[Federal Register Volume 61, Number 182 (Wednesday, September 18, 1996)]
[Notices]
[Pages 49185-49186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23899]
[[Page 49185]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37667; File No. SR-NYSE-96-22]
Self-Regulatory Organizations; Order Granting Accelerated
Approval of a Proposed Rule Change by the New York Stock Exchange,
Inc., Relating to the Extension of Rule 103A (Specialist Stock
Reallocation)
September 11, 1996.
I. Introduction
On August 6, 1996, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\
proposed rule change (File No. SR-NYSE-96-22) to extend the
effectiveness of NYSE Rule 103A, Specialist Stock Reallocation, until
September 10, 1997. The proposed rule change was published for comment
in theFederal Register on August 21, 1996.\3\ No. comments were
received on the proposal. On September 10, 1996, the Exchange amended
the filing (``Amendment No. 1'') to shorten the length of the
effectiveness of NYSE Rule 103A until January 10, 1997.\4\ For the
reasons set forth below, the Commission is approving the extension of
NYSE Rule 103A until January 10, 1997, on an accelerated basis.
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\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ 17 CFR Sec. 240.19b-4 (1994).
\3\ Securities Exchange Act Release No. 35764 (August 14, 1996),
61 FR 43284.
\4\ Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Sharon Lawson, Assistant Director, Division of
Market Regulation, Commission (September 10, 1996.
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II. Description of the Proposal
The NYSE seeks to extend the effectiveness of Rule 103A, Specialist
Stock Reallocation, until January 10, 1997. NYSE Rule 103A grants
authority to the Exchange's Market Performance Committee to develop and
administer systems and procedures, including the determination of
appropriate standards and measurements of performance, designed to
measure specialist performance and market quality on a periodic basis
to determine whether or not particular specialist units need to take
actions to improve their performance. Based on such determinations, the
Market Performance Committee is authorized to conduct a formal
Performance Improvement Action in appropriate cases. The intent of Rule
103A is to encourage a high level of market quality and performance in
Exchange listed Securities.
The Exchange originally proposed the adoption of Rule 103A in
1979.\5\ Since that time, the pilot program has been extended numerous
times. Most recently, on May 10, 1995, the SEC extended the
effectiveness of the rule until September 10, 1996.\6\ In its approval
order, the Commission stated its continued belief that the Exchange
should develop objective performance standards to measure specialist
performance.\7\
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\5\ Securities Exchange Act Release No. 15827 (May 15, 1979), 44
FR 100 (May 22, 1979) [File No. SR-NYSE-77-24]
\6\ See Securities Exchange Act Release No. 35704 (May 10,
1995), 60 FR 26060 (May 16, 1995) [File No. SR-NYSE-95-18].
\7\ See id. The Commission notes that the Exchange's current
evaluation criteria under Rule 103A.10 include objective standards
that measure specialist performance at the opening (both regular and
delayed), systematized order turnaround, and the timeliness of a
unit's response to status requests. Specialist performance also is
measured by the Exchange's Specialist performance Evaluation
Questionnaire.
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Currently, the Exchange has in place two objective measures of
specialist performance. It should be noted, however, that these
measures are not currently included in the Rule 103A program. The first
objective measure of performance pertains to specialist capital
utilization. Adopted in December 1993 on a pilot basis, the capital
utilization measure of specialist performance focuses on a specialist
unit's use of its own capital in relation to the total dollar value of
trading activity in the unit's stocks.\8\ The capital utilization
measure pilot has been extended until September 10, 1996.\9\ The
Exchange's Allocation Committee is being provided with specialist
capital utilization information for its use in allocation decisions.
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\8\ See Securities Exchange Act Release No. 33369 (December 23,
1993), 58 FR 69431 (December 30, 1993) [File No. SR-NYSE-93-30].
\9\ See Securities Exchange Act Release No. 35926 (June 30,
1995), 60 FR 35760 (July 11, 1995) [File No. SR-NYSE-95-24].
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The second objective measure of performance, which was recently
developed, pertains to ``near neighbors.'' On June 30, 1995, the
Commission approved this filing on a fifteen month pilot basis through
September 10, 1996.\10\ The ``near neighbors'' measure compares certain
performance measures of a given stock (price continuity, depth,
quotation spread and capital utilization) to those of its ``near
neighbors'' (i.e., stocks that have certain similar characteristics).
The Exchange would provide ``near neighbor'' information to the
Allocation Committee for its use in allocating newly-listed stocks.\11\
On July 1, 1996, the Exchange filed to extend the pilot programs for
both the near neighbor and capital utilization measure of specialist
performance.\12\ The Commission has approved the extension of both
pilots until January 10, 1997. The Exchange has also indicated its
intention to work with outside consultants and appropriate constituent
groups to develop performance standards applicable to these objective
measures for incorporation into Rule 103A.
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\10\ See Securities Exchange Act Release No. 35927 (June 30,
1995), 60 FR 35764 (July 11, 1995) [File No. SR-NYSE-95-05].
