when the stock reopens, whichever is first.
The proposed rule change also amends the Exchange's policy
concerning MOC/LOC order entry after 3:40 p.m. Currently, market
participants are only permitted to enter MOC or LOC orders after 3:40
p.m. to offset a published imbalance. If any type of trading halt is in
effect at 3:40 p.m., no MOC or LOC orders could be entered because
imbalances are not published. Moreover, market participants are
prohibited from entering orders if a regulatory halt occurs after 3:40
p.m. even if an imbalance has been published. Again, these provisions
could unnecessarily expose market participants to market risk.
The proposal would allow market participants to enter MOC or LOC
orders after 3:40 p.m. if a regulatory halt has been put into effect at
3:40 p.m. or later. Market participants may enter orders on either side
of the market until 3:50 p.m. or until the stock reopens, whichever
occurs first. If an imbalance is published following a regulatory halt,
however, market participants will only be permitted to enter MOC or LOC
orders to offset the published imbalance. The imbalance publication
procedure also has been amended to provide that if a stock reopens
after 3:50 p.m., the specialist must publish an imbalance of 50,000
shares or more (or less than 50,000 shares with approval of a Floor
Official), if practicable. This provision recognizes that from a
practical standpoint it may not always be feasible for specialist to
publish an imbalance late in the trading day after a trading halt. The
proposal will provide specialists with the flexibility to consult with
Exchange officials to determine whether such a post trading halt
imbalance must be published.
The proposed changes to MOC/LOC order entry and cancellation
procedures should promote just and equitable principles of trade
because they enable market participants to respond to news disseminated
during regulatory halts. The proposed policy should enable market
participants to make informed order entry and cancellation decisions
based on current, disseminated information. The proposed rule changes,
however, limit the ability of market participants to enter or cancel
MOC or LOC orders to specific times. The Commission believes that these
limitations should provide specialists with adequate time to expedite
the orderly closing of their stocks.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSE-98-42), as amended, is
approved.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation, pursuant
to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-15355 Filed 6-16-99; 8:45 am]
BILLING CODE 8010-01-M
