[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