[Federal Register Volume 60, Number 141 (Monday, July 24, 1995)]
[Notices]
[Pages 37912-37913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18097]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35979; File No. SR-NYSE-95-13]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change and Amendment No. 1 to
Proposed Rule Change Relating to Amendments to the Exchange's
Allocation Policy and Procedures
July 17, 1995.
I. Introduction
On March 31, 1995, 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 the Exchange's
Allocation Policy and Procedures which would permit Floor broker Senior
Floor Officials to replace Governors on the Allocation Committee for
quorum purposes. On May 17, 1995, the NYSE submitted Amendment No. 1 to
the proposed rule change.\3\
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 C.F.R. 240.19b-4.
\3\ See Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Elisa Metzger, Senior Counsel, SEC dated May 16,
1995.
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The proposed rule change, including Amendment No. 1, was published
for comment in Securities Exchange Act Release No. 35776 (May 30,
1995), 60 FR 30135. No comments were received on the proposal.
II. Description of the Proposals
The Exchange's Allocation Policy and Procedures (``Policy'')
governs the allocation of equity securities to NYSE specialist units.
The purpose of the Policy is to ensure that each security is allocated
in the fairest manner possible to the best specialist unit for that
security. The Policy establishes the Allocation Panel \4\ and the
Allocation Committee.\5\ The Allocation Committee consists of three
Floor broker Governors,\6\ four Floor brokers, and two allied members
from the Exchange's Market Performance Committee \7\ or from the
Allocation Panel. The Exchange believes that the Floor broker Governors
on the Allocation Committee add a comprehensive knowledge of specialist
performance and a broad perspective and expertise relating to the
Exchange. In furtherance of this belief, the Policy's quorum
requirement requires that at least two Floor broker
[[Page 37913]]
Governors be present at Allocation Committee meetings.
\4\ The Allocation Panel comprises the pool of individuals from
which the Allocation Committee is formed. The Allocation Panel
members are selected through an annual appointment process with
input from the membership. Panel members are appointed to serve a
one-year term; Floor broker Governors, however, remain on the
Allocation Panel for as long as they are Floor broker Governors.
\5\ This committee determines which specialist unit will
specialize in a particular security. See Securities Exchange Act
Release No. 34626 (September 1, 1994), 59 FR 46457.
\6\ A Floor broker Governor is an individual, designated as such
by the Chairman of the Exchange's Board of Directors, who is
empowered to perform any duty, make any decision or take any action
assigned to or required of a Floor Director as prescribed by the
rules of the Exchange's Board of Directors.
\7\ An allied member is a general partner, principal executive
officer or employee who controls a member firm or member
organization. See New York Stock Exchange, Inc., Constitution, Art.
1, Sec. 3(c).
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In order to avoid the appearance of a conflict of interest on the
part of an Allocation Committee member, the Policy requires an
Allocation Committee member whose firm has an investment banking/
underwriting relationship with a listing company or is affiliated with
a specialist unit applicant, to abstain from deliberations with respect
to that particular stock. The Exchange has found that the conflict of
interest exclusion may, at times, impede the Exchange's efforts to
maintain the maximum presence of three Floor broker Governors on the
Allocation Committee. The Exchange believes that conflict of interest
abstentions, among other matters, could lead to situations in which the
quorum requirement for Floor broker Governors could not be met. In
order to respond to this concern, the Exchange is proposing to amend
the Policy to permit Senior Floor Officials \8\ to substitute for Floor
broker Governors on the Allocation Committee for purposes of satisfying
quorum requirements.
\8\ A Senior Floor Official is a former Governor or a former
Floor Director.
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As stated above, the Allocation Committee membership is drawn from
the Allocation Panel. The Allocation Panel consists of 28 Floor
brokers, 8 allied members, the 8 Floor broker Governors (who are part
of the Allocation Panel by virtue of their appointment as Governors),
and the 4 allied members serving on the Exchange's Market Performance
Committee. The Exchange would also amend the Policy to expand the
Allocation Panel by appointing a minimum of 5 Senior Floor Officials
each year. The Senior Floor Officials on the Allocation Panel would
constitute a separate category, distinguished from the 28 Floor
brokers.
