[Federal Register Volume 60, Number 132 (Tuesday, July 11, 1995)]
[Notices]
[Pages 35759-35760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16932]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35929; File No. SR-NYSE-95-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc. Relating to Amendments to
Rule 460.20
June 30, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on May
26, 1995, the New York Stock Exchange, Inc. (``NYSE'' of ``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 an amendment to NYSE Rule
460.20 that would delete the requirement for an associated specialist
of an approved person acting as an underwriter in a distribution of a
security in which the associated specialist is registered to ``give up
the book'' commencing with the ``cooling-off'' period specified in Rule
10b-6 under the Act \1\ until the approved person has completed its
participation in the distribution.
\1\ Rule 10b-6 is an anti-manipulation rule that, subject to
certain exceptions, prohibits persons engaged in a distribution of
securities from bidding for or purchasing, or inducing others to
purchase, such securities, any security of the same class and series
as those securities, or any right to purchase any such security
(``related securities'') until they have completed their
participation in a distribution. The provisions of Rule 10b-6 apply
to issuers, selling shareholders, underwriters, prospective
underwriters, dealers, brokers, and other persons who have agreed to
participate or are participating in the distribution, as defined in
Rule 10b-6(c)(5), and their ``affiliated purchasers,'' as defined in
Rule 10b-6(c)(6), including broker-dealer affiliates. The applicable
cooling off period is described in (xi) and (xii) of Rule 10b-
6(a)(4). See 17 CFR 240.10b-6.
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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
Currently, when an affiliated entity is participating in a
distribution of a security in which the specialist organization is
registered, the specialist organization is required to withdraw from
the market commencing with the applicable cooling off period specified
in Rule 10b-6 under the Act until the affiliate has completed its
participation in the distribution.\2\ NYSE Rule 460.20 provides that
the specialist organization must ``give up the book'' (i.e., cease to
function as a market maker) to an unaffiliated specialist organization,
which then assumes all market making responsibilities under NYSE rules,
until the approved person (affiliate) has completed its participation
in the distribution, at which time the regular specialist organization
regains the ``book'' and resumes its market making activities.
\2\ See Rule 10b-6(a)(4)(xi), 17 CFR 240.10b-6(a)(4)(xi).
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In May 1993, the Commission approved amendments to Rule 10b-6, and
the adoption of new Rule 10b-6A, to permit NASD market makers to
continue to make markets in a stock while participating in an
underwriting of that stock, subject to several restrictions on their
level of market making activity. (These restrictions are popularly
referred to as ``passive market making.'')\3\ The Commission's passive
market making restrictions cannot be appropriately extended to Exchange
specialists, who are subject to an affirmative obligation to deal when
necessary to contribute to the maintenance of a fair and orderly
market. The Exchange is concerned, however, that failure to provide
exemptive relief from Rule 10b-6 for NYSE specialist units affiliated
with underwriting firms may have a detrimental effect on the Exchange's
ability to compete for issuer listings and on the willingness of large
firms to invest capital in the specialist business.
\3\ See Securities Exchange Act Release No. 32117 (Apr. 8,
1993), 58 FR 19528. In general, Rule 10b-6A permits ``passive market
making'' in connection with the distributions of certain securities
quoted on the Nasdaq Stock Market during the Rule 10b-6 cooling-off
period, the period when the rule's provisions otherwise would
prohibit such transactions. A passive market maker's bids and
purchases, however, are limited to the highest current independent
bid i.e., a bid of a market maker who is not participating in the
distribution and is not an affiliated purchaser of a participating
market maker. Furthermore, Rule 10b-6A contains certain eligibility
criteria, volume limitations on purchases, and notification and
disclosure requirements. See Rule 10b-6A(c)(2) (Level of Bid),
(c)(3) (Requirements to Lower the Bid), (c)(4) (Purchase
Limitation), (c)(5) (Limitation on Displayed Size), (c)(6)
(Identification of a Passive Market Making Bid), (c)(7)
(Notification and Reporting to the NASD). See 17 CFR 240.10b-
6A(c)(2) through (c)(6).
