[Federal Register Volume 60, Number 151 (Monday, August 7, 1995)]
[Notices]
[Pages 40211-40215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19384]
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[[Page 40212]]
SECURITIES AND EXCHANGE COMMISSION
[Release Nos. 33-7202; 34-36044; International Series Release No. 833]
Exemptions From Rules 10b-6 and 10b-13 for New York Stock
Exchange Specialists
August 1, 1995.
Pursuant to delegated authority, on July 31, 1995, the Division of
Market Regulation issued a letter (``NYSE Specialist Letter'') granting
exemptions from Rules 10b-6 and 10b-13 under the Securities Exchange
Act of 1934 to allow New York Stock Exchange specialists to continue to
act in their specialist capacity during a distribution of or a tender
offer for specialty securities when they otherwise would be subject to
those rules because of their affiliates' participation in such a
distribution or tender offer. The NYSE Specialist Letter has been
issued in the context of a continuing review of Rule 10b-6, and is
published to provide notice of the availability of these exemptions.
Margaret H. McFarland,
Deputy Secretary.
April 28, 1995.
Mr. Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street NW.,
Washington, DC 20549
Dear Mr. Katz: The New York Stock Exchange, Inc. (the
``Exchange'' or ``NYSE'') is writing to request relief from the
restrictions of Rule 10b-6 for certain specialist organizations that
are affiliated with an organization engaged in a fixed price, firm
commitment underwriting (hereafter referred to as a
``distribution'') of a security in which the specialist organization
makes a market (a ``specialty stock'') where the two organizations
are conducting their respective operations pursuant to NYSE Rule 98.
The Exchange is also requesting relief from the restrictions of
Rule 10b-6 and Rule 10b-13 for such specialist organizations that
are affiliated with the dealer-manager of an exchange or tender
offer of a specialty stock, to the extent the specialist
organization is bidding for or purchasing the security in the course
of market making activities and not for the purpose of participating
in the exchange or tender offer.
The Exchange believes that exemptive relief is appropriate in
that (i) NYSE specialist organizations are subject to strict
affirmative and negative obligations that restrict the specialist's
ability to influence the price of, or condition the market for, a
specialty stock; (ii) the Exchange's Rule 98 procedures mandate
information barriers that preclude the flow of material non-public
market information between a specialist organization and its
affiliates; and (iii) the Exchange has appropriate surveillance
capability and will conduct detailed surveillances and reviews of
trading in conjunction with activities subject to Rule 10b-6 and
Rule 10b-13. The Exchange proposes that the exemptive relief sought
herein be subject to the conditions specified below. The Exchange
undertakes to submit such monitoring reports as the Commission deems
appropriate.
Under separate cover, the Exchange is submitting, pursuant to
the Commission's Rule 19b-4, a filing to amend NYSE Rule 460.20 to
delete references to ``giving up the book'' by an Exchange
specialist associated with a broker dealer that has obtained
exemptive relief from specified NYSE rules pursuant to NYSE Rule 98.
Current Application of Rule 10b-6 to NYSE Specialists Affiliated
With a Participant in a Distribution
NYSE Rule 460.10 prohibits Exchange specialist organizations and
their affiliates from engaging in any ``business transaction'' with
any company in whose stock the specialist organization is
registered. The term ``business transaction'' is interpreted to
include, among other matters, participating in a distribution of a
security issued by such company.
Exchange Rule 98 provides an exemption from Rule 460.10 for
affiliates of a specialist organization that conduct their
operations pursuant to the Rule's requirements. The Rule 98
exemption is available only to the affiliate; under no circumstances
may the specialist organization itself participate in any
distribution of a security issued by a company in whose stock the
specialist organization is registered.
Today, when an affiliated entity is participating in a
distribution of a security stock, the specialist organization is
required to withdraw from the market commencing with the applicable
Rule 10b-6, ``cooling off'' period until the affiliate has completed
its participation in the distribution. NYSE Rule 460.20 provides
that the specialist organization must ``give up the book'' (i.e.,
cease to function as 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.