In the event that any of the Floor broker Governors on the standing
Allocation Committee were not able to attend an Allocation Committee
meeting, or to participate in the allocation of a particular stock, the
Exchange would first seek to substitute for such Governor(s) with
another Floor broker Governor on the Allocation Panel. If no such
Governor was available, in order to maximize the seniority of the
Allocation Committee membership, a Senior Floor Official broker on the
Allocation Panel that is not a standing member of the Allocation
Committee would be sought as a substitute for the absent Governor(s).
In instances where no Senior Floor Official broker was available from
the Allocation Panel, any Senior Floor Official broker on the standing
Allocation Committee may substitute for the absent Governor(s) for
purposes of meeting the Governor quorum requirement.
The current language of the Policy states that a former Allocation
Committee chairman may substitute for a standing Allocation Committee
member who cannot attend a meeting or participate in a particular
allocation decision, when a Floor broker or allied member is not
available to substitute for the unavailable Committee member. The
Exchange is amending the Policy to indicate that, however, a former
Allocation Committee chairman my not substitute for a Floor broker
Governor for the purpose of meeting the Floor broker Governor quorum
requirement unless such former Allocation Committee chairman is a
Senior Floor Official.
The exchange is also amending the ``Term of Service'' provision for
Panel members to include a provision for Senior Floor Officials. Senior
Floor Officials are subject to annual reappointment, but are not
subject to the two committee term restriction that floor brokers and
allied members are subject to, and are not limited to a maximum of six
consecutive one-year terms.
III. Discussion
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, and, in
particular, with the requirements of Section 6(b).\9\ In particular,
the Commission believes the proposal is consistent with the Section
6(b)(5) requirements that the rules of an exchange be designed to
remove impediments to and perfect the mechanism of a free and open
market, and, in general, to protect investors and the public. Further,
the Commission finds that the rule change is consistent with section
11(b) of the Act \10\ and Rule 11b-1 thereunder,\11\ which allow
exchanges to promulgate rules relating to specialists in order to
maintain fair and orderly markets.
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78k(b).
\11\ 17 C.F.R. 240.11b-1.
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The Commission believes that the amended Policy should enhance the
Exchange's allocation process and thereby protect investors and the
public interest. Specialists play a crucial role in providing
stability, liquidity and continuity to the trading of securities. Among
the obligations imposed upon specialists by the Exchange, and by the
Act and the rules thereunder, is the maintenance of fair and orderly
markets in their designated securities.\12\ To ensure that specialists
fulfill these obligations, it is important that the Exchange develop
and maintain stock allocation procedures and policies that ensure that
securities are allocated in an equitable and fair manner and that all
specialists have a fair opportunity for allocations based on
established criteria and procedures.
\12\ Rule 11b-1, 17 C.F.R. 240.11b-1; NYSE Rule 104.
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The Commission believes that amending the Policy to revise the
composition of the Allocation Panel and the quorum requirement for the
Allocating Committee, should maximize the expertise of the Allocation
Committee and Allocation Panel. A high level of expertise should enable
the Allocation Committee to provide the best possible match between
specialist units and the securities to be allocated and, thereby,
ensure the quality of specialist performance.
In addition, the Commission believes that the amended Policy will
contribute to the maintenance of fair and orderly markets. The amended
Policy permits Senior Floor Officials to substitute for Floor broker
Governors on the Allocation Committee when such Floor broker Governors
cannot participate in the Allocation Committee's meeting. By providing
an alternative means for the Allocation Committee to meet and determine
stock allocations, stock will be allocated to specialists in a more
expeditious manner.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSE-95-13) is approved.
\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18097 Filed 7-21-95; 8:45 am]
BILLING CODE 8010-01-M
