[Federal Register Volume 60, Number 145 (Friday, July 28, 1995)]
[Notices]
[Pages 38878-38880]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18604]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36009; File No. SR-NYSE-95-26]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the New York
Stock Exchange, Inc. Relating to an Extension of Its Pilot Program for
Stopping Stock Under Amendments to Rule 116.30
July 21, 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
July 19, 1995, the New York Stock Exchange, Inc. (``NYSE'' or
``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 a request to extend amendments
to Rule 116.30, with respect to the ability of specialists to stop
stock in minimum variation markets for three months until October 21,
1995.\1\ The text of the
[[Page 38879]]
proposed rule change is available at the Office of the Secretary, NYSE,
and the Commission.
\1\ The NYSE received approval to amend Rule 116.30, on a pilot
basis, in Securities Exchange Act Release No. 28999 (Mar. 21, 1991),
56 FR 12964 (Mar. 28, 1991) (File No. SR-NYSE-90-48) (``1991
Approval Order''). The Commission subsequently extended the NYSE's
pilot program in Securities Exchange Act Release Nos. 30482 (Mar.
16, 1992), 57 FR 10198 (Mar. 24, 1992) (File No. SR-NYSE-92-02) (``
1992 Approval Order''); 32031 (Mar. 22, 1993), 58 FR 16563 (Mar. 29,
1993) (File No. SR-NYSE-93-18) (``1993 Approval Order''); 33792
(Mar. 21, 1994), 59 FR 14437 (Mar. 28, 1994) (File No. SR-NYSE-94-
06) ``1994 Approval Order''); and 35309 (Jan. 31, 1995) 60 FR 7247
(Feb. 7, 1995) (File No. SR-NYSE-95-02) (``January 1995 Approval
Order'').
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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 III 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
The purpose of the proposed rule change is to extend the
effectiveness of amendments to Exchange Rule 116.30 that permit a
specialist to grant a stop in a minimum variation market. The practice
of ``stopping'' stock by specialists on the Exchange refers to a
guarantee by the specialist that an order the specialist receives will
be executed at no worse a price than the contra-side price in the
market when the specialist receives the order, with the understanding
that the order may in fact receive a better price.
Formerly, Exchange Rule 116.30 permitted a specialist to stop stock
only when the quotation spread was at least twice the minimum variation
(i.e., for most stocks \1/4\ point), with the specialist then being
required to narrow the quotation spread by making a bid or offer, as
appropriate, on behalf of the order that is being stopped.
For three years, on March 21, 1991, March 16, 1992, and March 22,
1993, the Commission approved, on a one-year pilot basis each time,
amendments to the rule that permit a specialist to stop stock in a
minimum variation market (generally referred to as an \1/8\-point
market).\2\ The Exchange sought these amendments on the grounds that
many orders would receive an improved price if stopping stock in \1/8\
point markets were permitted. The amendments to Rule 116.30 permit a
specialist, upon request, to stop individual orders of 2,000 shares or
less, up to an aggregate of 5,000 shares of multiple orders, in an \1/
8\ point market.\3\ A specialist may stop an order of a specified
larger order size threshold, or a larger aggregate number of shares,
after obtaining Floor Official approval.
\2\ See 1991, 1992, and 1993 Approval Orders, supra, note 1.
\3\ The NYSE has stated, both to the Commission and to its
members that specialists should only stop stock in a minimum
variation market when an imbalance exists on the opposite side of
the market and such imbalance is of sufficient size to suggest the
likelihood of price improvement. See, e.g., letter from James E.
Buck, Senior Vice President and Secretary, NYSE, to Mary N. Revell,
Branch Chief, Division of Market Regulation, SEC, dated December 27,
1990; NYSE information memo #1809, dated September 12, 1991.
