[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Notices]
[Pages 55625-55626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27134]



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

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36421; File No. SR-NYSE-95-35]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. Relating to a Pilot Program to Display Price Improvement on the 
Execution Report Sent to the Entering Firm

October 26, 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 October 
20, 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 pilot program, to be 
implemented for six months, whereby the Exchange will test and evaluate 
a means of calculating and displaying, on the execution reports sent to 
member firms, the dollar amounts realized as savings to their customers 
as a result of price improvement in the execution of their orders on 
the Exchange. During the pilot program, the Exchange expects to work 
with Merrill Lynch, Pierce, Fenner & Smith, Incorporated (``Merrill 
Lynch'') in testing and evaluating the proposed methodology. Assuming 
the results of the pilot program are successful, the Exchange will make 
this program available to all its member organizations.

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 six month pilot program is to develop, 
test, and evaluate a methodology and program for calculating and 
displaying, on an execution report sent to member firms entering 
orders, the dollar value saved by their customers as a result of price 
improvement of orders executed on the Exchange. This program does not 
in any way affect the actual execution of orders. The Exchange is 
proposing to refer to this calculated dollar savings as the ``NYSE 
PRIMESM.'' For the six months of the pilot, while the program is 
being tested and evaluated, this feature will be available only for 
certain orders entered by Merrill Lynch, which is the pilot firm with 
which the Exchange is working. Should the pilot prove successful, this 
program will be made available to all other member organizations.

    \SM\NYSE PRIME is a service mark of the New York Stock Exchange, 
Inc.
---------------------------------------------------------------------------

    The NYSE PRIME is proposed to be made available for intra-day 
market orders entered via the Exchange's SuperDOT system that are not 
tick sensitive and are entered from off the Floor.\1\ The NYSE PRIME 
(amount of price improvement) is calculated in one of two ways: (1) In 
comparison to the guaranteed (stopped) price for market orders that are 
stopped; and (2) in comparison to the best bid and offer 

[[Page 55626]]
displayed on the national market system at the time the order is 
received.\2\

    \1\Also excluded from the NYSE PRIME feature are booth entered 
or booth routed orders, booked orders, combination orders (e.g., 
switch orders) and orders diverted to sidecar.
    \2\For stocks that are not ITS-eligible, the NYSE quote is used.
---------------------------------------------------------------------------

    The following examples illustrate how NYSE PRIME is proposed to 
work.

    Assume the NYSE market quote is 50-50\1/4\.
    Example 1 A market order to sell 1000 shares, entered on the 
NYSE, is stopped at 50, meaning it is guaranteed to sell at 50 or a 
better price. The quote is narrowed to 50-50\1/8\ and the order is 
subsequently executed at 50\1/8\. This is an \1/8\ point savings 
over the guaranteed (stopped) price of 50, which translates into 
$125 savings over the guaranteed price. Thus, the execution report 
would display NYSE PRIME $125.\3\

    \3\The algorithm that calculates the savings per share can 
calculate price improvement for a minimum of \1/32\ or $0.03125 per 
share to a maximum of \96/32\ or $3.00 per share. If price 
improvement exceeds $3.00 per share, the NYSE PRIME will be preceded 
by a ``>'' sign and will equal $3.00  x  the number of shares 
traded.
---------------------------------------------------------------------------

    Assume the national market quote is 50-50\1/4\.
    Example 2 A market order to buy 800 shares, entered on the NYSE, 
is executed at 50\1/8\. This is an \1/8\ point savings over taking 
the prevailing offer of 50\1/4\. The execution report would display 
NYSE PRIME $100.
    Assume the NYSE market quote is 50-50\1/8\-20,000 by 1,000.
    Example 3 A market order to sell 1,000 shares is entered on the 
NYSE. Because the large imbalance on the bid side suggests a 
likelihood that the subsequent transaction will be on the offer 
side, the sell order is stopped at 50, meaning it is guaranteed to 
sell at 50 or a better price. The offer is increased to 2,000 shares 
at 50\1/8\. Subsequently, another order comes in to buy 2,000 shares 
at 50\1/8\ and the stopped order to sell is executed at 50\1/8\. 
This is an \1/8\ point savings over the guaranteed (stopped) price 
of 50, which translates into $125 savings over the guaranteed price. 
Thus, the execution report would display NYSE PRIME $125.
    Assume the national market quote is 50-50\1/8\-1,000 by 1,000.
    Example 4 A market order to sell 1,000 shares, entered on the 
NYSE, comes in at the same time as a market order to buy 2,000 
shares. Both orders are executed at 50\1/8\. This is an \1/8\ point 
price improvement for the 1,000 share sell order, which otherwise 
would have been executed at the bid price of 50. Thus, its execution 
report would display NYSE PRIME $125.

    If there is no price improvement because either there was no 
savings over the prevailing quote/guaranteed price or the order was not 
eligible for the pilot, then no price improvement information would be 
displayed on the execution report to the entering firm.
    The Exchange believes that the NYSE PRIME can be expected to 
enhance the information made available to investors and improve their 
understanding of the auction market. The Exchange is proposing to test 
and evaluate this service by conducting a six-month pilot to ensure 
that the program is viable and that the data are accurate before making 
the program available to all member organizations. During this period, 
the Exchange will make whatever refinements are necessary to the 
service before making it generally available to member firms.
2. Statutory Basis
    The basis under the Act for this 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 a national 
market system and, in general, to protect investors and the public 
interest. This rule change is designed to perfect the mechanism of a 
free and open market in that it enhances the information provided to 
investors by displaying to them the dollar value of the price 
improvement their orders may have received when executed on the NYSE.

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

    The Exchange does not believe that the rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. In fact, the Exchange believes 
that the NYSE PRIME program can reasonably be expected to enhance 
competition by disclosing to investors the amount of savings they may 
realize as a result of the price improvement their orders may receive 
with executed on the NYSE.

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

    The Exchange has neither solicited nor received written comments on 
the rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    This rule change is filed pursuant to paragraph (A) of Section 
19(b)(3) of the Act, and paragraphs (e)(5) (i), (ii), and (iii) of Rule 
19b-4 thereunder. The NYSE PRIME program will entail enhancements to 
the Exchange's CMS (common message switch), SuperDOT and Post Trade 
systems. This program does not significantly affect the protection of 
investors or the public interest, does not impose any significant 
burden on competition, and does not have the effect of limiting access 
to or availability of any Exchange order enter or trading system. As 
such, this rule change may take effect immediately upon filing with the 
Commission. At any time within 60 days of the filing of such rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors or otherwise in 
furtherance of the purposes of the Act.

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 NYSE. All 
submissions should refer to File No. SR-NYSE-95-35 and should be 
submitted by November 22, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27134 Filed 10-31-95; 8:45 am]
BILLING CODE 8010-01-M