[Federal Register Volume 59, Number 173 (Thursday, September 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22125]


[[Page Unknown]]

[Federal Register: September 8, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34626; File No. SR-NYSE-94-18]
September 1, 1994.

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to its Allocation Policy 
and Procedures

I. Introduction

    On May 26, 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 amend its Allocation Policy 
and Procedures.
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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. 34325 (July 7, 1994), 59 FR 35775 (July 13, 
1994). No comments were received on the proposal. This order approves 
the proposed rule change.

II. Description of the Proposal

    The NYSE Allocation Policy and Procedures (``Allocation Policy'' or 
``Policy'') governs the allocation of equity securities to NYSE 
specialist units.\3\ The NYSE is amending its Allocation Policy to 
revise, among other things, the composition of the Allocation Committee 
(``Committee'')\4\ and the Allocation Panel (``Panel''),\5\ the quorum 
requirement for the Committee, and the allocation of merging companies.
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    \3\The NYSE Allocation Policy applies to the allocation of 
equity securities under the following circumstances: (1) when a 
common stock is to be initially listed on the NYSE; (2) when a 
security is to be reallocated as a result of disciplinary or other 
proceedings under NYSE Rules 103A, 475 and 476; or (3) when a 
specialist unit voluntarily surrenders its registration in a 
security as a result of possible disciplinary or performance 
improvement action. See NYSE Allocation Policy and Procedures.
    \4\The NYSE Allocation Committee has sole responsibility for the 
allocation of securities to specialist units under the allocation 
policy pursuant to Board-delegated authority, and is overseen by the 
Quality of Markets Committee of the Board of Directors (``Board''). 
The Allocation Committee renders decisions based on the allocation 
criteria specified in the Allocation Policy.
    \5\The Allocation Committee is drawn from the Allocation Panel.
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    The NYSE is revising the composition of the Allocation Committee, 
which consists of nine members, to include three broker Governors\6\ 
(one of whom may be an independent/two-dollar broker),\7\ four other 
Floor brokers from the Allocation Panel (one of whom must be an 
independent/two-dollar broker), and two allied members\8\ from the 
Market Performance Committee or the Panel. For options allocations, 
only one Governor would sit on the Committee. Currently, only one 
Governor sits as a member of the Allocation Committee, and there is no 
requirement that one member of the Committee be an independent/two-
dollar broker.
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    \6\A Floor Governor is an individual, designated as such by the 
Chairman of the Exchange's Board of Directors, who is empowered to 
perform any duty, make any decision or take any action assigned to 
or required of a Floor Director as prescribed by the rules of the 
Exchange's Board of Directors.
    \7\The Exchange defines an ``independent/two-dollar broker'' as 
a member on the Exchange floor acting as a broker for other members.
    \8\An allied member is a general partner, principal executive 
officer or employee who controls a member firm or member 
organization.
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    The Exchange is amending the quorum requirement for the Allocation 
Committee to require that at least two Floor Broker Governors be 
present out of the seven member quorum. For options allocations, a 
quorum would include one Governor. Currently, only one Governor is 
required for a quorum.
    The amended Policy also allows Governors to serve as chairman of 
the Allocation Committee. It also requires all candidates for chairman 
to have prior experience on the Allocation Committee. Currently, 
Governors are not eligible to serve as chairman of the Committee.
    The Exchange is further amending the Policy to state that all 
incoming Allocation Committee members are expected to observe as many 
Committee meetings as possible prior to beginning their terms as 
Committee members.
    The Exchange is also revising the composition of the Allocation 
Panel. The revised panel will be composed of 48 persons, including 28 
Floor brokers and eight allied members, plus the eight broker Governors 
and four allied members serving on the Exchange's Market Performance 
Committee. Currently, the four allied members of the Market Performance 
Committee do not serve on the Panel.
    Selection to the Allocation Panel currently occurs through an 
annual appointment process which utilizes input from the membership. 
The Exchange is amending the Policy to require Panel members to be 
nominated by the Exchange membership.
    To be eligible to serve on the Allocation Panel, the Exchange 
currently requires Floor brokers to have five years of trading Floor 
experience. The Policy also states that to the maximum extent possible, 
the Panel should consist of a core group of experienced, senior 
professionals, such as former Allocation Committee chairmen, senior 
Floor Officials, and current and former Floor Governors. In the case of 
allied members, the member organization is appointed to the Panel and 
it selects a representative to serve. The Exchange is amending the 
Policy to require that the allied members chosen to serve have at least 
five years of experience in trading listed equities and have a senior 
position on the trading desk. The Policy is also being amended to 
permit allied members to designate one alternate who meets the Panel 
qualifications, subject to approval by the Floor Directors.
    The Exchange is amending the Policy to provide for a four month 
term of service on the Allocation Committee for all members, including 
Governors. The current terms are six months for non-Governor members 
and two months for Governors. The Exchange is also codifying the 
existing practice of permitting Panel members to serve a maximum of six 
consecutive one year terms and to stagger terms so that every two 
months four or five members would rotate from the Allocation Committee.
    Finally, the Exchange is amending the Policy to codify its practice 
on the allocation of merging listed companies. The Policy is being 
amended to state that when two listed companies merge, the new entity 
will be assigned to the specialist in the company determined to be the 
surviving/dominant company. If no surviving/dominant company can be 
identified, the entity will be referred to the Allocation Committee for 
allocation. Currently, the Market Performance Committee, with the 
assistance of Exchange Counsel and the Marketing Division, makes the 
determination of which company is the surviving/dominant company.
    The NYSE believes that the proposal is consistent with Section 
6(b)(5) of the Act, which provides, in pertinent part, that the rules 
of an exchange be designed to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanism of a free and 
open market and, in general, to protect investors and the public 
interest. The NYSE believes that the proposal is consistent with these 
objectives in that the amendments enable the Exchange to further 
enhance the process by which stocks are allocated to ensure fairness 
and equal opportunity in the allocation process.

