[Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
[Notices]
[Pages 24942-24943]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11509]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35672; File No. SR-NYSE-95-16]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc., Relating to the Options
Market Maker Exemption From the NASD Short Sale Bid Test for Certain
Merger and Acquisition Securities
May 4, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 21, 1995, 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 NYSE. The Commission is publishing this notice to
[[Page 24943]] solicit comments on the proposed rule change from
interested persons.
\1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NYSE proposes to amend its Rule 759A (Reporting Requirements
Applicable to Short Sales in NASDAQ NMS Securities\2\). Rule 759A
prohibits an Exchange options specialist or Competitive Options Trader
(``COT'') from relying on the options market making exemption from the
short sale bid test of the Rules of Fair Practice of the NASD unless
the transaction is an ``exempt hedge transaction.'' The proposed rule
change would expand the definition of ``exempt hedge transaction'' to
include certain short sales of a company that is involved in a
publicly-announced merger or acquisition (``M&A'').
\2\Hereinafter referred to as Nasdaq National Market (``NM'')
securities.
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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
NYSE Rule 759A prohibits each exchange options specialist and COT
from relying on the options market maker exemption of the NASD Rules of
Fair Practice to effect short sales in Nasdaq NM securities at or below
the best bid when the displayed bid is below the preceding best bid in,
unless the short sale is an ``exempt hedge transaction.'' The proposal
would expand the definition of ``exempt hedge transaction'' to include
certain short sales in the stock of a company that is a party (or a
prospective party) to an M&A with the issuer of a Nasdaq NM security
that underlies an Exchange-listed option. Specifically, with respect to
an Exchange options specialist, the exemption would apply to short
sales of a company that is a party to an M&A with a company whose
Nasdaq NM security underlies a specialty stock option; with respect to
a COT, the exemption would apply to short sales of a company that is a
party to an M&A with a company whose Nasdaq NM security underlies an
Exchange-listed stock option.
For the exemption to apply, the options specialist or COT must
initiate the short sale in order to effect a bona fide hedge of an
existing or prospective position in an Exchange-listed stock option. A
``prospective position'' refers to a position that might be created as
the result of specialist or COT has initiated prior to the hedge
transaction.
The proposed rule change seeks to address the bona fide hedging
needs of an options specialist or COT where a company enters into an
M&A with a company whose Nasdaq NM security underlies an Exchange-
listed option. Under those circumstances, the options specialist or COT
may have no feasible alternative to hedge an options position on the
Nasdaq NM security, given the risk arbitrage relationship that is
likely to exist between the stock underlying the option and the stock
of the other company involved in the merger or acquisition.
The Exchange believes that the proposed rule change is consistent
with Section 6(b) under that Act in general, and furthers the
objectives of section 6(b)(5) in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest. The proposal seems to enhance the ability of
options specialists and COTs to perform their market-making functions,
thereby contributing to the depth and liquidity of the options market.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The NYSE believes that the proposed rule change will not impose any
burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of 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 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 such 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, NW., Washington, DC 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 in the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to File No.
SR-NYSE-95-16 and should be submitted by May 31, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
\3\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-11509 Filed 5-9-95; 8:45 am]
BILLING CODE 8010-01-M