[Federal Register Volume 59, Number 130 (Friday, July 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16570]


[[Page Unknown]]

[Federal Register: July 8, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34303; File No. SR-NYSE-93-48]

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the New York 
Stock Exchange, Inc. Relating to Procedures for Handling Block Crosses 
at Significant Premiums or Discounts

July 1, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 20, 1993, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of an Information Memo which 
discusses procedures under current Exchange Rules for handling block 
crosses that are proposed to be executed at significant premiums or 
discounts from the last sale.

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 III 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

1. Purpose
    The purpose of the proposed rule change is to review the Exchange's 
existing procedures for handling block crosses that are proposed to be 
executed at significant premiums or discounts from the prevailing 
market in the subject security. These procedures are designed to ensure 
that such block transactions are subject to appropriate oversight and 
exposure to other market interest.
    There are three types of decisions that may be made, as 
appropriate, when a block cross is proposed to be effected at a 
significant premium or discount. First, pursuant to Exchange Rule 
79A.30, whenever any transaction is to be effected at a price that is 
$1 or more away from a last sale in the subject security under $20, or 
$2 or more away from a last sale of $20 or more, it must be approved by 
a Floor Official. In addition, in the case of a proposed block 
transaction which would be effected at a significant price change from 
the last sale (and particularly any trade at a price which would be the 
lesser of 10% or three points from the previous sale in the subject 
security, or five points if the previous sale was $100 or more), a 
floor Governor, a Senior Floor Official, or two Floor Officials, should 
make a determination whether the expected price change suggests that 
the overall market in that security would be better served by a trading 
halt, with telescoping price indications that come progressively closer 
to the re-opening price.
    Third, in exceptional circumstances, a Floor Governor or a Senior 
Floor Official may determine that it is appropriate to continue trading 
rather than calling a trading halt. In such a case, when a member 
proposes to effect a block transaction at a significant premium or 
discount from the prevailing market and the specialist is aware of 
interest on the contra side, the specialist, with approval of a Floor 
Governor or Senior Floor official, may widen the quotation for a brief 
period, generally not to exceed five minutes, to try to contact and/or 
attract contra side market interest. In the case of a significant 
discount, the bid would represent the proposed cross price, the offer 
would touch the last sale price and the quotation size would be 100 
shares by 100 shares. Conversely, in the case of a significant premium, 
the bid would touch the last sale and the offer would represent the 
proposed cross price, with the quotation size being 100 shares by 100 
shares. The same principles would also apply to a situation where a 
sudden influx of market orders on only one side of the market make a 
significant price change likely.
    All block transactions are subject to the Exchange's auction market 
rules (e.g., Rules 72, 76, and 127), which provide the opportunity for 
other market participants to improve the price for one side or the 
other of the proposed cross. However, if a block transaction at a 
significant premium or discount is proposed very near the close of 
trading, there may not be sufficient time to implement the procedures 
described above and a Floor Governor or a Senior Floor Official, or two 
Floor Officials may determine that it is therefore appropriate to halt 
trading.
    Specialists must be prepared to participate in such transactions, 
as dealer, to the extent necessary to maintain a fair and orderly 
aftermarket following the execution of such transactions. Any situation 
where there is a disagreement between the specialist and the broker 
representing the block orders as to the extent of the needs of the 
specialist should be referred to a Floor Official for resolution.
2. Statutory Basis
    The basis under the Act for the 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.

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. 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, NW., Washington, DC 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, 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-93-48 and should be 
submitted by July 29, 1994.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the NYSE's proposal is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange. Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\3\ which requires that an exchange have 
rules that are designed to prevent fraudulent and manipulative acts and 
practices, 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.
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    \3\15 U.S.C. 78f(b)(5) (1988).
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    The Commission believes that the Exchange's policy requiring the 
approval of a Floor Governor, Senior Floor Official, or two Floor 
Officials for block transactions effected at significant price changes 
from the last sale provides appropriate Exchange oversight of 
specialists' conduct and is consistent with Section 6(b)(5) of the Act 
in that this oversight may tend to prevent fraudulent and manipulative 
acts and practices and assist specialists in maintaining fair and 
orderly markets by ensuring that block transactions are properly priced 
and exposed to other market interest.
    The Commission believes the rule change is consistent with NYSE 
Rule 79A.30, which requires that all transactions that are made at one 
point or more away from a last sale in a security priced under $20, or 
two points or more away from a last sale of $20 or more must be 
approved by a Floor Official. Where a block transaction is proposed 
that would result in a more significant price change than the one or 
two point parameter discussed in Rule 79A.30, the Information Memo 
states that consultation should involve a Floor Governor, a Senior 
Floor Official or two Floor Officials. The Commission believes that in 
such situations, a trading halt or a gap quotation may be needed to 
maintain orderly markets, and that consultations with the specified 
officials could aid specialist in fulfilling their market making 
responsibilities.\4\
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    \4\Nothing in the rule change effects the Exchange's current 
rules regarding execution of block transactions, such as NYSE Rule 
72 (Priority and Precedence of Bids and Offers), NYSE Rule 76 
(``Crossing'' Orders), NYSE Rule 78 (Sell and Buy Orders Coupled at 
Same Price), and NYSE 127 (Block Positioning).
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    The Commission believes that the Information Memo highlights the 
responsibilities of specialists in terms of block crosses that are 
already set forth in the Exchange's Rules and policies. In addition, 
the Commission believes that the adoption of the Information Memo will 
ensure that floor members are aware of their obligation to consult with 
floor officials when proposing to execute block crosses at prices that 
would result in significant price changes from the last sale. The 
Commission therefore finds good cause for approving the proposed rule 
change prior the thirtieth day after the date of publication of notice 
of filing thereof in the Federal Register.
    It is therefore ordered, pursuant to Section 19(b)(2)\5\ that the 
proposed rule change is hereby approved.

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    \5\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-16570 Filed 7-7-94; 8:45 am]
BILLING CODE 8010-01-M