[Federal Register Volume 61, Number 139 (Thursday, July 18, 1996)]
[Notices]
[Pages 37523-37525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18258]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37428; File No. SR-NYSE-94-34]
Self-Regulatory Organizations; Notice of Filing of Amendment No.
3 to Proposed Rule Change by New York Stock Exchange, Inc. Relating to
Amendment of Exchange Rule 92
July 11, 1996.
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
June 28, 1996, 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 further amendments to Rule 92
which would allow member organizations to trade along with customers
when liquidating a block position or engaging in arbitrage, subject to
certain conditions, and which would limit the circumstances under which
Rule 92 would apply to trades by a member or member organization off
the Exchange.
The following is the text of the proposed rule change marked to
reflect all of the proposed changes to the current rule.\1\ Additions
to the current rule are in italics and deletions are in brackets.
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\1\ The text of the proposed rule change published below
incorporates all of the changes to the original rule proposal made
in Amendment Nos. 1, 2, and 3. See Securities Exchange Act Release
Nos. 35139 (Dec. 22, 1994), 60 FR 156 (Jan. 3, 1995) (notice of
filing of proposed rule change, including Amendment No. 1); 36015
(July 21, 1995), 60 FR 38875 (July 28, 1995) (notice of filing of
Amendment No. 2).
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Rule 92: Limitations on Members' Trading Because of Customers' Orders
[(a) No member shall (1) personally buy or initiate the purchase of
any security on the Exchange for his own account or for any account in
which he, his member organization or any other member, allied member or
approved person, in such organization or officer thereof, is directly
or indirectly interested, while such member personally holds or has
knowledge that his member organization holds an unexecuted market order
to buy such security in the unit of trading for a customer, or (2)
personally sell or
[[Page 37524]]
initiate the sale of any security on the Exchange for any such account,
while he personally holds or has knowledge that his member organization
holds an unexecuted market order to sell such security in the unit of
trading for a customer.
(b) No member shall (1) personally buy or initiate the purchase of
any security on the Exchange for any such account, at or below the
price at which he personally holds or has knowledge that his member
organization holds an unexecuted limited price order to buy such
security in the unit of trading for a customer, or (2) personally sell
or initiate the sale of any security on the Exchange for any such
account at or above the price at which he personally holds or has
knowledge that his member organization holds an unexecuted limited
price order to sell such security in the unit of trading for a
customer.]
(a) Except as provided in this Rule, no member or member
organization shall cause the entry of an order to buy (sell) any
Exchange-listed security on the Exchange or any other market center for
any account in which such member or member organization or any approved
person thereof is directly or indirectly interested (a ``proprietary
order''), if the person responsible for the entry of such order has
knowledge of any particular unexecuted customer's order to buy (sell)
such security which could be executed at the same price.
(b) A member or member organization may enter a proprietary order
while representing a customer order which could be executed at the same
price, provided the customer's order is not for the account of an
individual investor, and the customer has given express permission,
including an understanding of the relative price and size of allocated
execution reports, under the following conditions:
(1) the member or member organization is liquidating a position
held in a proprietary facilitation account, and the customer's order is
for 10,000 shares or more; or
(2) the member or member organization is engaging in bona fide
arbitrage or risk arbitrage transactions, and recording such
transactions in an account used solely to record arbitrage transactions
(an ``arbitrage account'').
(c) The provisions of this Rule shall not apply to:
(1) [to] any purchase or sale of any security in an amount of less
than the unit of trading made by an odd-lot dealer to offset odd-lot
orders for customers; [or]
(2) [to] any purchase or sale of any security upon terms for
delivery other than those specified in such unexecuted market or
limited price order[.];
(3) transactions by a member or member organization acting in the
capacity of a market maker pursuant to Securities and Exchange
Commission Rule 19c-3 in a security listed on the Exchange; and
(4) transactions by a member or member organization acting in the
capacity of a specialist or market maker on another national securities
exchange.
Supplementary Material
.10 A member or employee of a member or member organization
responsible for entering proprietary orders shall be presumed to have
knowledge of a particular customer order unless the member organization
has implemented a reasonable system of internal policies and procedures
to prevent the misuse of information about customer orders by those
responsible for entering such proprietary orders.