Current Application of Rule 10b-3 to NYSE Specialists Affiliated
With a Dealer-Manager of an Exchange or Tender Offer
Rule 10b-13 generally prohibits any person making a tender offer
from purchasing or making arrangements to purchase the security that
is the subject of a tender offer from the time of the public
announcement of the tender offer until its expiration. The Exchange
understands that the Commission staff appears to have taken the
interpretive position the Rule 10b-13 applies generally to the
dealer-manager in connection with a tender offer. Thus, under Rule
10b-13, absent exemptive relief, a specialist organization
affiliated with such dealer-manager would be prohibited from
purchasing any such security that was a specialty stock during an
exchange or tender offer.
In September 1992, the Division of Market Regulation granted the
Exchange's request that a specialist organization be exempt from
Rules 10b-6 and 10b-13, under specified conditions, where an
affiliate that had obtained an exemption pursuant to Rule 98 was
participating in a distribution or acting as dealer-manager of a
tender or exchange offer.\1\ The exemption permits the specialist
organization to continue to function in its market capacity up until
the period commencing five business days before the scheduled
termination of the subject offer. The Exchange is seeking herein to
broaden the exemption to permit the specialist organization to
continue to function in its market making capacity during the entire
offer period.
\1\ See letter from William Heyman, Director, Division of Market
Regulation, Securities and Exchange Commission to Robert McSweeney,
Senior Vice President, Market Surveillance Division, New York Stock
Exchange, dated September 15, 1992.
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Disparities in Regulation
The Exchange wishes to note that currently there is a disparity
between regulatory treatment of over-the-counter market makers and
Exchange specialists. Market makers for over-the-counter issuers
need not withdraw from the market if they are participating in a
distribution of an issuer's securities, as they can continue to make
markets subject to the passive market making tests. An NYSE
specialist affiliated with a participant in a distribution of
specialty security must, however, withdraw from the market, with the
market making function then being assumed by a relief specialist. An
over-the-counter issuer may view this disparate treatment of market
makers as a possible reason to remain listed in the over-the-counter
market, as it may perceive less potential disruption of the market
making function in the over-the-counter market. Thus, the current
regulatory scheme may have a negative impact on the Exchange's
ability to attract new listings.
The current disparity in regulation may also operate as a
disincentive for large, diversified NYSE member firms to enter, and
commit capital to, the specialist business. Such firms may have to
weight investment banking opportunities against the potential
negative impact, both in terms of issuer relations and operational
efficiencies, that may result when an affiliated Specialist is
required to cease all market making activity in a specialty security
subject to distribution. Such a potential negative impact may make
specializing on the NYSE appear to be less attractive as a business
proposition.
Affirmative and Negative Obligations of Specialists Under Exchange
Rules
Exchange specialists are subject to affirmative and negative
obligations with respect to their responsibilities to maintain fair
and orderly markets. The negative obligation is codified in Exchange
Rule 104, which provides that a specialist shall not effect a
proprietary transaction in a specialty stock ``unless such dealings
are reasonably necessary to permit such specialist to maintain a
fair and orderly market, or to act as an odd-lot dealer in such
security.'' The
[[Page 40213]]
affirmative obligation is codified in Rule 104.10(2), which provides
that, ``In connection with the maintenance of a fair and orderly
market, it is commonly desirable that a member acting as specialist
engage to a reasonable degree under existing circumstances in
dealings for his own account when lack of price continuity, lack of
depth, or disparity between supply and demand exists or is
reasonably to be anticipated.''
The affirmative and negative obligations constitute the
foundation of the NYSE's regulation of specialists. They preclude a
specialist from trading when there is sufficient buying and selling
interest to maintain a fair and orderly market, and require the
specialist to trade to minimize short-term disparities in supply and
demand. In the context of trading by a specialist while an affiliate
is engaged in a distribution of a specialty stock, the negative
obligation would bar trading by a specialist to influence the price
of the stock when the market is otherwise fair and orderly; the
affirmative obligation similarly restricts the ability of a
specialist to influence a stock's price by requiring the specialist
to react to short-term imbalances in supply and demand, and trade on
whichever side of the market will be contra to the overall market
trend. Thus, the affirmative and negative obligations significantly
inhibit the specialist's ability to effect transactions for market
conditioning purposes, which is the type of transaction Rule 10b-6
is intended to prohibit.
We are enclosing as an attachment several pages from the
Exchange's Floor Official Manual which discuss the affirmative and
negative obligations in detail, and which cross-reference these
obligations to specific restrictions on specialist's trading as
codified in various provisions of Rule 104.
