[Federal Register Volume 62, Number 54 (Thursday, March 20, 1997)]
[Notices]
[Pages 13421-13424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6968]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38372; File No. SR-NYSE-97-04]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. Relating to Amendments to the Exchange's Allocation Policy and 
Procedures

March 7, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ notice is hereby given that on February 21, 1997, as 
amended on March 3, 1997, 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. \2\ The commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1):
    \2\ On March 3, 1997, the NYSE filed Amendment No. 1 to its 
proposal. See letter from James E. Buck, Senior vice President and 
Secretary, NYSE, to Ivette Lopez Assistant director, Division of 
Market Regulation, SEC, dated February 28, 1997. In Amendment No. 1, 
the NYSE withdrew certain proposed amendments to the following 
sections of the NYSE's Allocation Policy and Procedures: I. Purpose; 
III. Allocation Panel, composition; IV. Allocation Criteria; and V. 
Policy Notes. Id. The Exchange has filed a separate proposal under 
Section 19(b)(2) of the Act to amend the above-referenced items. See 
File No. SR-NYSE-97-06.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange, pursuant to Rule 19b-4 of the Act, submits a proposed 
rule change amending the NYSE's Allocation Policy and Procedures. The 
text of the proposed rule change is as follows [new text is italicized; 
deleted text is bracketed].

Allocation Policy and Procedures

* * * * *
    Listing company input
    [Listing on the New York Stock Exchange is a significant 
development for a company, and the assignment of a specialist to make a 
market in the company's shares via the allocation process is an 
important step. The listing company may wish to communicate its views 
for consideration by the Allocation Committee in selecting the best 
possible specialist for the company's stock.
    The Allocation Committee will consider a letter from the listing 
company requesting specific units and/or specifying particular 
expertise in one or more aspects of the specialist's role. While 
specialist performance continues to be the most significant criterion, 
the committee will use its professional judgment in giving appropriate 
weight to all relevant factors, including company letters, to determine 
the selection of a specialist unit.
    From time to time a listing company may choose to interview 
specialist units. The Exchange takes a neutral position on this 
practice and as such will neither arrange interviews nor recommend 
units to be interviewed.]
    Listing on the New York Stock Exchange is a significant development 
for a company, and the assignment of a specialist through the 
allocation process is an important step. The Exchange's Allocation 
Policy is intended to provide listing companies with a choice of 
alternatives as to how their specialist unit may be selected. The 
listing company may choose to have its specialist unit selected by the 
Allocation Committee, in accordance with the criteria specified in the 
Allocation Policy, and the exercise of the Committee's expert 
professional judgment. Alternatively, the listing company may choose to 
become more directly involved in the selection process. In that case, 
the company may request that the Allocation Committee select specialist 
units that would be appropriate to trade the company's stock, with the 
company then making the final selection from among the group of units 
as chosen by the Allocation Committee. Such a group shall consist of 
three, four, or five units, selected by the Committee as demonstrably 
deemed to be the most qualified to receive such allocation from among 
the units that apply, based upon the criteria set forth in this policy. 
These procedures shall apply to the allocation of a newly-listing 
company, as well as the reallocation of an already listed company.
    Specialist Unit Selected by Allocation Committee. If the listing 
company so chooses, the Allocation Committee shall select the 
specialist unit to be allocated the company's stock based on the 
Committee's expert assessment of the type of specialist unit that would 
be most appropriate for the company, and the Committee's professional 
evaluation of performance data and other relevant

[[Page 13422]]

