[Federal Register Volume 60, Number 3 (Thursday, January 5, 1995)]
[Notices]
[Pages 1818-1820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-232]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35171; File No. SR-NYSE-94-46]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Amendments to 
the New York Stock Exchange's Specialist Combination Review Policy

December 28, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
December 9, 1994, 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, 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 amendments to the New York 
Stock [[Page 1819]] Exchange's Specialist Combination Review Policy 
(the ``Policy'') which would require proponents of certain specialist 
unit combinations to address issues related to the capitalization, risk 
management, and operational efficiency of large sized specialist units.

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
    The purpose of the proposed rule change is to provide uniformity to 
the Quality of Markets Committee's consideration of combinations of 
specialist units with respect to matters of capitalization, risk 
management, and operational efficiency.
    The Policy requires Exchange approval of proposed specialist unit 
combinations exceeding five percent of any one of four concentration 
measures.\1\ In any instance where a proposed combination will result 
in a specialist unit accounting for more than five percent of any 
concentration measure, the Exchange's Quality of Markets Committee (the 
``Committee'') is required to conduct a review of the proposed 
combination. This review includes an analysis of specialist performance 
and market quality in the stocks subject to the proposed combination. 
The Committee looks at the effects of the proposed combination in terms 
of strengthening the capital base of the new unit, minimizing the 
potential for financial failure of the new unit and maintaining or 
increasing operational efficiencies within the resulting specialist 
organization. The Committee also considers the proposed unit's 
commitment to the Exchange market and the effect of the proposed 
combination on overall concentration of specialist organizations.

    \1\The measures include specialist share of:
     Allocation for all listed common stocks
     Allocation for the 250 most active listed common stocks
     Total share volume of stock trading on the Exchange
     Total dollar value of stock trading on the Exchange.
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    Where a proposed combination would result in a specialist unit 
which accounts for more than ten percent of a concentration measure, 
the primary consideration during the Committee's review is the effect 
of the proposed combination on overall concentration of specialist 
units. If the new unit accounts for more than ten percent, but less 
than or equal to 15%, of a concentration measure, the Policy requires 
the proponents of the combination to prove, by a preponderance of the 
evidence, that the proposed combination:
    (i) would not cause detrimental concentration, in the specialist 
business, to the Exchange and its markets;
    (ii) would foster competition among specialist units; and
    (iii) would enhance the performance of the constituent specialist 
unit and the quality of the markets in the stocks involved.
    The Policy also requires the proponents of any combination greater 
than ten percent, but less than 15%, to prove, by a preponderance of 
the evidence, that the proposed combination, if approved, is otherwise 
in the public's interest.
    Where the proposed combination would result in a specialist unit 
which accounts for greater than 15% of a concentration measure, the 
Policy requires the proponents of the combination to provide clear and 
convincing evidence of the factors stated in (i) through (iii) above. 
The proponents of the combination would also be required to provide 
clear and convincing evidence that the proposed combination is 
otherwise in the public's interest.
    The Exchange is proposing to amend the Policy to add several 
requirements which address issues related to the capitalization, risk 
management, and operational efficiency of large sized specialist units. 
The proposed rule changes require proponents of a combination that 
would exceed 10% of a concentration measure to:
     Submit an acceptable risk management plan with respect to 
any line of business in which they engage;
     Submit an operational certification prepared by an 
independent, nationally recognized management consulting organization 
with respect to all aspects of the firm's management and operations;
     Agree to maintain a minimum of 1.5 times (2 times, in the 
case of a 15% combination) the total capital requirement specified in 
Rule 104.20\2\ with respect to the combined entity's stocks;

    \2\NYSE Rule 104.20 lists the capital requirements of specialist 
units with respect to the requisite: position of trading units it is 
capable of assuming for various forms of securities; net liquid 
assets; and minimum capital requirement it is capable of meeting 
with its own net liquid assets.
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     Agree to maintain 2 times (2.5 times, in the case of a 15% 
combination) the capital requirement specified in Rule 104.20 with 
respect to each of the combined entity's stocks that are component 
stocks of the Standard and Poor's 500 Stock Price Index; and
     Agree that all capital required to be dedicated to 
specialist operations be accounted for separate and apart from any 
other capital of the combined entity, and that such specialist capital 
may not be used for any other aspect of the combined entity's 
operations.
    The Exchange is also proposing to require that proponents of a 
proposed combination that would result in a specialist unit accounting 
for more than five percent, but less than or equal to 10%, of a 
concentration measure, maintain 1.5 times the capital requirement 
specified in Rule 104.20 with respect to each of the combined entity's 
stocks that are components stocks of the Standard and Poor's 500 Stock 
Price Index.
    The Exchange believes that these new requirements are appropriate 
in that the requirements are intended to minimize the risk of financial 
and/or operational failure of larger-sized units, and to ensure that 
such units have sufficient, separately dedicated capital with which to 
meet their market making responsibilities.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (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 proposed 
amendments are consistent with these objectives in that they address 
concerns about capitalization, operational efficiency, and risk 
management where proposed combinations would result in large sized 
specialist units.

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

    The Exchange does not believe that the proposed rule change will 
impose [[Page 1820]] 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 not 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 longer period (i) as the Commission may 
designate up to 90 days of such date if its 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. Sec. 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-94-46 and should be 
submitted by January 26, 1995.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-232 Filed 1-4-94; 8:45 am]
BILLING CODE 8010-01-M