[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Notices]
[Pages 48736-48738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23297]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36231; File No. SR-NYSE-95-17]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Specialists 
Displaying the Full Size of Certain Orders

September 14, 1995

I. Introduction

    On April 21, 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 issue an Information Memo 
discussing procedures under exchange rules with respect to the display 
of limit orders.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 35687 (May 8, 1995), 60 FR 25751 (May 12, 
1995). No comments were received on the proposal.

II. Description

    The Exchange proposes to issue an Information Memo outlining its 
policy with respect to displaying certain orders received by a 
specialist. The policy requires specialists to display the full size of 
all orders received through the SuperDOT order routing system and the 
full size of all orders received by specialists manually that are 
subsequently entered into the electronic book. This requirement 
includes increasing the size of a quotation for orders at the same 
price as the current bid or offer. The policy also sets forth the 
specialist's responsibility when a member who gives an order requests 
that less than the full size of the order be shown in the quotation. In 
that situation, a specialist is only responsible to enter in the 
electronic book and show the size requested. The portion not requested 
to be shown will be handled manually as a ``held'' order, but will be 
last in terms of time priority to all other orders on the specialist's 
electronic book at that price. If the specialist is subsequently 
requested to show an additional portion, or the remainder, of the 
order, the specialist will enter the price and size into the electronic 
book, with the order so entered having priority on the book vis-a-vis 
other orders as of the time of entry on the book. The specialist will 
increase the 

[[Page 48737]]
quotation size to reflect the additional amount entered on the book.
    Specialists will be expected to display as soon as practicable any 
order that, in relation to currently market conditions in a particular 
security, represents a material change in the supply or demand for that 
security. For example, if the market in XYZ security is 20 bid to 20\1/
4\ offered, 1,000 shares bid and 1,000 shares offered, and the 
specialist receives an order to sell 10,000 shares at 20\1/4\, the 
specialist will be expected to change the size of the offer to 11,000 
shares as soon as he or she becomes aware of the order. If the 
quotation already reflects significant supply (demand), and the 
specialist receives an order that is relatively de minimis in relation 
to such supply (demand), the specialist may take a reasonable period of 
time, which should not generally exceed two minutes, before updating 
the quotation, so as to avoid constant revisions of quotations that do 
not reflect material changes in supply and demand. For example, if the 
market in XYZ security is 20 bid to 20\1/4\ offered, 5,000 shares bid 
and 50,000 shares offered, and the specialist receives an order to sell 
200 shares at 20\1/4\, the specialist will be permitted to wait a 
reasonable period of time before changing the size of the offer to 
50,200 shares.
    Under exceptional circumstances, the specialist will not 
necessarily display the full quotation size. For example, as noted in 
NYSE Information Memo 94-32,\3\ when a member proposes to effect a 
block transaction at a significant premium or discount from the 
prevailing market and the specialist is aware of interest on the contra 
side, it may be more appropriate for the specialist and Floor 
Official(s) to gap the quotation in a security for a brief period, 
generally not exceeding five minutes, with a view toward contacting 
and/or attracting contra market interest. In such case, the bid or 
asked price should touch the prior sale price and reflect size of 100 
shares. The same principles will also apply to a situation where there 
is a sudden influx of market orders on one side of the market that 
would be likely to result in significant price change.

    \3\See Securities Exchange Act Release No. 34303 (July 1, 1994), 
59 FR 35157 (July 8, 1994).
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III. 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) and 11A.\4\ 
Specifically, 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 prevent 
fraudulent and manipulative acts, and, in general, to protect investors 
and the public. The Commission also believes the proposal is consistent 
with Section 11A(1)(b) of the Act, which directs the Commission to 
assure the prompt, accurate, reliable, and fair collection, processing, 
distribution, and publication of information with respect to quotations 
for and transactions in securities. Rule 11Ac1-1 under the Act\5\ 
requires exchanges to establish and maintain procedures and mechanisms 
for collecting bids, offers, quotation sizes and aggregate quotation 
sizes from brokers or dealers, processing such bids, offers and sizes, 
and making such bids, offers and sizes available to quotation vendors.

