[Federal Register Volume 60, Number 168 (Wednesday, August 30, 1995)]
[Notices]
[Pages 45204-45206]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21502]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36140; File No. SR-NYSE-95-08]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval of Amendment No. 1 and 
Amendment No. 2 To Proposed Rule Change Relating to Listed Company 
Relations Proceedings

August 23, 1995.

I. Introduction

    On March 3, 1995, 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 adopt new Rule 103C concerning 
procedures relating to initiation and conduct of a review of the 
relationship between a listed company and its specialist organization. 
On July 14, 1995, the NYSE submitted a letter amendment \3\ to the 
proposed rule change, and on July 28, 1995, submitted a formal 
amendment to the file.\4\

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Howard Kramer, Associate Director, Division of 
Market Regulation, SEC, dated July 12, 1995 (``Amendment No. 1'').
    \4\ See Amendment No. 1 to File No. SR-NYSE-95-08 (``Amendment 
No. 2'').
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 35650 (April 26, 1995), 60 FR 21578. No 
comments were received on the proposal. The Commission is approving the 
proposal and soliciting comments on Amendment No. 1 and Amendment No. 
2.

II. Description of the Proposal

    The Exchange proposes to adopt new Rule 103C (Listed Company 
Relations Proceedings) to provide its listed companies and specialist 
units with a procedure for resolving non-regulatory issues that may 
arise between them.\5\ Proposed Rule 103C contains a formal procedure 
by which a listed company could make a written notification (known as 
an ``Issuer Notice'') to the Exchange's New Listings and Client 
Services Division of its desire to commence a proceeding to mediate and 
resolve such issues. The Exchange's Quality of Markets Committee 

[[Page 45205]]
(``QOMC''), a Board of Directors (``Board'') level committee, would be 
responsible for oversight of the Listed Company Relations Proceeding 
(``LCRP'') through a subcommittee consisting of the two Exchange vice-
chairmen, a senior Exchange official, and two listed company 
representatives, all of whom would be appointed from the QOMC 
membership. This subcommittee would work with the listed company and 
the specialist unit through written submissions and meetings designed 
to produce an action plan with specific steps for resolution of the 
matter. These written submissions would include a description of the 
progress each party has made on the specific steps established by the 
subcommittee.\6\ At regular intervals of three, six and nine months, 
the subcommittee would work with the parties to resolve their issues. 
After receiving the written submissions from the parties, the 
subcommittee will advise the QOMC of the subcommittee's conclusions 
regarding whether or not the specialist has successfully completed the 
specific steps established by the subcommittee.\7\ The listed company 
could conclude the LCRP at any time during the process if it believed 
that matters had been satisfactorily addressed.

    \5\ For example, a non-regulatory issue may include 
misunderstandings with respect to the frequency and adequacy of 
communications between a company and its specialist unit.
    \6\ See Amendment No. 2, supra note 4.
    \7\ See Amendment No. 2, supra note 4.
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    If matters were not resolved at the end of one year from the 
commencement of the LCRP, the listed company could formally request a 
reassignment of its stock to another specialist unit. The subcommittee 
would prepare a recommendation to the QOMC as to whether it is in the 
best interest of the Exchange, regarding the efficient operation of the 
Exchange, to reassign the stock.\8\ The subcommittee's report would 
indicate whether or not the specialist had successfully completed the 
specific steps established by the subcommittee.\9\

    \8\ See Amendment No. 1, supra note 3, and Amendment No. 2, 
supra note 4.
    \9\ See Amendment No. 2, supra note 4.
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    The QOMC would review the recommendation and give the parties an 
additional opportunity to present their views in writing. It would then 
make a recommendation to the Exchange's Board. The Board could also 
afford the parties an opportunity to present their views in writing. 
The Board would then consider the efforts taken by the specialist to 
complete the subcommittee's specific steps and then determine whether 
the non-regulatory issues that have arisen between the listed company 
and the specialist are irreconcilable differences, that are not based 
upon bias or other violations of public policy, and that a reallocation 
would be in the best business interest of the Exchange.\10\ If the 
Board determined that the stock should be reassigned, the Board would 
direct the Exchange's Allocation Committee to reallocate the stock. The 
then current specialist unit and the unit of any specialist member of 
the Board would not be permitted to apply for allocation of the stock. 
Proposed Rule 103C also provides that no reference to the LCRP or the 
Board's action would be retained in the information maintained by the 
Allocation Committee regarding the then current specialist unit. The 
rule further provides that the specialist unit subject to a 
reallocation would not be afforded any preferential treatment in 
subsequent allocations as a result of a reallocation pursuant to the 
rule.

