[Federal Register Volume 59, Number 163 (Wednesday, August 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20777]
[[Page Unknown]]
[Federal Register: August 24, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34539; File No. SR-NYSE-94-16]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Audit Trail
Account Identification Codes
August 17, 1994.
On April 20, 1994, 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 introduce new account
identification codes to indicate transactions that are exempt form the
short sale rules for audit trail reporting purposes.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 34269 (June 28, 1994), 59 FR 34461 (July 5,
1994). No comments were received on the proposal. This order approves
the proposed rule change.
NYSE Rule 132 currently requires that clearing member firms
submitting a transaction to comparison must include certain audit trail
data elements, including a specification of the account type for which
the transaction was effected according to defined account
categories.\3\ Under NYSE Rule 132, the NYSE has established account
identification codes which differentiate trades executed for customers
from trades executed for the proprietary account of a member/member
organization,\4\ trades executed by a member/member organization as
agent for another member/member organization,\5\ and trades effected
for the account of a competing dealer.\6\
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\3\NYSE Rule 132, Supp. Material .30(1) to (9) (Comparison and
Settlement of Transactions Through a Fully-Interfaced or Qualified
Clearing Agency), specify the trade elements that must be submitted.
Paragraph (10) provides the Exchange with the authority to require
additional information as well.
\4\The Exchange uses indicators D (Program Trade Index
Arbitrage), C (Program Trade Non-Index Arbitrage), and P (All Other
Orders) for transactions effected for a member/member organization's
proprietary account.
\5\The Exchange uses indicators M (Program Trade Index
Arbitrage), N (Program Trade non-Index Arbitrage), and W (All Other
Orders) for transactions effected by a member/member organization as
agent for another member/member organization.
\6\Indicators O, T, and R denote that a transaction was effected
for the account of a competing dealer. The identifier ``O'' denotes
a proprietary order for the account of a competing dealer. The
identifier ``T'' denotes an order where one member is acting as an
agent for another member's competing dealer account. Finally, the
identifier ``R'' denotes an order for the account of a non-member
competing dealer.
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The new indicators being approved herein will identify transactions
effected for ``short exempt'' trades.\7\ New indicators E, F, H, and B
denote ``short exempt'' trades. The identifier ``E'' denotes a ``short
exempt'' transaction for the proprietary account of a clearing member
organization or an affiliated member/member organization. The
identifier ``F'' denotes a ``short exempt'' transaction for the
proprietary account of an unaffiliated member/member organization. The
identifier ``H'' denotes a ``short exempt'' transaction for the account
of an individual customer account. The identifier ``B'' denotes a
``short exempt'' transaction for other agency customer accounts.\8\ In
addition, new indicators of L, X, and Z will denote ``short exempt''
trades of competing dealers.\9\ The identifier ``L'' denotes a ``short
exempt'' transaction for the account of a competing dealer that is a
member or member organization trading for its own account. The
identifier ``X'' denotes a ``short exempt'' transaction where one
member is acting as agent for another member's competing dealer
account. The identifier ``Z'' denotes a `'short exempt'' transaction
for the account of a non-member competing dealer.
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\7\NYSE Rule 440B contemplates that trades relying on exceptions
to SEC Rule 10a-1 will be marked ``short exempt.'' SEC Rule 10a-1
states, in part, that no person shall, for his own account or for
the account of any other person, effect a short sale of any security
registered on, or admitted to unlisted trading privileges on, a
national securities exchange, if trades in such security are
reported pursuant to an effective transaction reporting plan as
defined in Rule 11Aa3-1, and information as to such trades is made
available in accordance with such plan on a real-time basis to
vendors of market transaction information, (A) below the price at
which the last sale thereof, regular way, was reported pursuant to
an effective transaction reporting plan; or (B) at such price unless
such price is above the next preceding different price at which a
sale of such security, regular way, was reported pursuant to an
effective transaction reporting plan. See 27 CFR 240.10a-1 (1994).