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In the Commission's 1994 Approval Order, which extended the pilot
until March 21, 1995, the Commission asked the Exchange to submit a
fourth monitoring report on the stopping stock pilot.\4\ Subsequently,
the Commission approved an extension of the pilot until July 21, 1995,
so that the Commission would have additional time to evaluate the new
information provided in the fourth monitoring report and to ensure that
Rule 116.30, as amended, does not harm public customers with limit
orders on the specialist's book.\5\
\4\ See 1994 Approval Order, supra, note 1.
\5\ See January 1995 Approval Order, supra, note 1.
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In connection with the proposed rule change, the Exchange has
submitted four monitoring reports to the Commission, which review the
operation of the pilot. The Exchange believes that the results obtained
by its monitoring effort during the pilot period show that the
amendments to Rule 116.30 enable specialists to better serve investors
through the ability to offer price improvement to stopped orders, while
having relatively little adverse impact on other orders on the book.
2. Statutory Basis
The basis under the Act for the proposed rule change is the
requirement under Section 6(b)(5) 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, in general, to protect investors and the public interest. The
amendments to Rule 116.30 are consistent with these objectives in that
they permit the Exchange to better serve its customers by enabling
specialists to execute customer orders at improved prices.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no 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 solicited or received with respect to the
proposed rule change.\6\
\6\ The Commission has received a comment letter regarding
permanent approval of the NYSE's procedures for stopping stock in
minimum variation markets. See letter from Junius W. Peake, Monfort
Professor of Finance, University of Northern Colorado, to Secretary,
SEC, dated March 1, 1995. The Commission believes that it would be
more appropriate to address the issues raised by the comment letter
in the context of the Exchange's proposal requesting permanent
approval of its stopping stock pilot program. See Securities
Exchange Act Release No. 35908 (June 28, 1995), 60 FR 34564 (July 3,
1995) (notice of filing of proposed rule change relating to
permanent approval of NYSE's pilot program for stopping stock in a
minimum variation market).
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III. 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. 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-95-26 and should be
submitted by August 18, 1995.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
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 Section
[[Page 38880]]
6(b)(5) \7\ and Section 11(b) \8\ of the Act. The Commission believes
that the amendments to Rule 116.30 should further the objectives of
Section 6(b)(5) and Section 11(b) through pilot program procedures
designed to allow stops, in minimum variation markets, under limited
circumstances that provide the possibility of price improvement to
customers whose orders are granted stops.
\7\ U.S.C. 78f (1988 & Supp. V 1993).
\8\ 15 U.S.C. 78k (1988).
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In the orders approving the pilot procedures,\9\ the Commission
asked the Exchange to study the effects of stopping stock in a minimum
variation market. The Exchange has submitted to the Commission several
monitoring reports regarding the amendments to Rule 116.30. The
Commission believes that the monitoring reports, especially the latest
report, provide useful information regarding the effectiveness of the
program during the pilot period. The Commission, however, finds that
additional time is necessary to evaluate carefully and comprehensively
the information provided by the Exchange and the NYSE's use of its
pilot procedures. Accordingly, the Commission believes that it is
reasonable to extend the pilot program until October 21, 1995, to avoid
compromising the benefit that investors might receive under Rule
116.30, as amended, while the Commission is considering whether to
permanently approve the pilot program.\10\
\9\ See supra, note 1.
\10\ See Securities Exchange Act Release No. 35908 (June 28,
1995), 60 FR 34564 (July 3, 1995) (notice of filing of proposed rule
change relating to permanent approval of NYSE's pilot program for
stopping stock in a minimum variation market).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of the
notice of filing thereof. This will permit the pilot program to
continue on an uninterrupted basis. In addition, the procedures the
Exchange proposes to continue using are the identical procedures that
were published in the Federal Register for the full comment period and
were approved by the Commission.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-NYSE-95-26) is hereby
approved on a pilot basis until October 21, 1995.
\11\ 15 U.S.C. Sec. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
\12\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18604 Filed 7-27-95; 8:45 am]
BILLING CODE 8010-01-M