\11\ The near neighbor measure would provide the Allocation
Committee with performance data.
\12\ File No. SR-NYSE-96-17.
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Regarding the Intermarket Trading System (``ITS''), the Commission
has stated its belief that the mature status of the ITS as a market
structure facility warrants the incorporation of ITS turnaround and
``trade-through'' concerns into the NYSE's Rule 103A performance
standards. The Exchange continues to believe that ITS matters are more
appropriately addressed by means of the Exchange's regulatory process
rather than through its performance measurement system, but will
continue to study the matter.
III. Discussion
After careful review, the Commission finds that the proposed rule
changes are 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 Sections 6(b)(5)
and 11(b) of the Act.13 Section 6(b)(5) requires, among other
things, that the rules of an exchange be designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Section 11(b)
of the Act, and Rule 11b-1 thereunder,14 allow securities
exchanges to promulgate rules relating to specialists consistent with
the maintenance of fair and orderly markets.
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\13\ 15 U.S.C. Sec. 78f(b)(5) and 78k(b) (1988).
\14\ 17 CFR 240.11b-1 (1994).
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Specifically, because specialist units play a crucial role in
providing stability, liquidity, and continuity to the trading of stocks
on the Exchange, the Commission believes that effective oversight,
including periodic evaluation of the specialists' performance, is
important to the maintenance of a fair and efficient marketplace. The
Commission believes that the NYSE's Rule 103A performance evaluation
[[Page 49186]]
process is critical to this oversight in that it provides the Exchange
with the means to identify and correct poor specialist performance and
to ascertain whether specialists are maintaining fair and orderly
markets in their assigned securities, as required pursuant to Exchange
rules and the Act, and the rules thereunder.15 Moreover, the
possibility of a performance improvement action as a result of the
evaluation process, in addition to the use of the evaluation results in
stock allocation decisions, should help motivate and provide incentives
for specialists to maintain and improve their market making performance
for the benefit of investors.
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\15\ See generally NYSE Rule 104 (Dealings By Specialists); and
Commission Rule 11b-1 under the Act, 17 CFR 240.11b-1 (1994).
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In previous orders extending the Rule 103A pilot,16 the
Commission emphasized its desire for the Exchange to develop objective
measures of market making performance and incorporate such measures
into the Rule 103A pilot.17 In addition, the Commission previously
stated that it believes the mature status of the Intermarket Trading
System, as a market structure facility, warrants the incorporation of
ITS turnaround and trade-through concerns into the NYSE's Rule 103A
performance standards. As discussed fully in a previous extension
order,18 the Commission believes that objective measures of
specialist performance with regards to these concerns should be
incorporated into the evaluation process.
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\16\ See Securities Exchange Act Release Nos. 34022 (May 6,
1994), 59 FR 25143 (May 13, 1994); 32285 (May 10, 1993), 58 FR 28905
(May 17, 1993); 29180 (May 8, 1991), 56 FR 22489 (May 15, 1991); and
28215 (July 17, 1990), 55 FR 30060 (July 24, 1990).
\17\ See supra. Although the Exchange has developed the capital
utilization and near neighbor measures of market making performance
for use by the Allocation Committee, it has not yet proposed to
include these objective measures in its Rule 103A program.
\18\ See Security Exchange Act Release No. 34022 (May 6, 1994),
59 FR 25143 (May 13, 1994).
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Even though the proposal lacks objective market making performance
standards, the Commission has determined to approve the proposal to
extend the effectiveness of Rule 103A for an additional four months. In
Amendment No. 1, the Exchange indicated that at the end of the four
month extension it will seek permanent approval of the proposal from
its Board of Directors, and subsequently file such request with the
Commission.\19\
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\19\ In this regard, the Commission expects the NYSE to submit
to the Division of Market Regulation, no later than November 15,
1996, a proposed rule change pursuant to Rule 19b-4 under the Act,
17 CFR 240.19b-4, to request permanent approval of Rule 103A.
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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
notice thereof in the Federal Register. The Commission believes it is
appropriate to approve the proposed rule change on an accelerated basis
so that the Exchange can continue to administer, on an uninterrupted
basis, its Rule 103A evaluation process. A substantial portion of
current Rule 103A was noticed for the full statutory period in 1987,
and the Commission did not receive any adverse commentary on the
revised Rule 103A program.\20\ Further, interested persons were invited
to comment on this proposal and the Commission received no comments.
The Commission believes, therefore, that granting accelerated approval
of the proposed rule change is appropriate and consistent with Sections
6 and 11 of the Act.
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\20\ See Securities Exchange Act Release Nos. 24919 (September
15, 1987), 52 FR 35821 (September 23, 1987); and 25681 (May 9,
1988), 53 FR 17287 (May 16, 1987).
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It is therefore, ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change is hereby approved on an
accelerated basis until January 10, 1997.
\21\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23899 Filed 9-17-96; 8:45 am]
BILLING CODE 8010-01-M