Rule 98 Information Barriers
As noted above, this request for exemptive relief requires the
specialist and affiliated organization to have Exchange approval
under NYSE Rule 98 and its Guidelines. NYSE Rule 98 affords
exemptive relief for entities in a control relationship with a
specialist organization from restrictions in NYSE Rule 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 transaction with the
issuers of such securities. 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 information barriers 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.
The functional separation procedures that must be implemented
pursuant to Rule 98 preclude the transfer of market-sensitive
information between a specialist organization and an affiliate, and
minimize potential conflicts of interest whereby one entity might
otherwise be inclined to take market action for the purpose of
benefiting the other entity.
The Exchange notes that the procedures specified in Rule 98 are
consistent with procedures pertaining to the establishment of
information barriers, monitoring of such barriers, and notice (in
the case of Rule 98, to the Exchange) as described in the
Commission's recent exemptive letter to CS Holding (TP File No. 94-
267).
Through Exchange Rule 342 (Supervision), each member
organization afforded exemptive relief under Rule 98 is required to
monitor the procedures adopted to comply with the Guidelines. The
Exchange inspects its member organizations afforded such relief on
an annual basis for adherence to these supervisory requirements.
Exchange Surveillance
Since the adoption of Rule 10b-6 in 1955, the Exchange has made
substantial investments in sophisticated surveillance procedures,
including comprehensive audit trail submissions by member firms, and
extensive use of software analytics designed to assist in reviewing
this and other data available for such surveillance. For example,
the Market Analysis and Reconstruction System (MARS) enables
Exchange analysts to retrieve and review trading information
dynamically and, utilizing information in the Exchange's existing
data base, enables these analysts to review trading for anomalies
using many combinations of analytical criteria.
The Exchange will conduct surveillance and reviews of specialist
trading activity when an affiliated organization is involved in
trading activities in a specialty stock subject to Rule 10b-6 or
Rule 10b-13 that are specifically designed to highlight such trading
for any possible manipulative intent.
Conditions for Exemptive Relief From Rule 10b-6 and Rule 10b-13
The Exchange believes that exemptive relief for a specialist
organization affiliated with a participant in a distribution that
has obtained exemptive relief pursuant to Rule 98 (an ``Affiliated
Specialist'' and an ``Affiliated Broker-Dealer'') would be
appropriate under the following conditions:
1. Issuer Qualification Standards. The security being
distributed, or any security of the same class or series as those
securities, or any right to purchase such security, or any security
that is the subject of a transaction to which Rule 10b-13 is
applicable (``Subject Security'') must qualify for the two business
day cooling-off period specified in paragraphs (a)(4) (v), (xi) and
(xii)(A) of Rule 10b-6.
2. Establishment of Information Barriers. The Affiliated
Specialist and the Affiliated Broker-Dealer must have, and implement
effectively, written policies and procedures designed to segregate
the flow of confidential market-sensitive information, including
distribution information, between the Affiliated Specialist and the
Affiliated Broker-Dealer. The policies and procedures must have been
approved by the NYSE as conforming to the requirements of NYSE Rule
98.
3. Monitoring of Information Barriers. During the timeframe
commencing with the two business day cooling-off period until the
distribution participant has completed its participation in the
distribution (``Rule 10b-6 Covered Period''), the Affiliated
Specialist and the Affiliated Broker-Dealer must conduct a daily
review of transactions in the Subject Securities effected by the
Affiliated Specialist and the Affiliated Broker-Dealer,
respectively, and by Affiliated Purchasers, as that term is defined
in Rule 10b-6(c)(i). Any irregular trades by the Affiliated
Specialist, the Affiliated Broker-Dealer, and any Affiliated
Purchaser, or suspected breaches of the Information Barriers, must
be reported immediately to the NYSE.
4. Notice of Breach. Should any Affiliated Specialist or
Affiliated Broker-Dealer discover that there was a breach of the
Information Barriers during the Rule 10b-6 Covered Period, it must
provide immediate notice to the NYSE of such occurrence. Upon
request of the SEC Division of market Regulation (the ``Division''),
the Affiliated Specialist and/or Affiliated Broker-Dealer shall
provide the Division with a written analysis of the circumstances
surrounding that breach.