    \10\ See Amendment No. 1, supra note 3, and Amendment No. 2, 
supra note 4.
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III. Solicitation of Comments

    Amendment No. 1 states that the Exchange considers actions by the 
Board pursuant to the procedures in Rule 103C to be reviewable under 
Section 19(d) of the Act. In addition, Amendment No. 1 clarifies that 
any Board decision to reallocate stock would be based upon a 
determination that there are irreconcilable differences between the 
parties, which are not based upon bias or other violations of public 
policy, and that such reallocation would be in the best interests of 
the continued efficient operation of the Exchange's market. Amendment 
No. 2 clarifies that all written reports will include a description of 
the progress each party has made on the specific steps established by 
the subcommittee. In addition, all recommendations regarding the 
reallocation of a specialist's stock will take into consideration each 
party's efforts to complete the specific steps established by the 
subcommittee.
    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1 and Amendment No. 2. 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 Amendments, all written 
statements with respect to the Amendments that are filed with the 
Commission, and all written communications relating to the Amendments 
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., Washington, D.C. 
20549. Copies of such filing will also be available for inspection and 
copying at the principal office of the NYSE. All submissions should 
refer to File No. SR-NYSE-95-08 and should be submitted by September 
20, 1995.

IV. Discussion

    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, and, in 
particular, with the requirements of Sections 6(b).\11\ In particular, 
the Commission believes the proposal is consistent with the Section 
6(b)(5) requirements that the rules of an exchange be 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.

    \11\ 15 U.S.C. 78f(b).
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    Proposed Rule 103C provides a form of mediation to resolve non-
regulatory issues between listed companies and their specialists. If 
after one year of meetings and talks between the parties the 
differences can not be resolved, the listed company's stock may be 
reallocated to another specialist. While the stock may be reallocated, 
the procedures in Rule 103C are separate and distinct from the 
disciplinary proceedings at the Exchange.
    The Commission recognizes the Exchange's need to ensure that listed 
companies and their specialists units have a mechanism to resolve 
disputes because these disputes could ultimately impinge on the 
Exchange's business relationship with its listed companies. The 
Exchange emphasizes that the relationship between a listed company and 
its specialist unit is a significant one and that while specialist 
units work to foster and promote sound mutual understanding and 
effective communications with their listed companies, situations may 
occasionally arise in which one or both sides cannot easily resolve 
differences with respect to non-regulatory issues. At the same time, in 
the past the Commission has noted concerns about contacts between 
listed companies and their specialists. Although in many instances 
these contacts can be legitimate and constructive, they also can 
present concerns about conflicts of interest or 

[[Page 45206]]
inappropriate exchange of information between the parties.\12\

    \12\ See e.g. Section 11(b) of the Act, 15 U.S.C. 78k(b).
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    The Exchange has addressed these concerns by placing safeguards in 
Rule 103C that take the form of limitations on the procedures which 
minimize the possibility that the proposed mechanism will be abused or 
used for inappropriate purposes. First, the proposed rule contains 
language that requires the subcommittee, the QOMC, and the Board to 
review whether the specialist has successfully completed the steps 
established by the subcommittee to resolve the issues between the 
specialist and the listed company. By requiring the review of the 
specialist's efforts to complete the steps established by the 
subcommittee, it enables a specialist to demonstrate that he or she has 
made every effort to meet the subcommittee's recommendations and has 
successfully complied with such recommendations. Moreover, the 
meticulous steps in a Rule 103C proceeding will enable the Exchange to 
determine whether the listed company-specialist dispute involved 
improper activity by either party.
    A second limitation on the proposed procedures is the ability of 
the Board to recommend reallocation of the specialist's stock only when 
such reallocation would be in the best interest of the continued 
efficient operation of the Exchange's market. Third, the language of 
Rule 103C prohibits reallocation of a specialist's stock when the 
irreconcilable differences between the parties is based upon bias or 
other violations of public policy. These two qualifications are 
designed to prevent reallocations on improper grounds and to provide 
specific standards on when and under what conditions a stock can be 
reallocated.\13\

    \13\ These standards are also necessary to provide a basis on 
which the Board's decision could be reviewed. The Exchange indicates 
in Amendment No. 1, that it considers the actions by the Board 
pursuant to these procedures to be reviewable under Section 19(d) of 
the Act. See Amendment No. 1, supra note 3.
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    The Commission finds good cause for approving the proposed 
Amendments No. 1 and 2, prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. The 
Commission believes that accelerated approval of Amendments No. 1 and 
2, is appropriate in that original filing was published in the Federal 
Register for comment for the full comment period and no comments were 
received. In addition, the Amendments provide technical clarifications 
and additional procedural safeguards. For these reasons, the Commission 
finds good cause for accelerating approval of the proposed rule change 
as amended.

V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-95-08), including 
Amendment No. 1 and Amendment No. 2, is approved.

    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\

    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21502 Filed 8-29-95; 8:45 am]
BILLING CODE 8010-01-M