[Federal Register Volume 59, Number 127 (Tuesday, July 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16188]


[[Page Unknown]]

[Federal Register: July 5, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34269; File No. SR-NYSE-94-16]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc., Relating to Audit Trail 
Account Identification Codes

June 28, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April 
20, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange (``Commission'' or ``SEC'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of the addition of identification 
codes to the Exchange's audit trail to indicate transactions that are 
exempt from the short sale rules.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(a) Purpose
    NYSE Rule 132 requires a clearing member firm submitting a trade to 
comparison to include specified audit trail data elements, including a 
specification of the account type for which that trade was effected 
according to specified account categories. Currently, the Exchange uses 
12 identifiers. Three additional account type identifiers, relating to 
orders of competing dealers, have been approved by the Commission, but 
have not yet been implemented.\1\ These three identifiers would be 
implemented upon Commission approval of the new identifiers being 
proposed herein.
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    \1\The three identifiers recently approved by the Commission 
consist of O, T, and R and will denote that a transaction was 
effected for the account of a competing dealer. The identifier ``O'' 
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 competiting dealer account. The 
identifier ``R'' denotes an order for the account of a non-member 
competiting dealer. See Securities Exchange Act Release No. 33662 
(February 23, 1994), 59 FR 10027 (March 2, 1994) (order approving 
File No. SR-NYSE-91-46).
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    The Exchange is proposing to expand use of the audit trail account 
type field to require designation of a type of trade, namely, ``short 
exempt'' trades. Four identifiers would be added to the audit trail 
account type field to identify ``short exempt'' trades for:
     The proprietary account of a clearing member organization 
or an affiliated member/member organization--to be designated E.
     The proprietary account of an unaffiliated member/member 
organization--to be designated F.
     An Individual customer account--to be designated H.
     Other agency customer account--to be designated B.
    In addition, three identifiers would be added to identify ``short 
exempt'' trades of competing dealers. A competing dealer is defined as 
a registered specialist on another stock exchange or a marker-maker 
bidding and offering over-the-counter in a NYSE traded security. The 
identifiers, as proposed, are:

L--to designate a ``short exempt'' transaction for the account of a 
competing dealer that is a member or member organization trading for 
its own account
X--to designate a ``short exempt'' transaction where one member is 
acting as agent for another member's competing dealer account
Z--to designate a ``short exempt'' transaction for the account of a 
non-member competing dealer.

    The Exchange is proposing the addition of older type identifiers to 
enhance its ability to identify violations of SEC Rule 10a-1\2\ and 
Exchange Rule 440B, which prohibit short selling under specified 
circumstances. The rules require orders to sell to be marked as 
``long,'' or ``short,'' or ``exempt.''\3\
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    \2\SEC Rule 10a-1 states, in part, that no person shall, for his 
own account or for the account of any other person, effect a short 
sale of any security registered on, or admitted to unlisted trading 
privileges on, a national securities exchange, if trades in such 
security are reported pursuant to an effective transaction reporting 
plan as defined in Rule 11Aa3-1, and information as to such trades 
is made available in accordance with such plan on a real-time basis 
to vendors of market transaction information, (A) below the price at 
which the last sale thereof, regular way, was reported pursuant to 
an effective transaction reporting plan; or (B) at such price unless 
such price is above the next preceding different price at which a 
sale of such security, regular way, was reported pursuant to an 
effective transaction reporting plan. See 17 CFR 240.10a-1 (1993).
    \3\SEC Rule 10a-1 requires only that orders be marked ``long'' 
or ``short.'' NYSE Rule 440B.20 provides, in effect, that orders 
relying on an exception to Rule 10a-1 should be marked ``short 
exempt.''
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    SEC Rule 10a-1(e)\4\ provides exemptions for certain orders to the 
prohibitions against short selling. These are limited to types of 
trades that are believed to be beneficial to the market or that carry 
little risk of the kind of manipulative or destabilizing trading that 
Rule 10a-1 was designed to address. By requiring identification of 
``short exempt'' orders in the Exchange's post trade audit trail 
process, the Exchange will enhance its ability to examine whether 
trades effected pursuant to such orders were in compliance with the 
exceptions set forth in SEC Rule 10a-1(e).
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    \4\17 CFR 240.10a-1(e) (1993).
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    Member firms would 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 trade type identification 
requirements.
    The Exchange is also proposing to amend its definition of competing 
dealer and to change the term ``competing dealer'' to ``competing 
market-maker'' in order to correspond more closely with the definition 
of market-maker included in the Act.\5\
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    \5\The term ``competing market-maker'' is proposed to be defined 
as any person acting as a market-maker, as defined in Section 
3(a)(38) of the Act, in a NYSE traded security. A person acting 
solely in the capacity of a block positioner would not be considered 
to be a competing market-maker.
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(b) Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) that an Exchange have rules that are 
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. The Exchange believes the addition of the identifiers 
for ``short exempt'' trades will add to the protection of investors by 
enhancing the Exchange's surveillance capabilities with respect to 
``short'' sales.

B. Self-Regulatory Organization's Statement on Burden on Competition

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

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 days of the publication of this notice in the Federal 
Register or within such other period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve the 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 written 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, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change 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 at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 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-94-16 and should be 
submitted by July 26, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 94-16188 Filed 7-1-94; 8:45 am]
BILLING CODE 8010-01-M