.20 This Rule shall also apply to a member organization's member
on the Floor, who may not execute a proprietary order at the same
price, or at a better price, as an unexecuted customer order that he or
she is representing, except to the extent the member organization
itself could do so under this Rule.
.30 For purposes of paragraph (b) above, the term ``account of an
individual investor'' shall have the same meaning as the meaning
ascribed to that term in Exchange Rule 80A. For purposes of paragraph
(b)(1) above, the term ``proprietary facilitation account'' shall mean
an account in which a member organization has a direct interest and
which is used to record transactions whereby the member organization
acquires positions in the course of facilitating customer orders. Only
those positions which are recorded in a proprietary facilitation
account may be liquidated as provided in paragraph (b)(1). For purposes
of paragraph (b)(2) above, the terms ``bona fide arbitrage'' and ``risk
arbitrage'' shall have the meaning ascribed to such terms in Securities
Exchange Act Release 15533, January 26, 1979. All transactions effected
pursuant to paragraph (b)(2) above must be recorded in an arbitrage
account.
[.10] .40 A member who issues a commitment or obligation to trade
from the Exchange through ITS or any other Application of the System
shall, as a consequence thereof, be deemed to be initiating a purchase
or sale of a security on the Exchange as referred to in this Rule.
[.20] .50 See paragraph (c)(i) of Rule 800 (Basket Trading:
Applicability and Definitions) and paragraph 99 (Off-Hours Trading:
Applicability and Definitions) in respect of the ability to initiate
basket transactions and transactions through the ``Off-Hours Trading
Facility'' (as Rule 900 defines that term), respectively,
notwithstanding the limitations of this Rule.
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 make certain
technical amendments to the changes originally proposed in SR-NYSE-94-
34. The Exchange's original proposal exempted from Rule 92 transactions
by a member organization acting in the capacity of a market maker
pursuant to Regulation 240.19c-3 of the Securities and Exchange
Commission, and transactions by a regional exchange specialist or
market maker, to the extent that a riskless principal trade is effected
and immediately liquidated at the same price to a customer on that
exchange. The Exchange is amending this portion of Rule 92 (paragraph
(c)(4) to provide that regional exchange specialists and market makers
will be exempt from the provisions of the rule in the same manner as
19c-3 market makers, when they are acting in the capacity of a
specialist or market maker on that exchange. The Exchange is making
this amendment so as not to interfere with the established market
making practices of other market centers.
Rule 92 is an investor protection and market integrity rule, and as
member organizations (other than specialists, competitive traders, and
registered competitive market makers) make their proprietary trading
decisions off the Floor of the Exchange, the scope of Rule 92 would be
expanded from a narrow focus on trading Floor activities to now
[[Page 37525]]
encompass member organizations' transactions in NYSE-listed securities
irrespective of the market center in which those transactions occur. To
the extent that another self-regulatory organization (``SRO'') has a
similar prohibition and the prohibited activity results in transactions
effected solely in that other SRO's market and that SRO is a member of
the Intermarket Surveillance Group, (``ISG''), the ISG's investigative
procedures would apply.
The Exchange believes that amending Rule 92 in this regard is
consistent with the Exchange's expectations that its members and member
organizations, in the exercise of their fiduciary duty and pursuant to
principles of agency law, place the interests of their customers ahead
of their own proprietary interests, regardless of where they choose to
pursue those proprietary interests.
2. Statutory Basis
The basis under the Act for this 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
a national market system and, in general, to protect investors and the
public interest. The proposed rule change will enable member
organizations to add depth and liquidity to the Exchange's market,
while continuing to provide customer protection through the requirement
of customer approval for trading along situations.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act, particularly since the rule
would apply equally in all market centers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange understands that the Commission has received comments
on SR-NYSE-94-34 Amendment No. 2 thereto from at least one self-
regulatory organization. The Exchange believes that issues raised by
this commentator are addressed herein.\2\
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\2\ All the comment letters received by the Commission regarding
the NYSE's proposal are available in the Commission's public
reference room in File No. SR-NYSE-94-34.
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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 NYSE. All
submissions should refer to File No. SR-NYSE-94-34 and should be
submitted by August 8, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18258 Filed 7-17-96; 8:45 am]
BILLING CODE 8010-01-M