5. Annual Compliance Review. a. As part of the annual review
specified in Exchange Rule 342.30, each Affiliated Specialist and
each Affiliated Broker-Dealer must include a review, conducted by a
person independent of the business line being reviewed, of its
compliance during the calendar year with the terms of this
exemption, including its operation and any breaches of information
barriers, and report on such review to its management; or (ii)
prepare a statement (``Statement'') that it did not participate in
any distributions of a Subject Security during the calendar year if
such is the case. Upon a request from the Division, such reviews,
management reports, and statements must be supplied to the Division
within 15 days of the request.
b. Prior to relying on this exemption, each Affiliated Broker-
Dealer and Affiliated Specialist must submit to the Division a
written explanation of how it will comply with the review noted in
paragraph (a) above. The explanation of the review must describe,
among other things, the review plan, the scope of the review, how
the review will be conducted, and the title of the person or group
who will conduct the review.
6. NYSE Surveillance. The NYSE shall establish and implement
special surveillance procedures to review all trading by the
Affiliated Specialist and Affiliated Broker-Dealers in Subject
Securities during the Rule 10b-6 Covered Period, including on-line
surveillance of trading by the Affiliated Specialist and off-line
surveillance of trading by Affiliated Broker-Dealers. The NYSE also
will review trading in Subject Securities by the Affiliated
Specialist and Affiliated Broker-Dealers for a ten business day
period prior to the commencement of the Rule 10b-6 Covered Period
and for two business days thereafter. With respect to transactions
subject to Rule 10b-13 (the ``Subject Offer''), the NYSE will review
all trading by the Affiliated Specialist for the period commencing
with public announcement of the Subject Offer, and reconstruct all
Affiliated Specialist trading on a daily basis
[[Page 40214]]
from the period two business days prior to the commencement of the
Subject Offer until the conclusion of the Subject Offer, to detect
possible market manipulation and to monitor compliance by the
Affiliated Specialist with its obligations under NYSE rules.
7. Notice of Participation. Affiliated Broker-Dealer must notify
the NYSE of their participation in any distribution during which the
Affiliated Specialist will continue its specialist activities in
Subject Securities pursuant to the exemption granted herein. At a
minimum, the Affiliated Broker-Dealer must provide the NYSE advance
notice, on the business days prior to commencement of the Rule 10b-6
cooling-off period, of the dates of the Rule 10b-6 Covered Period
and notice of the completion of the distribution.
8. Recordkeeping. A. All documents required under this Exemption
shall be kept for a period of not less than two years. Reports of
annual compliance reviews must be retained for a period of three
years.
b. None of the requirements of these exemptions shall have any
effect upon the obligations of any Affiliated Specialist or
Affiliated Broker-Dealer to make, preserve, or produce records
pursuant to any other provision of the federal securities laws, or
the rules of the Exchange.
9. Disclosure. The Affiliated Broker-Dealer shall include in the
``Plan of Distribution'' section of the prospectus, pursuant to Rule
408 under the Securities Act of 1933, a brief description of the
activities of the Affiliated Specialist and the exemption granted
herein. When an Affiliated Broker-Dealer is participating in a
distribution as a managing or co-managing underwriter, the inside
front cover page of the prospectus shall display prominently a
statement to the effect that the Affiliated Specialist will act in
its specialist capacity in the Subject Security pursuant to the
exemption granted herein.
10. Analysis. The NYSE will provide the Division with a written
analysis of the operation of the exemption granted herein for the
18-month period commencing from the date exemptive relief is
granted.
In all other respects, the Affiliated Specialist and its
Affiliated Broker-Dealer must comply with the provisions of Rules
10b-6 and 10b-13. No bids or purchases of Subject Securities by the
Affiliated Specialist or Affiliated Broker-Dealers may be effected
for the purpose of creating actual, or apparent, active trading in a
Subject Security or raising the price of a Subject Security. In
addition, Affiliated Specialists and Affiliated Broker-Dealers
availing themselves of the exemption herein must comply with the
anti-fraud and anti-manipulation provisions of the Securities
Exchange Act of 1934, particularly Section 9(a), Section 10(b), and
Rule 10b-5 thereunder.
