[Federal Register Volume 59, Number 163 (Wednesday, August 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20777]


[[Page Unknown]]

[Federal Register: August 24, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34539; File No. SR-NYSE-94-16]

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Audit Trail 
Account Identification Codes

August 17, 1994.
    On April 20, 1994, 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 transactions that are exempt form the 
short sale rules for audit trail reporting purposes.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 34269 (June 28, 1994), 59 FR 34461 (July 5, 
1994). No comments were received on the proposal. This order approves 
the proposed rule change.
    NYSE Rule 132 currently 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.\3\ 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,\4\ trades executed by a member/member organization as 
agent for another member/member organization,\5\ and trades effected 
for the account of a competing dealer.\6\
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    \3\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.
    \4\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.
    \5\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.
    \6\Indicators O, T, and R 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 competing dealer account. Finally, the 
identifier ``R'' denotes an order for the account of a non-member 
competing dealer.
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    The new indicators being approved herein will identify transactions 
effected for ``short exempt'' trades.\7\ New indicators E, F, H, and B 
denote ``short exempt'' trades. The identifier ``E'' denotes a ``short 
exempt'' transaction for the proprietary account of a clearing member 
organization or an affiliated member/member organization. The 
identifier ``F'' denotes a ``short exempt'' transaction for the 
proprietary account of an unaffiliated member/member organization. The 
identifier ``H'' denotes a ``short exempt'' transaction for the account 
of an individual customer account. The identifier ``B'' denotes a 
``short exempt'' transaction for other agency customer accounts.\8\ In 
addition, new indicators of L, X, and Z will denote ``short exempt'' 
trades of competing dealers.\9\ The identifier ``L'' denotes a ``short 
exempt'' transaction for the account of a competing dealer that is a 
member or member organization trading for its own account. The 
identifier ``X'' denotes a ``short exempt'' transaction where one 
member is acting as agent for another member's competing dealer 
account. The identifier ``Z'' denotes a `'short exempt'' transaction 
for the account of a non-member competing dealer.
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    \7\NYSE Rule 440B contemplates that trades relying on exceptions 
to SEC Rule 10a-1 will be marked ``short exempt.'' 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 27 CFR 240.10a-1 (1994). 
SEC Rule 10a-1(e) provides exemptions for certain orders from 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. See 17 CFR 
2450.10a-1(e) (1994).
    \8\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.
    \9\A competing dealer is defined as a registered specialist on 
another stock exchange or a market-maker bidding and offering over-
the-counter in a NYSE traded security.
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    In addition, the rule change replaces the existing definition for a 
competing dealer with a new definition for competing market-maker, and 
changes the term ``competing dealer'' to ``competing market-maker.'' 
The term ``competing market-maker,'' as amended, is defined as any 
person acting as a market-maker, as defined in Section 3(a)(3)\10\ 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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    \10\Section 3(a)(38) of the Act defines market maker as any 
specialist permitted to act as a dealer, any dealer acting in the 
capacity of block positioner, and any dealer who, with respect to a 
security, holds himself out (by entering quotations in an inter-
dealer communications system or otherwise) as being willing to buy 
and sell such security for his own account on a regular or 
continuous basis.
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    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 identify violations of SEC Rule 10a-1 
and Exchange Rule 440B, which prohibit short selling under specified 
circumstances.
    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.\11\ 
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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    \11\15 U.S.C. Sec. 78f(b) (1988).
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    The Commission also believes that the adopted ``short exempt'' 
account identifiers are consistent with SEC Rule 10a-1, which requires 
that orders be marked ``long'' or ``short,'' and Exchange Rule 440B, 
which provides, in effect, that orders relying on an exception to Rule 
10a-1 should be marked ``short exempt.'' In this regard, the new, more 
precise identifier codes should facilitate surveillance investigations 
and will allow the NYSE to ensure compliance with the exemptive 
provisions of Rule 10a-1(e) and NYSE Rule 440B.
    Finally, 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. In particular, 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, the 
Commission believes that the proposed identifier codes should permit 
the NYSE to perform its surveillance responsibilities under the Act 
more thoroughly and therefore, for this reason, finds the proposal 
consistent with Section 6(b)(5) of the Act.\12\
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    \12\In the order approving the NYSE's account identification 
codes of competing dealers, the Commission noted that the proposal 
was limited solely to establishing competing dealer identification 
codes for audit trail and surveillance purposes and that the 
addition of such codes did not affect the activity of competing 
dealers or their access to the NYSE. See Securities Exchange Act 
Release No. 33662 (February 23, 1994), 59 FR 10027 (March 2, 1994) 
(order approving File No. SR-NYSE-91-46). Similarly, in the instant 
order, the Commission notes that the proposal merely extends the use 
of account identification codes for ``short exempt'' trades pursuant 
to SEC Rule 10a-1(e) and extends the use of such codes to all 
categories of market participants currently identified through the 
NYSE's audit trail.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NYSE-94-16) is approved.
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    \13\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20777 Filed 8-23-94; 8:45 am]
BILLING CODE 8010-01-M