[Federal Register Volume 60, Number 46 (Thursday, March 9, 1995)]
[Notices]
[Page 12996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5703]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35439; File No. SR-NYSE-94-38]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Amendment 
to Exchange Rule 104.13

March 2, 1995.
    On October 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 NYSE Rule 104.13 
regarding investment account transactions of specialists and related 
parties.

    \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. 35019 (November 29, 1994), 59 FR 62762 
(December 5,6, 1994). No comments were received on the proposal.
    Rule 104 provides that a specialist may not effect any purchase or 
sale of a security in which the specialist is registered (``specialty 
stocks'') for the account of an approved person associated with the 
specialist's organization, unless such transaction is reasonably 
necessary to permit the specialist to maintain fair and orderly 
markets. Currently, NYSE Rule 104.13 requires that transactions in 
specialty stocks for the accounts of specified persons affiliated with 
or related to a specialist must be for investment purposes and executed 
in accordance with certain restrictions relating to the price at which 
transactions may take place (``tick'' restrictions).\3\ The rule 
applies to the accounts of employees or parties active in the business 
of a specialist or persons active in the specialist business, and any 
approved person (individual or entity in a control relationship) of the 
specialist, other than an approved person entitled to an exemption 
under NYSE Rule 98.\4\

    \3\The tick restrictions provide that acquisitions may only be 
made at prices below the last different price--on ``minus'' or 
``zero minus'' ticks, and liquidations may only be made at prices 
above the last different price--on ``plus'' or ``zero plus'' ticks. 
See NYSE Rule 104.13(b).
    \4\NYSE Rule 98 and its Guidelines provide exemptions from 
various NYSE rules affecting approved persons affiliated with 
specialist, including Rule 104.13. The exemptions are predicated on 
the existence of procedures to achieve a functional separation 
between the specialist organization and the approved person. The 
rule change amends the reference to Rule 104.13 in Rule 98 so that 
it reflects the changes to Rule 104.13 being approved herein.
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    The Rule change expands the restrictions contained in NYSE Rule 
104.13 to transactions in specialty stocks effected ``for the benefit 
of'' the specified parties. This rule change will apply the Rule 104.13 
restrictions to transactions that, although not effected directly for 
the ``account'' of a specified party, are effected for an account in 
which a specified party has a beneficial interest.
    The rule change also extends to affiliated persons the Rule 104.13 
restriction against specialists' originating orders in speciality 
stocks for any accounts over which they exercise investment 
discretion.\5\ In addition, the rule change specifies that the 
restrictions in Rule 104.13 apply to transactions effected for trust 
accounts that benefit the specialist or affiliated persons.

    \5\Currently, the restriction states that specialists should not 
originate orders in specialty stocks for any accounts over which 
they may have discretion.
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    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. The Commission 
believes that the rule change is consistent with Section 11(a) of the 
Act\6\ which generally makes it unlawful, with certain exceptions, for 
any member of a national securities exchange to effect a transaction on 
such exchange for his own account, the account of an associated person, 
or an account with respect to which it or an associated person thereof 
exercises investment discretion. The Commission also believes that the 
rule change is consistent with Section 6(b)(5) of the Act\7\ which 
requires 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 interest.

    \6\15 U.S.C. 78k(a)(1988).
    \7\15 U.S.C. 78f(b)(1988).
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    Specifically, the Commission believes that extending the 
restrictions on transactions in specialty stocks to those effected 
``for the benefit of'' affiliated parties in appropriate and consistent 
with prohibiting or restricting certain interested transaction that may 
involve potential conflicts of interest. The rule change is designed to 
ensure that affiliated persons will not be permitted to effect 
transactions in specialty stocks, whether or not they use accounts in 
their own names, outside of the restrictions contained in NYSE Rule 
104.13. The Commission believes that the rule change will further the 
purpose of the NYSE Rule and will prevent affiliated persons from 
avoiding the Rule 104.13 restrictions.
    The Commission further believes that the rule change to extend to 
affiliated persons the Rule 104.13 restrictions against specialists' 
originating orders in specialty stocks for any accounts over which they 
exercise investment discretion is consistent with Sections 6 and 11(a) 
of the Act.\8\ The Commission believes that the rule change is an 
appropriate limitation on specialists' and affiliated persons' trading 
and is designed to prevent fraudulent and manipulative actions. In 
addition, the Commission believes that it is appropriate to specify in 
the rule that the restrictions in Rule 104.13 apply to transactions 
effected for trust accounts that benefit the specialist or affiliated 
persons.

    \8\The Commission approved the Rule 104.13(d) restriction 
against specialists originating orders in specialty stocks for any 
account over which they may have investment discretion in Securities 
Exchange Act Release No. 34231 (June 17, 1994), 59 FR 32722 (June 
24, 1994).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NYSE-94-38) is approved.

    \9\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\17 CFR 200.30-3(A)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5703 Filed 3-8-95; 8:45 am]
BILLING CODE 8010-01-M