    \4\15 U.S.C. 78f(b) and 78k-1 (1988).
    \5\17 CFR 240.11Ac1-1 (1994).
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    The Commission has long believed that transparency--the real-time, 
public dissemination of trade and quote information--plays a 
fundamental role in the fairness and efficiency of the secondary 
markets. Commission efforts to ensure that data concerning trading 
interest, volume, and prices is available to investors, analysts, and 
all other participants in the U.S. equity markets, have been predicated 
on the Commission's belief that transparency helps to link dispersed 
markets and improves the price discovery, fairness, competitiveness, 
and, attractiveness of equity markets.
    In its Market 2000 Study,\6\ the Division of Market Regulation 
(``Division'') recommended that the self-regulatory organizations 
encourage the display of all limit orders in listed stocks that are 
better than the best intermarket quotes, because it believed that such 
a requirement would provide a more accurate picture of trading 
interest, result in tighter spreads, and contribute to improved price 
discovery. In NYSE Information Memo No. 93-12, the Exchange advised 
specialists that, pursuant to NYSE Rule 79A.10,\7\ all orders received 
by specialists through the SuperDOT system were deemed to be 
accompanied by an instruction that they be quoted at the limit price on 
the order when such limit price is better than the current quotation.

    \6\See Division of Market Regulation, SEC, Market 2000: An 
Examination of Current Equity Market Developments, January 1994, at 
Study IV (``Market 2000 Study''). The Division also recommended that 
the NASD consider encouraging the display of limit orders in Nasdaq 
securities that improve the best Nasdaq quotation.
    \7\NYSE Rule 79A.10 requires that all Exchange members represent 
limit orders at their limit prices when requested by their customers 
to do so.
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    The Exchange now is expanding this policy by requiring that 
specialists display the full size of all orders (unless specifically 
instructed otherwise), including increasing the size of a quotation for 
orders at the same price as the current bid or offer.\8\ The policy 
being adopted herein, in combination with the policy expressed in NYSE 
Information Memo 93-12, will require in most circumstances that 
specialists' quotations reflect the full size of the best prices 
available for securities traded on the NYSE.\9\

    \8\For orders at the same price as the current bid or offer, 
specialists will be expected to increase the size of the quotation 
as soon as practicable when, in relation to current market 
conditions in a particular security, the order represents a material 
change in the supply or demand for that security. Nonetheless, if 
the quotation already reflects significant supply (demand), and the 
specialist receives an order at the current bid or offer that is 
relatively de minimis in relation to such supply (demand) at that 
price, the specialist may take a reasonable period of time, which 
should not generally exceed two minutes, before increasing the size 
of the quotation. The Commission notes that an accumulation of 
orders considered de minimis individually could, in the aggregate, 
represent a material change in the supply or demand for a security. 
In that case, the specialist should increase the size of the 
quotation as soon as practicable to reflect the new aggregate 
interest.
    \9\NYSE Information Memo 93-12 sets forth the Exchange's view 
that all limit orders received by specialists through the SuperDot 
system are deemed to contain an implicit instruction to represent 
such orders at their limit prices. This memo states that specialists 
must reflect SuperDot limit orders in the Exchange's published 
quotation at their limit prices as soon as practicable following 
receipt of the orders. It also states that the mere existence of 
different size between the existing bid and offer, or a substantial 
sized bid or offer on the same side of the market as the limit order 
(compared to the size of the limit order received), would not 
justify failure to represent the limit order at the limit price 
immediately. Consequently, the display requirement in Information 
Memo 93-12 precludes the application of the de minimis standard 
discussed herein (see supra note 8) to situations requiring the 
specialist to change the current quotation to reflect a limit order 
at a better price. In fact, the policy being adopted in the instant 
proposal, in conjunction with the policy expressed in Information 
Memo 93-12, requires specialists in almost all instances to change 
their quotation upon the receipt of a limit order that betters the 
market and also to display the full size of that order regardless of 
its size in relation to the size of the existing bid or offer.
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    The Commission believes that the NYSE proposal to require 
specialists to display the full size of limit orders received through 
SuperDot or limit orders received manually and subsequently entered 
into the electronic book (unless requested by a member to display less 
than the full size of an order) will add to the transparency of the 
market for stocks traded on the NYSE. The proposal will ensure that the 


[[Page 48738]]
NYSE disseminates quotes that reflect not only the best bid and offer 
in a stock, but also the depth of the trading interest at those prices. 
This added transparency should benefit investors and promote the 
efficiency of the NYSE market.

IV. Conclusion

    It is Therefore Ordered, pursaunt to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSE-95-17) is approved.

    \10\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-23297 Filed 9-19-95; 8:45 am]
BILLING CODE 8010-01-M