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The Exchange has filed a request with the Commission \4\ for
exemptive relief
[[Page 35760]]
from certain provisions of Rules 10b-6 and 10b-13 (``Petition for
Exemptive Relief'').\5\ The proposed rule change contained in this 19b-
4 filing would delete the requirement to ``give up the book'' in order
to make Rule 460.20 compatible with the Exchange's Petition for
Exemptive Relief.\6\ Rule 10b-6 currently requires an ``affiliated
purchaser'' (i.e., the specialist organization that is associated with
a broker-dealer participant in a distribution of a security in which
the specialist organization is registered) to withdraw from the market
during a certain period before and during the distribution.\7\ The
proposed relief would allow such a specialist organization to continue
to make a market in such stocks during such period, provided that it
has obtained an exemption from certain Exchange rules pursuant to
Exchange Rule 98 and agrees to certain monitoring requirements.
\4\ The Division of Market Regulation (``Division'') is
currently reviewing the Exchange's petition requesting regulatory
relief. At the conclusion of the Division's review, the Division
will make publicly available both the Exchange's petition and the
Division's response to the petition. Any exemptive relief granted
would supersede the relief previously granted by the Commission in
Letter regarding Application of Rules 10b-6 and 10b-13 to
Specialists Affiliated with NYSE Member Firms, (TP File No. 92-284)
(Sept. 15, 1992).
\5\ Rule 10b-13 under the Act, among other things, prohibits a
person making a tender offer or exchange offer for any equity
security from, directly or indirectly, purchasing or making any
arrangement to purchase any such security (or any security that is
immediately convertible or exchangeable for such security),
otherwise than pursuant to the offer, from the time the offer is
publicly announced until its expiration, including any extension
thereof. Rule 10b-13 also applies to the dealer-manager of a tender
offer because the dealer-manager acts as the agent of the bidder to
facilitate the bidder's objectives. See 17 CFR 240.10b-13.
The Exchange is seeking relief from Rule 10b-13 to allow
affiliated specialists to continue their market making functions in
their respective specialty securities in connection with certain
mergers or tender or exchange offers in which an affiliated broker-
dealer is participating.
\6\ The Exchange's proposal is to conform NYSE rules with the
exemption to be granted separately by the Division in response to
the Exchange's Petition for Exemptive Relief. Therefore, the
approval of the proposed rule change is contingent upon the Division
granting the requested exemptive relief.
\7\ Absent an exemption from or exception to Rule 10b-6,
Exchange specialists that are affiliated with a person participating
in a distribution of securities would be precluded from bidding for
or purchasing such securities, any security of the same class and
series as those securities, or any related securities.
Rule 98 affords exemptive relief for entities in a control
relationship with a specialist organization from restrictions in NYSE
Rules 104, 104.13, 105, 113.20, and 460.10 that would otherwise be
applicable to such entities' transactions in securities in which the
specialist organization is registered, or to business transactions with
the issuers of such securities.\8\ Pursuant to Rule 98 and the
implementing guidelines promulgated thereunder, the specialist
organization and the affiliated entity must be operated as separate and
distinct organizations, and ``Chinese Wall'' procedures must be
established that place substantial limits on access to, and
communication of, trading information, including positions and
strategies, between the two organizations. Rule 98 exemptive relief is
conditioned on the organizations' receiving prior written approval from
the Exchange, which conducts an annual review to ensure that all
conditions for the exemption are being met.
\8\ See NYSE Rule 104 (limiting a specialist's ability to effect
purchases and sales regarding affiliated entities); NYSE Rule 104.13
(requiring that certain transactions be effected only for investment
purposes); NYSE Rule 105 (limiting a specialist's interests in pools
and options); NYSE Rule 113.20 (prohibiting a specialist from
``popularizing'' any security in which it is registered); NYSE Rule
460.10 (prohibiting control relationships, business transactions,
and finder's fees between the issuer and the specialist).
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The Exchange believes that the restrictions on the flow of
information between the affiliated specialist and its approved person
contained in Exchange Rule 98, along with the additional safeguards
(such as transaction monitoring by the Exchange, the specialist and the
approved person) contained in its Petition for Exemptive Relief, make
it appropriate to amend Rule 460.20 to delete its requirement for such
specialist to ``give up the book'' to an unaffiliated specialist during
a distribution in which the approved person participates.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act in that it is designed to prevent fraudulent and manipulative acts
and practices and to perfect the mechanism of a free and open market.
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, Participants, 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 other 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 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 Exchange. All
submissions should refer to File No. SR-NYSE-95-21 and should be
submitted by July 26, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16932 Filed 7-10-95; 8:45 am]
BILLING CODE 8010-01-M
