[Federal Register Volume 60, Number 14 (Monday, January 23, 1995)]
[Notices]
[Pages 4453-4454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1566]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35230; File No. SR-NYSE-94-45]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by New York Stock Exchange, Inc. Relating to Member Organization 
Facilitation of Customer Stock or Program Orders

January 13, 1995.
    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 December 
6, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') the proposed rule change as described in Items I, II and III 
below, which Items have been prepared by the self-regulatory 
organization. On January 11, 1995, the Exchange submitted to the 
Commission Amendment No. 1 to the proposed rule change in order to make 
certain technical corrections to the text of the proposal.\1\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

    \1\See letter from Donald Siemer, Director, Market Surveillance, 
NYSE, to Beth Stekler, Attorney, Division of Market Regulation, SEC, 
dated January 11, 1995 (``Amendment No. 1'').
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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 Memorandum 
(``Memorandum'') that states the NYSE's policy regarding member 
organization facilitation of customer stock or program orders.\2\

    \2\NYSE Rule 80A defines the term ``program trading'' as (1) 
index arbitrage or (2) any trading strategy involving the related 
purchase or sale of a ``basket'' or group of 15 or more stocks 
having a total market value of $1 million or more.
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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 Memorandum is to advise the Exchange's 
membership of certain activities that the Exchange believes would be 
inconsistent with just and equitable principles of trade.
    The Memorandum describes a situation where a member organization 
commits to sell securities to a customer, after the close, at the 
closing price on the Exchange. To position itself to facilitate the 
transaction, the member organization buys the stock(s) throughout the 
day, in a proprietary account, assuming the risk of the market. To 
reduce its risk, the member organization leaves a portion of the order 
to be executed at the close. The Memorandum states that, if the size of 
the transaction(s) that the member organization intends to execute at 
the close can reasonably be expected to impact the closing price(s), 
the member organization should not buy any stock related to that 
position ``near the close.'' Whether or not the purchase would be 
[[Page 4454]] deemed to be ``near the close'' would depend on the 
degree of risk that could reasonably be attributed to the position 
established by that trade, versus the reasonably anticipated impact the 
trade at the close would have on the closing price. Generally, however, 
trades executed after 3:40 p.m. would be considered to be ``near the 
close.'' The Memorandum notes that the member organization would not be 
precluded from executing the customer's order on an agency basis at any 
time, including at or near the close, but cautions that this would not 
preclude the Exchange from determining that such activity might be a 
violation of the anti-manipulation provisions of the Act or Exchange 
rules.
    The Memorandum also restates that the Exchange would deem conduct 
to be inconsistent with just and equitable principles of trade where a 
member organization effects any transactions in a stock, knowing of the 
imminent execution of a block, in order subsequently to liquidate the 
position by participating on the contra-side of the block transaction. 
The Memorandum also provides that a person should not disclose to any 
other person trading strategies or customers' orders for the purpose of 
that person taking advantage of the information for his or her personal 
benefit or for the benefit of a member organization.
    The Memorandum notes, however, that this would not preclude a 
member organization from soliciting interest to trade with the contra-
side of a block in the normal course of engaging in block facilitation 
activities.
    Finally, the Memorandum reminds the Exchange's membership that they 
are required to establish and maintain procedures reasonably designed 
to review facilitation activities for compliance with Exchange rules 
and federal securities laws. It also states that member organizations 
must ensure that trading strategies engaged in by their proprietary 
traders to facilitate customers' orders have an economic basis and are 
not engaged in to mark the close or to mark the value of a position and 
that before any at-the-close customer orders are transmitted to the 
Floor, member organizations accepting such orders must exercise due 
diligence to learn the essential facts relative to these orders.
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, 
in general, to protect investors and the public interest. The proposed 
Information Memorandum is consistent with these objectives in that it 
enhances the Exchange's efforts to educate its membership about 
practices that the Exchange believes are inconsistent with just and 
equitable principles of trade.

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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    By no later than February 27, 1995, or within such other period (i) 
as the Commission may designate up to 90 days of such date if it 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. 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-94-45 and should be 
submitted by February 13, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1566 Filed 1-20-95; 8:45 am]
BILLING CODE 8010-01-M