We have enclosed a description of surveillance of specialist
trading activity when an affiliate is engaged in a distribution of a
specialty security. Confidential treatment is requested pursuant to
the Freedom to Information Act and the applicable SEC rules
thereunder. Such treatment is requested on the grounds, among
others, that the information submitted may contain confidential
financial data of private parties as well as sensitive surveillance
data, disclosure of which may significantly impair the effectiveness
of the Exchange's self-regulatory mechanism. Accordingly, should any
request be made for disclosure of these materials, or their
contents, we ask that you notify us of this fact immediately, giving
us an opportunity to interpose our objections.
Sincerely,
James E. Buck,
Senior Vice President and Secretary.
July 31, 1995.
Mr. James E. Buck,
Senior Vice President and Secretary,
New York Stock Exchange, Inc.,
11 Wall Street,
New York, N.Y. 10005.
Re: Application of Rules 10b-6 and 10b-13 to New York Stock Exchange
Specialists File No. TP 94-293
Dear Mr. Buck: In regard to your letter dated April 28, 1995, as
supplemented by conversations with the staff, this response thereto
is attached to the enclosed photocopy of your correspondence. By
doing this, we avoid having to recite or summarize the facts set
forth in your letter. Each defined term in this letter has the same
meaning as defined in your letter unless otherwise noted herein.\1\
\1\ The letter supersedes our letter dated September 15, 1992,
which granted exemptions from Rules 10b-6 and 10b-13 under the
Securities Exchange Act of 1934 (``Exchange Act'') to permit
specialists affiliated with member broker-dealer organizations to
continue to function as specialists in their respective speciality
securities in connection with certain mergers and tender or exchange
offers in which the affiliated broker-dealer participates in a
distribution or acts as dealer-manager of a tender or exchange
offer.
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Response:
Subject to certain exceptions, Rule 10b-6 under the Securities
Exchange Act of 1934 (``Exchange Act'') prohibits persons
participating in a distribution of securities and their ``affiliated
purchasers,'' as defined in paragraph (c)(6)(i) of Rule 10b-6
(``Affiliated Purchaser''), from bidding for or purchasing, or
inducing others to bid for or purchase, such securities, or any
security of the same class and series as those securities, or any
right to purchase any such security (``Subject Securities''), until
they have completed their participating in the distribution.
Paragraph (a)(4)(xi) (``exception ix'') of Rule 10b-6 excepts from
this prohibition bids for or purchases of the Subject Securities
effected by an underwriter, prospective underwriter, or dealer, and
their affiliated purchasers, prior to two or nine business days
before the commencement of offers or sales of the security to be
distributed (``cooling-off period''). Once the cooling-off period
commences, Rule 10b-6 requires the distribution participant and its
affiliated purchasers to cease bidding for or purchasing the Subject
Securities until the distribution participant has completed its
participation in the distribution (``Rule 10b-6 Covered Period''),
as set forth in paragraph (c)(3) of Rule 10b-6.
Because a New York Stock Exchange, Inc. (``NYSE'') specialist
organization (``Affiliated Specialist'') affiliated with a
distribution participant would be an Affiliated Purchaser, such
Affiliated Specialist would be required to suspend its specialist
activities in a Subject Security during the applicable cooling-off
period until any affiliated broker-dealer (``Affiliated Broker-
Dealer'') has completed its participation in the distribution.
Rule 10b-13, among other things, prohibits a person making a
cash tender offer or exchange offer for an equity security from,
directly or indirectly, purchasing or making any arrangement to
purchase such security or any security which is immediately
convertible into or exchangeable for such security, otherwise than
pursuant to the offer, from the time the offer is publicly announced
until its expiration (``Rule 10b-13 Covered Period''). Rule 10b-13
applies to the dealer-manager of the offer (and affiliates of the
dealer-manager, including an Affiliated Specialist) because the
dealer-manager acts as the agent of the bidder to facilitate the
bidder's objectives.
Currently, to ensure compliance with Rule 10b-6(a)(4)(xi), the
NYSE requires the Affiliated Specialist to suspend its specialist
activities in a Subject Security during the applicable cooling-off
period specified in Rule 10b-6, until the Affiliated Broker-Dealer
has completed its participation in the distribution. Specifically,
NYSE Rule 460.20 provides that the Affiliated Specialist must ``give
up the book'' (i.e., suspend its specialist activities) to a
specialist organization unaffiliated with any distribution
participant, which then assumes all specialist responsibilities
under NYSE rules. When the Affiliated Broker-Dealer has completed
its participation in the distribution, the Affiliated Specialist may
regain the ``book'' and resume its specialist activities in the
Subject Security.
