[Federal Register Volume 59, Number 95 (Wednesday, May 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12041]


[[Page Unknown]]

[Federal Register: May 18, 1994]


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SECUITIES AND EXCHANGE COMMISSION

[Release No. 34-34023; File No. SR-NYSE-94-08]
May 6, 1994.

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Proposed Rule Change Relating to the Same-Day Comparison of Initial 
Trade Data in Listed Stocks Through the NYSE's On-Line Comparison 
System

    Pursuant to section 19(b) of the Securities Exchange Act of 1934 
(``Act'')\1\ notice hereby is given that on March 10, 1994, the New 
York Stock Exchange, Inc. (``NYSE'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-NYSE-94-08) as described in Items I, II, and III below, which items 
have been prepared primarly by the NYSE, a self-regulatory organization 
(``SRO''). The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested parties.
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    \1\15 U.S.C. 78s(b).
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I. SRO's Statement of the Terms of Substance of the Proposed Rule 
Change

    The NYSE proposed to require the submission of trade data in listed 
stocks on trade date for initial comparison through the Exchange's On-
Line Comparison System.

II. SRO's Statement of the Purpose of, and Statutory Basis for, the 
Proposed Rule Change

    In its filing with the Commission, the NYSE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.

(A) SRO's Statement of the Purpose of, and Statutory Basis for, the 
Proposed Rule Change

(1) Purpose
    The NYSE has decided to implement an On-Line Comparison System with 
a target date of June 30, 1995 for full implementation. The NYSE is 
filing this proposal with the Commission to provide the NYSE community 
with almost eighteen months advance notice in order that they will have 
time to plan and implement the changes that may be necessary.\2\ A 
phased implementation will be used, similar to that which was used to 
implement T+1 overnight comparion of NYSE transactions.\3\
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    \2\The NYSE has distributed to its members a circular, dated 
January 29, 1994, describing implemention of trade data comparison.
    \3\For a discussion of T+1 overnight comparison, refer to 
Securities Exchange Act Release No. 26627) (March 14, 1989) 54 FR 
11470 [File No. SR-NYSE-88-36] (order approving proposed rule 
change).
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    Beginning on June 1, 1994, the NYSE will require its member 
clearing firms to submit to it periodically during the trading day 
trade data for transactions in listed stocks, rights, and warrants 
effected on the NYSE for ``regular way,'' ``next day,'' ``cash,'' and 
``seller's option'' settlement. All stocks traded on an ``issued,'' 
``when issued'' and ``when distributed'' basis will be included. The 
NYSE's existing Overnight Comparison System will be the main processor 
of the data submitted for initial comparison. Accordingly, the NYSE has 
changed that system's name to the On-Line Comparison System Compared 
trades will be submitted by the NYSE to a ``qualified clearing agency'' 
to complete the clearance and settlement process.
    The required changes may affect numerous clearing and non-clearing 
firms' operations, including such things as trading floor operations, 
purchase and sales department procedures, clearing operations, and 
internal account balancing and reconciliation procedures. Because of 
these possible, significant changes, the NYSE has established two 
communities, a steering committee and a working group, to advise it on 
the best methods by which trade-date comparison may be achieved. 
Additionally, this program is being implemented in conjunction with the 
National Securities Clearing Corporation and the American Stock 
Exchange, Inc.
    Since 1988, the NYSE has sought to improve clearing operations and 
to reduce exposure to losses associated with market volatility by 
reducing the comparison cyce in stocks first from five business days 
(``T+5'') to three business days (``T+3'') and then to one business day 
(``T+1''). Thereafter, the principle of ``T+1 compared or close out'' 
also was made applicable first to listed options\4\ and then to listed 
bonds.\5\ The NYSE notes that currently more than 75 percent of all 
trades taking place on its trading floors are captured and locked-in 
electronically. The NYSE views the capture of the remaining 25 percent, 
which primarily occurs in the trading crowd, as a major goal of the On-
Line Comparison System.
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    \4\For a discussion of T+1 comparison or close-out for options, 
refer to Securities Exchange Act Release No. 30293 (January 27, 
1992), 57 FR 4229 [File No. SR-NYSE-91-36].
    \5\For a discussion of T+1 comparison of close-out for bonds, 
refer to Securities Exchange Act Release No. 31826 (Feburary 4, 
1993), 58 FR 8075 [File No. SR-NYSE-92-32].
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    The NYSE is not proposing any formal changes to its Rules at this 
time. It believes that it already has sufficient authority under its 
Rule 130 to require its clearing members to submit trade data in listed 
stocks for trade-date comparison. Rule 130 was amended by the NYSE to 
provide for this result in its File No. SR-NYSE-92-32 when, among other 
things, the T+1 Overnight Comparison System was applied to NYSE bond 
transactions.\6\ In that filing, the NYSE stated:
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    \6\Id.