III. Discussion

    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)(5) of the Act.\9\ 
Section 6(b)(5) requires that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts and practices, to remove impediments to and 
perfect the mechanism of a free and open market, and, in general, to 
protect investors and the public interest. Further, the Commission 
finds that the rule change is consistent with section 11(b) of the 
Act\10\ and Rule 11b-1 thereunder,\11\ which allow exchanges to 
promulgate rules relating to specialists in order to maintain fair and 
orderly markets. For the reasons set forth below, the Commission 
believes that the amended Allocation Policy should enhance the 
Exchange's allocation process, encourage improved specialist 
performance and, thereby, protect investors and the public interest.
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    \9\15 U.S.C. 78f(b)(5) (1988).
    \10\15 U.S.C. 78k(b) (1988).
    \11\17 CFR 240.11b-1 (1994).
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    Specialists play a crucial role in providing stability, liquidity 
and continuity to the trading of securities. Among the obligations 
imposed upon specialists by the Exchange, and by the Act and the rules 
thereunder, is the maintenance of fair and orderly markets in their 
designated securities.\12\ To ensure that specialists fulfill these 
obligations, it is important that the Exchange develop and maintain 
stock allocation procedures and policies that ensure that securities 
are allocated in an equitable and fair manner and that all specialists 
have a fair opportunity for allocations based on established criteria 
and procedures. The Commission fully supports and encourages the NYSE's 
continuing effort to develop meaningful and effective Allocation 
Policies, which in turn, should improve the allocation system. The 
Commission believes that amending the Allocation Policy to revise, 
among other things, the composition of the Allocation Committee and 
Allocation Panel, the quorum requirement for the Committee, and 
allocation of merging companies, should maximize the professionalism, 
expertise and objectivity of the Committee and Panel, which in turn, 
should provide the best possible match between specialist units and the 
securities to be allocated and, thereby, effect improved specialist 
performance.
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    \12\Rule 11b-1, 17 CFR 240.11b-1 (1994); NYSE Rule 104.
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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-94-18) 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. 94-22125 Filed 9-7-94; 8:45 am]
BILLING CODE 8010-01-M