On the basis of your representations and the facts presented,
particularly the affirmative and negative obligations that govern
specialist trading under NYSE Rule 104; the provisions of NYSE Rule
98 that require information barrier policies and procedures that
segment information between the Affiliated Specialist and its
Affiliated Broker-Dealer; and NYSE surveillance procedures designed
to detect specialist activity that may condition the market for a
Subject Security during a distribution, and without necessarily
concurring in the analysis in your letters, the Commission hereby
grants exemptions from Rules 10b-6 and 10b-13 to Affiliated
Specialists and their Affiliated Broker-Dealers to permit the
Affiliated Specialists to continue to bid for and purchase Subject
Securities as a specialist during the Rule 10b-6 Covered Period and
the Rule 10b-13 Covered Period, as applicable, subject to the
following conditions:
1. Scope of the Exemptions. These exemptions apply to mergers,
exchange offers, and firm commitment, fixed price offerings that are
distributions for purposes of Rule 10b-6, and tender and exchange
offers subject to Rule 10b-13. The Subject Securities must have a
minimum price of five dollars per share and a minimum public float
of 400,000 shares, as computed in accordance with Rule 10b-6(c)(7).
2. Establishment of Information Barriers. The Affiliated
Specialist and the Affiliated
[[Page 40215]]
Broker-Dealer must have, and implement effectively, written policies
and procedures designed to segregate the flow of confidential
market-sensitive information, including distribution information,
between the Affiliated Specialist and the Affiliated Broker-Dealer
(``Information Barriers''). The policies and procedures must have
been approved by the NYSE as conforming to the requirements of NYSE
Rule 98.
3. Monitoring of Information Barriers. During the Rule 10b-6
Covered Period or Rule 10b-13 Covered Period, as applicable, the
Affiliated Specialist and Affiliated Broker-Dealer reasonably must
monitor for compliance with, and must inquire into possible breaches
of, Information Barriers. Any inquiries must be documented, and the
underlying records, including any analyses, inter-office memoranda,
and employee statements, must be made available promptly to the
Division of Market Regulation (``Division'') upon request.
4. Notice of Breach. Should any Affiliated Specialist or
Affiliated Broker-Dealer discover that there was a breach of the
Information Barriers during the Rule 10b-6 Covered Period and Rule
10b-13 Covered Period, as applicable, it must provide immediate
notice to the NYSE of such occurrence. Upon request of the Division,
the Affiliated Specialist or Affiliated Broker-Dealer shall provide
the Division with a written analysis of the circumstances
surrounding the breach.
5. Annual Compliance Review. a. Each Affiliated Specialist and
each Affiliated Broker-Dealer must annually: (i) conduct an
independent review (``Annual Compliance Review'') of its compliance
during the calendar year with the terms of these exemptions,
including their operation and any breaches of information barriers,
and report on such review to its management; or (ii) prepare a
statement (``Statement'') that it did not participate in any
distribution or tender offer involving a Subject Security during the
calendar year if such is the case. The Annual Compliance Review must
be conducted by an independent person acceptable to the Division,
and may be conducted in conjunction with the annual review specified
in NYSE Rule 342.30. Upon a request from the Division, such reviews,
management reports, and statements shall be supplied to the Division
within 15 days of the request.
b. Prior to relying on these exemptions, each Affiliated Broker-
Dealer and Affiliated Specialist must submit to the Division a
written explanation of how it will comply with the Annual Compliance
Review. The explanation of the Annual Compliance Review. The
explanation of the Annual Compliance Review must describe, among
other things, the review plan, the scope of the review, how the
review will be conducted, and the independent person, who will
conduct the review.
6. NYSE Surveillance. The NYSE shall establish and implement
special surveillance procedures to review all trading by the
Affiliated Specialist and Affiliated Broker-Dealers in Subject
Securities during the Rule 10b-6 Covered Period, including on-line
surveillance of trading by the Affiliated Specialist and off-line
surveillance of trading by Affiliated Broker-Dealers. The NYSE also
will review trading in Subject Securities by the Affiliated
Specialist and Affiliated Broker-Dealers for a ten business day
period prior to the commencement of the Rule 10b-6 covered Period
and for two business days thereafter. With respect to tender offers
subject to Rule 10b-13, the NYSE will review all trading by the
Affiliated Specialist for the period commencing with a public
announcement of the tender offer, and reconstruct all Affiliated
Specialist trading on a daily basis from the period as of two
business days prior to the commencement of the tender offer until
the offer's expiration.
