[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