[Federal Register Volume 59, Number 146 (Monday, August 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18582]


[[Page Unknown]]

[Federal Register: August 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34433; File No. SR-NYSE-94-29]

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the New York 
Stock Exchange, Incorporated, Relating to Exchange Options Specialist 
``Trade or Fade'' Requirement

July 22, 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 July 18, 
1994, the New York Stock Exchange, Incorporated (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons, and simultaneously 
granting accelerated approval of the proposed rule change.

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

    The New York Stock Exchange proposes to modify Rule 758A 
(Specialists Options Transactions) by imposing a ``trade or fade'' 
requirement on Exchange options specialists for multiply-traded 
options.

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

    (1) Purpose--Exchange Rule 758A (Specialist Options Transactions) 
requires an options specialist to sell (or buy) at least ten contracts 
at the offer (or bid) that the specialist is displaying when he 
receives an order for the account of a non-broker-dealer customer (the 
``ten-up requirement''). The proposed rule change adds new paragraph 
(d) to Rule 758A in order to require an options specialist to fill an 
order in its entirety at the displayed market quote or, if the 
specialist does not fill any part of the order or partially fills the 
order, to update the quote to reflect that the previously displayed 
quote is no longer available (i.e., a ``trade or fade'' 
requirement).\1\ It would apply to all orders for the principal account 
of a broker-dealer at the market quote and to all portions of orders 
for the account of customers that the specialist does not fill pursuant 
to the ten-contract requirement.
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    \1\For example, if as a result of displaying a more competitive 
offer, an exchange is sent an order to buy 50 contracts that was 
originally received by another exchange, it may buy fewer than 50 
contracts at its quoted price, but must then revise its quotation to 
reflect that the price is no longer available.
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    The Exchange intends for this provision to limit the incidences of 
actual or apparent ``trade-throughs,'' thereby facilitating orderly 
trading in multiply listed options. A trade-through is an order 
executed on an exchange at a price which appears to be inferior to a 
price displayed at another exchange. Thus, a trade-through occurs when 
an order appears to have ``traded through'' the better displayed price. 
In order to avoid a trade-through, the member of the exchange initially 
receiving the order may agree to match the best price from among the 
competing exchanges. The member may also send the order to the exchange 
displaying the superior quotation, which would then be obliged to 
either fill the order at the more favorable quotation or revise the 
quotation. This obligation should make it easier to determine whether a 
competing exchange's quotation is in fact the best price at which a 
trade can be effected.
    The Exchange also proposes to add Supplementary Material .10 to 
Rule 758A to clarify that the obligation to ``trade or fade'' in 
paragraph (d) does not authorize the NYSE specialist to trade through a 
more favorable quotation on another exchange.
    The proposed rule change also adds Supplementary Material .20 to 
the Rule, which deems the practice of a specialist who redisplays a 
previously disseminated market quote immediately following a ``fade'' 
inconsistent with just and equitable principles of trades (unless 
warranted by a change in market conditions). The Exchange intends for 
this provision to reduce abuses of the rule.
    (2) Basis--The proposed rule change is intended to further the 
objectives of Section 6(b)(5) of the Act by facilitating transactions 
in securities, removing impediments to and perfecting the mechanism of 
a free and open market and a national market system, and promoting just 
and equitable principles of trade.

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

    The proposed rule change does not 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The Exchange requests that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of the notice in the Federal Register.

IV. Commission's Findings and Order Granting Accelerated Approval

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act, in general and 
furthers the objectives of Section 6(b)(5), in particular, in that it 
is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling and processing information with respect to, and 
facilitating transactions in securities, and in general, to protect 
investors and the public interest.
    Specifically, the Commission believes that requiring NYSE 
specialists to execute orders or update their markets facilitates 
transactions in securities, protects investors and the public interest, 
and promotes fair competition among options markets. The proposal 
should reduce the likelihood that an outdated quote from one options 
market will hinder the execution of an order on another options market 
by making such execution appear to be at an inferior price (i.e., a 
trade-through). The Commission further notes that, concurrently with 
approval of this proposal, it is approving similar proposals by the 
American Stock Exchange (``AMEX''), Chicago Board Options Exchange 
(``CBOE''), Pacific Stock Exchange (``PSE'') and Philadelphia Stock 
Exchange (``PHLX'').\2\
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    \2\See Securities Exchange Act Release No. 34431, 34432, 34435, 
and 34434, (July 22, 1994), respectively.
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing in the Federal Register. The NYSE proposal to require 
specialists to trade at a disseminated quote or update their markets is 
substantially similar to proposals by AMEX, CBOE, PSE and PHLX. The 
PSE, CBOE, and PHLX proposals were subject to a full notice and comment 
period and no comments were received.\3\ Accordingly, since the 
Commission finds that no new issues are raised by the current proposal, 
the Commission believes it is consistent with Sections 19(b)(2) and 
6(b)(5) of the Act.\4\ to approve the NYSE's proposal to permit the 
NYSE to implement its trade or fade requirement at the same time as 
these requirements are implemented by the other options exchanges, 
which will facilitate compliance with Rule 19c-5.\5\
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    \3\See Securities Exchange Act Release Nos. 31962 (March 8, 
1993), 58 FR 13661 (March 12, 1993), 34158 (June 3, 1994), 59 FR 
30074 (June 10, 1994), and 32406 (June 3, 1993), 58 FR 32404 (June 
9, 1993), respectively.
    \4\15 U.S.C. 78s(b)(2) and 78f(b)(5) (1988).
    \5\17 CFR 240.19c-5 (1993).
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V. 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 in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NYSE. All such submissions should refer to the file number in the 
caption above and should be submitted by August 22, 1994.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-NYSE-94-29) relating to the 
amendments to Rule 758A is approved.
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    \6\15 U.S.C. 78s(b) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18582 Filed 7-29-94; 8:45 am]
BILLING CODE 8010-01-M