[Federal Register Volume 61, Number 199 (Friday, October 11, 1996)]
[Notices]
[Pages 53473-53475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26173]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37786; File No. SR-NYSE-96-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to the Entry of 
Limit-at-the-Close Orders

October 4, 1996.
    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 July 31, 
1996, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change and on October 2, 1996, filed Amendment No. 1 to 
the proposed rule change,\1\ 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

[[Page 53474]]

comments on the proposed rule change from interested persons.
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    \1\ See letter and Form 19b-4 from James E. Buck, Senior Vice 
President and Secretary, NYSE, to Ivette Lopez, Assistant Director, 
Division of Market Regulation, SEC, dated September 27, 1996. 
Amendment No. 1 expands the purpose section of the filing to provide 
a more detailed explanation of the reasons the Exchange is seeking 
to permit limit-at-the-close (``LOC'') orders to be entered in any 
stock at any time during the trading day up to 3:40 p.m. on 
expiration days and 3:50 p.m. on non-expiration days. Thereafter, as 
with market-on-close (``MOC'') orders, LOC orders could be entered 
only to offset published imbalances. This proposed revision of the 
LOC pilot would subject LOC orders to the same type of order entry 
and cancellation restrictions currently imposed on MOC orders.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would permit limit-at-the-close (``LOC'') 
orders to be entered in any stock at any time during the trading day up 
to 3:40 p.m. on expiration days, and 3:50 p.m. on non-expiration days.

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
    A LOC order is one that is entered for execution at the closing 
price, provided that the closing price is at or within the limit 
specified. LOC orders are executed behind conventional limit orders at 
the same price and behind market-on-close (``MOC'') \2\ orders. The 
Exchange had originally proposed to amend its policy regarding LOC 
order entry along with its request to extend the LOC pilot for one 
year.\3\ At the request of Commission staff, the Exchange is hereby 
filing its proposal to amend its LOC order entry policy as a separate 
rule change to allow for a full notice and comment period. The Exchange 
proposes to amend its policy regarding LOCs to permit their entry at 
any time during the trading day up to 3:40 p.m. on expiration days, and 
3:50 p.m. on non-expiration days. Thereafter, as with MOC orders, LOCs 
could be entered only to offset published imbalances.
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    \2\ An MOC order is a market order to be executed in its 
entirety at the closing price on the Exchange. See NYSE Rule 13.
    \3\ See Securities Exchange Act Release No. 37507 (July 31, 
1996) (File No. SR-NYSE-96-18 and Amendment No. 1 thereto).
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    Currently, LOC orders may be entered only to offset published 
imbalances of MOC orders. MOC imbalances of 50,000 shares or more must 
be published on the tape in the so-called ``pilot'' stocks \4\ and in 
stocks being added to and dropped from an index and may be published in 
any other stock with the approval of a Floor Official as soon as 
practicable after 3:40 p.m. on expiration days \5\ and as soon as 
practicable after 3:50 p.m. on non-expiration days. LOC orders must be 
entered between 3:40 and 3:55 p.m. on expiration days and between 3:50 
and 3:55 p.m. on non-expiration days. On expiration days, LOC orders 
may not be cancelled after 3:40 p.m., except for legitimate errors. On 
non-expiration days, LOC orders may not be cancelled after 3:55 p.m., 
except for legitimate errors.
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    \4\ The term ``pilot stocks'' refers to the Expiration Friday 
pilot stocks plus any additional QIX Expiration Day pilot stocks. 
Specifically, the Expiration Friday pilot stocks consist of the 50 
most highly capitalized Standard & Poors (``S&P'') 500 stocks and 
any component stocks of the Major Market Index (``MMI'') not 
included therein. The QIX Expiration Day pilot stocks consist of the 
50 most highly capitalized S&P 500 stocks, any component stocks of 
the MMI not included therein and the 10 highest weighted S&P Midcap 
400 stocks.
    \5\ The term ``expiration days'' refers to both (1) the trading 
day, usually the third Friday of the month, when some stock index 
options, stock index futures and options on stock index futures 
expire or settle concurrently (``Expiration Fridays'') and (2) the 
trading day on which end of calendar quarter index options expire 
(``QIX Expiration Days'').
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    LOCs were expanded from five stocks to all stocks in June 1995 in 
the hope that this would stimulate use of this order type. LOCs have 
been approved by the SEC on a pilot basis.\6\ To date, the use of LOCs 
have remained limited. LOCs are restricted by time of entry and by the 
fact that they must offset published MOC imbalances. It appears that 
the narrow order entry window, along with the requirement that LOCs 
offset published MOC imbalances, makes the opportunities for their 
entry too limited to justify for many member firms the programming 
necessary to support their use.
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    \6\ The pilot program for LOC orders expires on July 31, 1997. 
See Securities Exchange Act Release No. 37507, supra note 2.
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    The expansion of the LOC pilot to allow such orders to be entered 
throughout the day (up until the cut-off time) would allow investors 
the possibility of using LOC orders as another investment strategy. 
This could attract additional LOC orders, thereby increasing liquidity 
and potentially reducing volatility at the close. In that regard, the 
Exchange believes that it is appropriate to amend its LOC pilot as 
described above to encourage the entry of LOC orders.
    The Exchange believes that the LOC order type may prove to be a 
useful means to help address the prospect of excess market volatility 
that may be associated with an imbalance of MOC orders at the close.
2. Statutory Basis
    The basis under the Act for the 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, in general, to protect investors and the public interest. The 
proposed rule change perfects the mechanism of a free and open market 
by providing investors with the ability to use LOC orders as a vehicle 
for managing risk at the close.

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, Participant, 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 longer 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

[[Page 53475]]

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 
Exchange. All submissions should refer to File No. SR-NYSE-96-21 and 
should be submitted by November 1, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26173 Filed 10-10-96; 8:45 am]
BILLING CODE 8010-01-M