7. Notice of Participation. Affiliated Broker-Dealers shall give
timely notice to the NYSE of their participation in any distribution
or tender offer during which the Affiliated Specialist will continue
its specialist activities in Subject Securities pursuant to the
exemptions granted herein. The Affiliated Broker-Dealer must provide
the NYSE advance notice prior to the commencement of the Rule 10b-6
Covered Period and Rule 10b-13 Covered Period, as applicable, and
notice of the completion of the distribution and tender offer, as
applicable.
8. Recordkeeping. a. All documents required under these
exemptions shall be kept for a period of not less than two years.
Reports of Annual Compliance Reviews must be retained for a period
of three years.
b. None of the requirements of these exemptions shall have any
effect upon the obligations of any Affiliated Specialist or
Affiliated Broker-Dealer to make, preserve, or produce records
pursuant to any other provision of the federal securities laws or
other regulatory requirements.
9. Disclosure. a. The Affiliated Broker-Dealer shall include in
the ``Plan of Distribution'' section of the prospectus, pursuant to
Rule 408 under the Securities Act of 1933, a brief description of
the activities of the Affiliated Specialist and the exemptions
granted herein, as applicable. When an Affiliated Broker-Dealer is
participating in a distribution as a managing or co-managing
underwriter, the inside front cover page of the prospectus shall
display prominently a statement to the effect that the Affiliated
Specialist will act in its specialist capacity in the Subject
Security pursuant to the exemptions granted herein.
b. At the commencement of the distribution or tender offer, the
Affiliated Broker-Dealer shall disclose to the market the fact of
the distribution or tender offer and of the Affiliated Specialist's
continuation as a specialist in the Subject Security, pursuant to
the exemptions granted herein.
10. Rule 10b-13 Condition. The Affiliated Specialist may tender
only those Subject Securities into an exchange offer that it has
acquired in a manner consistent with its specialist obligations
under NYSE Rule 104.
11. Analysis. The NYSE will provide the Division with a written
analysis of the operation of the exemptions granted herein for the
18 month period beginning on the date of this letter. On or before
April 30, 1997, the Division will notify the NYSE whether the
exemptions should be extended, modified or terminated. Unless
otherwise extended, these exemptions will expire on July 31, 1997.
The foregoing exemptions from Rules 10b-6 and 10b-13 are
strictly limited to the application of those rules to activities by
Affiliated Specialists, acting in their specialist capacity, as
described above, and are subject to compliance with the conditions
set forth above. These exemptions are subject to modification or
revocation if at any time the Commission or Division determines that
such action is necessary or appropriate in furtherance of the
purposes of the Exchange Act.\2\
\2\ In 1994, the Commission published a concept release
regarding the anti-manipulation regulation of securities
distributions, which sought comment on, among other things, the
application of Rule 10b-6 to affiliated purchasers. See Securities
Exchange Act Release No. 33924 (April 19, 1994), 59 FR 21681. In
light of the comments received in response to that release, the
Commission may determine to undertake rulemaking or other action
that may supersede these exemptions.
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No bids or purchases of Subject Securities by the Affiliated
Specialist or Affiliated Broker-Dealers shall be made for the
purpose of creating actual, or apparent, active trading in a Subject
Security or raising the price of a Subject Security. In addition,
Affiliated Specialists and Affiliated Broker-Dealers availing
themselves of this exemption are directed to the anti-fraud and
anti-manipulation provisions of the Exchange Act, particularly
Section 9(a), (10)(b), 14(e) and Rules 10b-5 and 14e-3 thereunder.
Responsibility for compliance with these and any other applicable
provisions of the federal securities laws must rest with the
Affiliated Specialist, the Affiliated Broker-Dealer, and their
Affiliated Purchasers. The Commission expresses no view with respect
to any other questions that the proposed transaction may raise,
including, but not limited to, the applicability of any other
federal or state laws.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Brandon Becker,
Director.
[FR Doc. 95-19384 Filed 8-4-95; 8:45 am]
BILLING CODE 8010-01-M