    In preparing amendments to the comparison rules described below 
[Rule 130], the Exchange is aware that such amendments permit the 
acceptance of initial comparison data in any security admitted to 
dealings at any time it chooses to do so. This should not, however, 
be construed to mean that the Exchange intends to commence the 
initial comparison of all securities traded on it now. Should the 
Exchange's experience with initial comparison of listed bond 
transactions indicate that initial comparison of other types of 
securities traded on the Exchange is feasible, the Exchange at that 
time will submit an appropriate filing to the Commission pursuant to 
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Rule 19b-4 at that time.

    The NYSE believes that this filing, File No. SR-NYSE-94-08, is 
consistent with that statement. As the final implementation date of 
June 30, 1995, approaches, the NYSE will file any other rule changes 
with the Commission pursuant to Rule 19b-4\7\ that it considers 
appropriate and necessary.
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    \7\17 CFR 240.19b-4 (1993).
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    Implementation of trade-date comparison, will require clearing 
firms to meet three general requirements. First, they will have to 
suppress certain comparison data submissions to qualified clearing 
agencies as the NYSE locks-in additional trades. Second, they will have 
to submit their comparison data to the NYSE for comparison, rather than 
to a qualified clearing agency. Third, they will have to submit 
comparison data to the NYSE during the trading session rather then 
after the close of trading.
    As mentioned above, the implementation of on-line comparison will 
be a phased approach, which the NYSE found successful in implementing 
T+1 overnight comparison. The NYSE anticipates that the initial window 
for submission of trade data will be within two hours of trade 
execution at the inception of on-line comparison on June 1, 1994, and 
then gradually will be reduced to one hour in August 1994. These time 
frames are flexible and may be altered by the NYSE as it evaluates 
clearing firms' abilities to comply. The NYSE intends to closely 
monitor the implementation of each phase and will not implement a new 
phase until it is satisfied that no significant operational problems 
exist.
    The main objectives that will be sought as the NYSE moves toward 
complete implementation of its On-Line Comparison System include: 
Increasing the percentage of locked-in trades; maintaining a 
satisfactory uncompared rate during the various phases of the project; 
comparison of those trades that cannot be captured by an electronic 
order entry system; and elimination of redundant comparison processing. 
It is important to note that as the On-Line Comparison System moves 
through its various implementation phases, the current NYSE Rule 
130(a), which requires each transaction effected on the NYSE to be 
compared or closed out by the close of business on the NYSE on the 
business day following the day of the contract, shall remain in effect.
(2) Statutory Basis for the Proposed Rule Change
    The NYSE believes that its proposal to accept initial trade data 
from its clearing firms and to compare as much of that data as is 
practical on trade date will help protect investors and the public 
interest as called for in Section 6(b)(5) of the Act.\8\ The NYSE 
believes that the proposal meets other requirements of Section 6(b)(5) 
in that it will help prevent fraudulent and manipulative acts and 
practices, will promote just and equitable principles of trade, and 
will foster cooperation and coordination with persons engaged in 
regulating and facilitating transactions in securities. Secondly, the 
Exchange believes that the proposal will meet the goals of Section 
17A(a)(1) of the Act in that it will help eliminate inefficient 
procedures for clearance and settlement that impose unnecessary costs 
on investors and persons facilitating transactions by and on behalf of 
investors.\9\
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    \8\15 U.S.C. 78f(b)(5).
    \9\15 U.S.C. 78q-1(a)(1).
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B. SRO's Statement on Burden on Competition

    The NYSE believes that the proposed rule change will not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

(C) SRO's Statement on Comments on the Proposed Rule Change Received 
From Members, Participants or Others

    The NYSE has neither solicited nor received any comments on the 
proposed rule change.

 III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five days of the date of the publication of this 
notice in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for such 
finding or (ii) as to which the SRO consents, the Commission will:
    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit data, views, and arguments 
concerning the foregoing. Persons making written submissions should 
file six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549. Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule changes that are filed with the 
Commission, and all written communications relating to the proposed 
rule changes between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the NYSE. All 
submissions should refer to File No. SR-NYSE-94-08 and should be 
submitted by June 8, 1994.

    For the Commission by the Division of Market Regulations, 
pursuant to delegated authority.\10\
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    \10\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12041 Filed 5-17-94; 8:45 am]
BILLING CODE 8010-01-M