[Federal Register Volume 59, Number 41 (Wednesday, March 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4702]
[[Page Unknown]]
[Federal Register: March 2, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33662; File No. SR-NYSE-91-46]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Audit Trail
Account Identification Codes
February 23, 1994.
On December 17, 1991, 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 orders for the account of a competing
dealer for audit trail reporting purposes.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 30142 (January 2, 1992), 57 FR 728 (January 8,
1992). No comments were received on the proposal.\3\
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\3\The Commission notes that in a letter from William W.
Uchimoto, General Counsel, Philadelphia Stock Exchange, to Mary
Revell, Branch Chief, Division of Market Regulation, dated January
24, 1992, the Philadelphia Stock Exchange (``Phlx'') requested an
extension until March 4, 1992 to comment on the proposal and on an
American Stock Exchange (``Amex'') proposal concerning competing
dealers (File No. SR-Amex-90-29). In the letter, the Phlx expressed
its belief that both proposals were ``highly controversial, giving
rise to significant competitive and market structure concerns.'' The
Commission did not, however, receive further comment from the Phlx
regarding this NYSE proposal. See note 10, infra.
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NYSE Rule 132 presently 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.\4\ 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\5\ and trades executed by a member/member organization as
agent for another member/member organization.\6\ The new indicators
being approved herein will identify transactions effected for the
account of a competing dealer.
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\4\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.
\5\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.
\6\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.
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New indicators of O, T, and R will denote that a transaction was
effected for the account of a competing dealer. The identifier ``0''
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.\7\ In addition, the rule change adds the following
definitions:
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\7\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.
Competing Dealer: a specialist or market-maker registered as
such on a registered stock exchange (other than the NYSE), or
market-maker bidding and offering over-the-counter, in a New York
Stock Exchange-traded security.
Proprietary, Competing Dealer: a member or member organization
trading for its own competing dealer account.
As Agent for Other Member, Competing Dealer: a member or member
organization trading as agent for another member's competing dealer
account.
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 assess the extent of activity by
competing dealers and market makers in NYSE-listed securities and the
impact of this activity on the NYSE market.
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.\8\
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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\8\15 U.S.C. 78f(b) (1988).
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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. Specifically, the Commission believes that the
new, more precise identifier codes should facilitate surveillance
investigations by clearly and more specifically demarcating competing
dealers proprietary trading. In addition, 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, we
believe the proposed identifier codes should permit the NYSE to perform
its surveillance responsibilities more thoroughly and therefore, for
this sole reason, find the proposal consistent with section 6(b)(5) of
the Act.
The Commission notes that the approval of this proposal is limited
solely to establishing competing dealer identifier codes for audit
trail and surveillance purposes.\9\ The proposal does not limit or
restrict the activity of competing dealers or their access to the NYSE.
Thus, any competitive burden on competing dealers would be minimal and
outweighed by the surveillance benefits to be obtained by the NYSE.\10\
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\9\This information is not available to specialists or traders
on the floor.
\10\The Commission is currently considering an Amex proposal
(File No. SR-Amex-90-29) that would impose certain restrictions on
limit orders for the account of a competing dealer. The Commission
has received over 40 comments opposing this proposal. While the NYSE
proposal being approved herein also concerns competing dealers, the
proposal only requires orders for competing dealers to be noted on
account identifiers for surveillance purposes.
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It is therefore ordered, Pursuant to section 19(b)(2) of the Act,
\11\ that the proposed rule change (SR-NYSE-91-46) is approved.
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\11\15 U.S.C. 78s (b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4702 Filed 3-1-94; 8:45 am]
BILLING CODE 8010-01-M