SEC Rule 10a-1(e) provides exemptions for certain orders from the
prohibitions against short selling. These are limited to types of
trades that are believed to be beneficial to the market or that
carry little risk of the kind of manipulative or destabilizing
trading that Rule 10a-1 was designed to address. See 17 CFR
2450.10a-1(e) (1994).
\8\Member firms will be given a reasonable period of time
(approximately six months) to make their own system enhancements so
that they may be in compliance with the new account type
identification requirements.
\9\A competing dealer is defined as a registered specialist on
another stock exchange or a market-maker bidding and offering over-
the-counter in a NYSE traded security.
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In addition, the rule change replaces the existing definition for a
competing dealer with a new definition for competing market-maker, and
changes the term ``competing dealer'' to ``competing market-maker.''
The term ``competing market-maker,'' as amended, is defined as any
person acting as a market-maker, as defined in Section 3(a)(3)\10\ of
the Act, in a NYSE traded security. A person acting solely in the
capacity of a block positioner would not be considered to be a
competing market-maker.
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\10\Section 3(a)(38) of the Act defines market maker as any
specialist permitted to act as a dealer, any dealer acting in the
capacity of block positioner, and any dealer who, with respect to a
security, holds himself out (by entering quotations in an inter-
dealer communications system or otherwise) as being willing to buy
and sell such security for his own account on a regular or
continuous basis.
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The Exchange states that the new account categories for order
identification will enhance the efficiency and accuracy of audit trail
information. Furthermore, the NYSE believes that the identifiers will
improve the Exchange's ability to identify violations of SEC Rule 10a-1
and Exchange Rule 440B, which prohibit short selling under specified
circumstances.
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) of the Act.\11\
Specifically, the Commission believes the proposal is consistent with
the Section 6(b)(5) requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public.
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\11\15 U.S.C. Sec. 78f(b) (1988).
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The Commission also believes that the adopted ``short exempt''
account identifiers are consistent with SEC Rule 10a-1, which requires
that orders be marked ``long'' or ``short,'' and Exchange Rule 440B,
which provides, in effect, that orders relying on an exception to Rule
10a-1 should be marked ``short exempt.'' In this regard, the new, more
precise identifier codes should facilitate surveillance investigations
and will allow the NYSE to ensure compliance with the exemptive
provisions of Rule 10a-1(e) and NYSE Rule 440B.
Finally, the Commission believes that the proposed identification
codes should prevent fraudulent and manipulative acts by improving the
accuracy and efficiency of audit trail information used for
surveillance purposes. In particular, more accurate audit trail
information should increase the effectiveness of the Exchange's
automated surveillance procedures and provide Exchange staff with a
more comprehensive reconstruction of trading activity. In summary, the
Commission believes that the proposed identifier codes should permit
the NYSE to perform its surveillance responsibilities under the Act
more thoroughly and therefore, for this reason, finds the proposal
consistent with Section 6(b)(5) of the Act.\12\
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\12\In the order approving the NYSE's account identification
codes of competing dealers, the Commission noted that the proposal
was limited solely to establishing competing dealer identification
codes for audit trail and surveillance purposes and that the
addition of such codes did not affect the activity of competing
dealers or their access to the NYSE. See Securities Exchange Act
Release No. 33662 (February 23, 1994), 59 FR 10027 (March 2, 1994)
(order approving File No. SR-NYSE-91-46). Similarly, in the instant
order, the Commission notes that the proposal merely extends the use
of account identification codes for ``short exempt'' trades pursuant
to SEC Rule 10a-1(e) and extends the use of such codes to all
categories of market participants currently identified through the
NYSE's audit trail.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSE-94-16) is approved.
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\13\15 U.S.C. 78s(b)(2) (1988).
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) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20777 Filed 8-23-94; 8:45 am]
BILLING CODE 8010-01-M
