[Federal Register Volume 60, Number 132 (Tuesday, July 11, 1995)]
[Notices]
[Pages 35759-35760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16932]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35929; File No. SR-NYSE-95-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Amendments to 
Rule 460.20

June 30, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on May 
26, 1995, the New York Stock Exchange, Inc. (``NYSE'' of ``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 an amendment to NYSE Rule 
460.20 that would delete the requirement for an associated specialist 
of an approved person acting as an underwriter in a distribution of a 
security in which the associated specialist is registered to ``give up 
the book'' commencing with the ``cooling-off'' period specified in Rule 
10b-6 under the Act \1\ until the approved person has completed its 
participation in the distribution.

    \1\ Rule 10b-6 is an anti-manipulation rule that, subject to 
certain exceptions, prohibits persons engaged in a distribution of 
securities from bidding for or purchasing, or inducing others to 
purchase, such securities, any security of the same class and series 
as those securities, or any right to purchase any such security 
(``related securities'') until they have completed their 
participation in a distribution. The provisions of Rule 10b-6 apply 
to issuers, selling shareholders, underwriters, prospective 
underwriters, dealers, brokers, and other persons who have agreed to 
participate or are participating in the distribution, as defined in 
Rule 10b-6(c)(5), and their ``affiliated purchasers,'' as defined in 
Rule 10b-6(c)(6), including broker-dealer affiliates. The applicable 
cooling off period is described in (xi) and (xii) of Rule 10b-
6(a)(4). See 17 CFR 240.10b-6.
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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
    Currently, when an affiliated entity is participating in a 
distribution of a security in which the specialist organization is 
registered, the specialist organization is required to withdraw from 
the market commencing with the applicable cooling off period specified 
in Rule 10b-6 under the Act until the affiliate has completed its 
participation in the distribution.\2\ NYSE Rule 460.20 provides that 
the specialist organization must ``give up the book'' (i.e., cease to 
function as a market maker) to an unaffiliated specialist organization, 
which then assumes all market making responsibilities under NYSE rules, 
until the approved person (affiliate) has completed its participation 
in the distribution, at which time the regular specialist organization 
regains the ``book'' and resumes its market making activities.

    \2\ See Rule 10b-6(a)(4)(xi), 17 CFR 240.10b-6(a)(4)(xi).
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    In May 1993, the Commission approved amendments to Rule 10b-6, and 
the adoption of new Rule 10b-6A, to permit NASD market makers to 
continue to make markets in a stock while participating in an 
underwriting of that stock, subject to several restrictions on their 
level of market making activity. (These restrictions are popularly 
referred to as ``passive market making.'')\3\ The Commission's passive 
market making restrictions cannot be appropriately extended to Exchange 
specialists, who are subject to an affirmative obligation to deal when 
necessary to contribute to the maintenance of a fair and orderly 
market. The Exchange is concerned, however, that failure to provide 
exemptive relief from Rule 10b-6 for NYSE specialist units affiliated 
with underwriting firms may have a detrimental effect on the Exchange's 
ability to compete for issuer listings and on the willingness of large 
firms to invest capital in the specialist business.

    \3\ See Securities Exchange Act Release No. 32117 (Apr. 8, 
1993), 58 FR 19528. In general, Rule 10b-6A permits ``passive market 
making'' in connection with the distributions of certain securities 
quoted on the Nasdaq Stock Market during the Rule 10b-6 cooling-off 
period, the period when the rule's provisions otherwise would 
prohibit such transactions. A passive market maker's bids and 
purchases, however, are limited to the highest current independent 
bid i.e., a bid of a market maker who is not participating in the 
distribution and is not an affiliated purchaser of a participating 
market maker. Furthermore, Rule 10b-6A contains certain eligibility 
criteria, volume limitations on purchases, and notification and 
disclosure requirements. See Rule 10b-6A(c)(2) (Level of Bid), 
(c)(3) (Requirements to Lower the Bid), (c)(4) (Purchase 
Limitation), (c)(5) (Limitation on Displayed Size), (c)(6) 
(Identification of a Passive Market Making Bid), (c)(7) 
(Notification and Reporting to the NASD). See 17 CFR 240.10b-
6A(c)(2) through (c)(6).
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    The Exchange has filed a request with the Commission \4\ for 
exemptive relief 

[[Page 35760]]
from certain provisions of Rules 10b-6 and 10b-13 (``Petition for 
Exemptive Relief'').\5\ The proposed rule change contained in this 19b-
4 filing would delete the requirement to ``give up the book'' in order 
to make Rule 460.20 compatible with the Exchange's Petition for 
Exemptive Relief.\6\ Rule 10b-6 currently requires an ``affiliated 
purchaser'' (i.e., the specialist organization that is associated with 
a broker-dealer participant in a distribution of a security in which 
the specialist organization is registered) to withdraw from the market 
during a certain period before and during the distribution.\7\ The 
proposed relief would allow such a specialist organization to continue 
to make a market in such stocks during such period, provided that it 
has obtained an exemption from certain Exchange rules pursuant to 
Exchange Rule 98 and agrees to certain monitoring requirements.

