[Federal Register Volume 60, Number 127 (Monday, July 3, 1995)]
[Notices]
[Pages 34564-34566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16398]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35908; File No. SR-NYSE-95-14]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to the Permanent 
Approval of Its Pilot Program for Stopping Stock Under Amendments to 
Rule 116.30

June 28, 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 March 
31, 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 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 a request for permanent 
approval of amendments to Rule 116.30 with respect to the ability of 
specialists to stop stock in eighth point markets.\1\ The 

[[Page 34565]]
text of the proposed rule change is available at the Office of the 
Secretary, NYSE, and at the Commission.

    \1\ The NYSE received approval to amend Rule 116.30, on a pilot 
basis, in Securities Exchange Act Release No. 28999 (Mar. 21, 1991), 
56 FR 12964 (Mar. 28, 1991) (File No. SR-NYSE-90-48) (``1991 
Approval Order''). The Commission subsequently extended the NYSE's 
pilot program in Securities Exchange Act Release Nos. 30482 (Mar. 
16, 1992), 57 FR 10198 (Mar. 24, 1992) (File No. SR-NYSE-92-02) 
(``1992 Approval Order''); 32031 (Mar. 22, 1993), 58 FR 16563 (Mar. 
29, 1993) (File No. SR-NYSE-93-18) (``1993 Approval Order''); 33792 
(Mar. 21, 1994), 59 FR 14437 (Mar. 28, 1994) (File No. SR-NYSE-94-
06) (``1994 Approval Order''); and 35309 (Jan. 31, 1995) 60 FR 7247 
(Feb. 7, 1995) (File No. SR-NYSE-95-02) (``January 1995 Approval 
Order'').
---------------------------------------------------------------------------

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 seek permanent 
approval of amendments to Exchange Rule 116.30 that permit a specialist 
to grant a stop in a minimum variation market. The practice of 
``stopping'' stock by specialists on the Exchange refers to a guarantee 
by the specialist that an order the specialist receives will be 
executed at no worse a price than the contra-side price in the market 
when the specialist receives the order, with the understanding that the 
order may in fact receive a better price.
    Formerly, Exchange Rule 116.30 permitted a specialist to ``stop'' 
stock only when the quotation spread was at least twice the minimum 
variation (i.e., for most stocks \1/4\ point), with the specialist then 
being required to narrow the quotation spread by making a bid or offer, 
as appropriate, on behalf of the order that is being stopped.
    For three years, on March 21, 1991, March 16, 1992, and March 22, 
1993, the Commission approved, on a one-year pilot basis each time, 
amendments to the rule that permit a specialist to stop stock in a 
minimum variation market (generally referred to as an \1/8\-point 
market).\2\ The Exchange sought these amendments on the grounds that 
many orders would receive an improved price if stopping stock in \1/8\ 
point markets were permitted. The amendments to Rule 116.30 permit a 
specialist, upon request, to stop individual orders of 2,000 shares or 
less, up to an aggregate of 5,000 shares of multiple orders, in an \1/
8\ point market.\3\ A specialist may stop an order of a specified 
larger order size threshold, or a larger aggregate number of shares, 
after obtaining Floor Official approval.

    \2\ See 1991, 1992, and 1993 Approval Orders, supra, note 1.
    \3\ The NYSE has stated, both to the Commission and to its 
members, that specialists should only stop stock in a minimum 
variation market when an imbalance exists on the opposite side of 
the market and such imbalance is of sufficient size to suggest the 
likelihood of price improvement. See, e.g., letter from James E. 
Buck, Senior Vice President and Secretary, NYSE, to Mary N. Revell, 
Branch Chief, Division of Market Regulation, SEC, dated December 27, 
1990; NYSE information memo #1809, dated September 12, 1991.
---------------------------------------------------------------------------

    In the Commission's 1994 Approval Order, which extended the pilot 
until March 21, 1995, the Commission asked the Exchange to submit a 
fourth monitoring report on the stopping stock pilot.\4\ Subsequently, 
the Commission approved an extension of the pilot until July 21, 1995 
so that the Commission would have additional time to evaluate the new 
information provided in the fourth monitoring report and to ensure that 
Rule 116.30, as amended, does not harm public customers with limit 
orders on the specialist's book.\5\

    \4\ See 1994 Approval Order, supra, note 1.
    \5\ See January 1995 Approval Order, supra, note 1.
---------------------------------------------------------------------------

    The monitoring report has been submitted to the Commission under 
separate cover. The Exchange believes that the results obtained by its 
monitoring effort during the pilot period show that the amendments to 
Rule 116.30 enable specialists to better serve investors through the 
ability to offer price improvement to stopped orders, while having 
relatively little adverse impact on other orders on the book. The 
Exchange continues to believe that these results support the 
Commission's granting of permanent approval of the proposed rule change 
to Rule 116.30.
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 
Exchange's proposal to make the provisions of Rule 116.30 permanent is 
consistent with these objectives in that it permits the Exchange to 
better serve its customers by enabling specialists to execute customer 
orders at improved prices.

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

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The Exchange has neither solicited or received written comments on 
the proposed rule change.\6\

    \6\ The Commission has received a negative comment letter 
regarding permanent approval of the NYSE's procedures for stopping 
stock in minimum variation markets. See letter from Junius W. Peake, 
Monfort Professor of Finance, University of Northern Colorado, to 
Secretary, SEC, dated March 1, 1995.
---------------------------------------------------------------------------

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 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., 

[[Page 34566]]
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-NYSE-95-14 and should be 
submitted by July 24, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-16398 Filed 6-30-95; 8:45 am]
BILLING CODE 8010-01-M