    \4\ The Division of Market Regulation (``Division'') is 
currently reviewing the Exchange's petition requesting regulatory 
relief. At the conclusion of the Division's review, the Division 
will make publicly available both the Exchange's petition and the 
Division's response to the petition. Any exemptive relief granted 
would supersede the relief previously granted by the Commission in 
Letter regarding Application of Rules 10b-6 and 10b-13 to 
Specialists Affiliated with NYSE Member Firms, (TP File No. 92-284) 
(Sept. 15, 1992).
    \5\ Rule 10b-13 under the Act, among other things, prohibits a 
person making a tender offer or exchange offer for any equity 
security from, directly or indirectly, purchasing or making any 
arrangement to purchase any such security (or any security that is 
immediately convertible or exchangeable for such security), 
otherwise than pursuant to the offer, from the time the offer is 
publicly announced until its expiration, including any extension 
thereof. Rule 10b-13 also applies to the dealer-manager of a tender 
offer because the dealer-manager acts as the agent of the bidder to 
facilitate the bidder's objectives. See 17 CFR 240.10b-13.
    The Exchange is seeking relief from Rule 10b-13 to allow 
affiliated specialists to continue their market making functions in 
their respective specialty securities in connection with certain 
mergers or tender or exchange offers in which an affiliated broker-
dealer is participating.
    \6\ The Exchange's proposal is to conform NYSE rules with the 
exemption to be granted separately by the Division in response to 
the Exchange's Petition for Exemptive Relief. Therefore, the 
approval of the proposed rule change is contingent upon the Division 
granting the requested exemptive relief.
    \7\ Absent an exemption from or exception to Rule 10b-6, 
Exchange specialists that are affiliated with a person participating 
in a distribution of securities would be precluded from bidding for 
or purchasing such securities, any security of the same class and 
series as those securities, or any related securities.
    Rule 98 affords exemptive relief for entities in a control 
relationship with a specialist organization from restrictions in NYSE 
Rules 104, 104.13, 105, 113.20, and 460.10 that would otherwise be 
applicable to such entities' transactions in securities in which the 
specialist organization is registered, or to business transactions with 
the issuers of such securities.\8\ Pursuant to Rule 98 and the 
implementing guidelines promulgated thereunder, the specialist 
organization and the affiliated entity must be operated as separate and 
distinct organizations, and ``Chinese Wall'' procedures must be 
established that place substantial limits on access to, and 
communication of, trading information, including positions and 
strategies, between the two organizations. Rule 98 exemptive relief is 
conditioned on the organizations' receiving prior written approval from 
the Exchange, which conducts an annual review to ensure that all 
conditions for the exemption are being met.

    \8\ See NYSE Rule 104 (limiting a specialist's ability to effect 
purchases and sales regarding affiliated entities); NYSE Rule 104.13 
(requiring that certain transactions be effected only for investment 
purposes); NYSE Rule 105 (limiting a specialist's interests in pools 
and options); NYSE Rule 113.20 (prohibiting a specialist from 
``popularizing'' any security in which it is registered); NYSE Rule 
460.10 (prohibiting control relationships, business transactions, 
and finder's fees between the issuer and the specialist).
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    The Exchange believes that the restrictions on the flow of 
information between the affiliated specialist and its approved person 
contained in Exchange Rule 98, along with the additional safeguards 
(such as transaction monitoring by the Exchange, the specialist and the 
approved person) contained in its Petition for Exemptive Relief, make 
it appropriate to amend Rule 460.20 to delete its requirement for such 
specialist to ``give up the book'' to an unaffiliated specialist during 
a distribution in which the approved person participates.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act in that it is designed to prevent fraudulent and manipulative acts 
and practices and to perfect the mechanism of a free and open market.

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

    No written comments were either solicited or received.

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. Sec. 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 Exchange. All 
submissions should refer to File No. SR-NYSE-95-21 and should be 
submitted by July 26, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16932 Filed 7-10-95; 8:45 am]
BILLING CODE 8010-01-M