information as specified in the Allocation Policy. The listing company 
may submit a letter to the Allocation Committee describing the 
characteristics (e.g., trading philosophy, policies on maintaining 
communications with its listed companies, etc.) it believes would be 
appropriate for the unit that would be selected to trade its stock. The 
listing company may not, however, identify any particular specialist 
unit in its letter, or specify characteristics so unique as to be 
applicable only to a readily identifiable specialist unit.
    Specialist Unit Selected by Listing Company. If the listing company 
so chooses, it may request that the Allocation Committee select 
specialist units that would be appropriate to trade the company's 
stock, with the company then making the final selection. If the listing 
company chooses this alternative, the company may either make no 
communication to the Allocation Committee, or it may submit a letter 
(as noted in the preceding paragraph) to the Committee describing the 
characteristics the company believes would be appropriate for the units 
to be selected by the Committee. The listing company may not, however, 
identify any particular specialist unit in its letter, or specify 
characteristics so unique as to be applicable only to a readily 
identifiable specialist unit.
    Meetings Between Listing Company and Specialist Units. Within two 
business days after the selection of a group of specialist units as 
described above (unless the exchange has determined to permit a longer 
time period in a particular case), the listing company shall meet, 
either in person or by teleconference, with representatives of each of 
the specialist units. Meetings to be held in person shall normally be 
held at the Exchange, unless the Exchange has agreed that they may be 
held elsewhere. At least one representative of the listing company must 
be a senior official of the rank of Corporate Secretary or above of 
that company. No more than three representatives of each specialist 
unit may participate in the meeting, each of whom must be employees of 
the specialist unit, and one of whom must be the individual who is 
proposed to trade the company's stock.
    Listing Company's Selection of Specialist Unit. Within one business 
day following its meeting with representatives of the specialist units 
(or such longer time period as the Exchange may permit in a particular 
case), the listing company shall select its specialist unit in writing, 
signed by a senior official of the rank of Corporate Secretary or 
higher duly authorized to so act on behalf of the company. The 
Allocation Committee shall then confirm the allocation of the stock to 
that unit, at which time the stock shall be deemed to have been so 
allocated.
    Allocation Applications. In their applications for the allocation 
of a listing company's stock, specialist units must describe all 
pertinent factors as to why they believe they should be allocated the 
stock. At a minimum, such factors should include a description of the 
unit's capital base; identity and experience of the individual proposed 
to trade the stock, with a description of other securities traded by 
that individual; and a discussion of why that individual is appropriate 
to trade the listing company's stock. If the listing company has 
submitted a letter to the Allocation Committee as permitted herein, a 
copy of such letter shall be made available to all specialist units. In 
their applications to be allocated the stock of such company, 
specialist units shall be expected to indicate how they meet the 
characteristics described in the company's letter. If, within six 
months of the date a newly-listed company begins trading on the 
Exchange (or a company which has been reallocated begins trading with 
its new unit), the specialist unit determines that the individual 
specialist who trades the company's stock should be an individual other 
than the one named in the allocation application, the specialist unit 
shall so inform the Allocation Committee, in writing, and disclose its 
reasons therefor. These letters shall be maintained in the permanent 
records of the Committee.
    In addition, specialist units must describe in their applications 
to be allocated the stock of a listing company any contracts they, or 
any individual acting on their behalf, have had with any employee of 
that company, or any individual acting on behalf of that company with 
regard to its prospective listing on the Exchange, within six months 
prior to the date that allocation applications are solicited with 
respect to that company.
* * * * *
    Blanket applications
    [A]All specialist units [may also] shall be deemed to have filed 
with the Exchange a blanket application pursuant to which the applicant 
agrees to accept the allocation of any security. Any security allocated 
to a specialist unit on the basis of its blanket application shall not 
be reflected in the records of the Exchange as a ``security gained'' 
not shall it prejudice that unit's eligibility for future allocations.

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 intent of the Exchange's Allocation Policy and Procedures is: 
(1) to ensure that securities are allocated in an equitable and fair 
manner and that all specialist units have a fair opportunity for 
allocations based on established criteria and procedures; (2) to 
provide an incentive for onging enhancement of performance by 
specialist units; (3) to provide the best possible match between a 
specialist unit and a security; and (4) to contribute to the strength 
of the specialist system.
    In September 1987, the Quality of Markets Committee (``QOMC'') 
appointed the first Allocation Review Committee (``ARC'') to undertake 
a comprehensive review of the Exchange's then-existing allocation 
procedures which had been in effect since 1976. ARC's recommendations 
were filed with the SEC in 1988 and approved in 1990.\3\ In April 1991, 
the QOMC determined that the Allocation Policy and Procedures should be 
re-examined and appointed a new committee, ARC II, to do so. The 
Committee's recommendations were subsequently filed with the 
Commission, and approved in 1993 as a one-year pilot.\4\ In August 
1994, the Exchange filed for and subsequently received permanent 
approval of that pilot.\5\ In accordance with the Exchange's commitment 
to preserve the integrity of the existing allocation system while 
refining the allocation policy as necessary, ARC III

[[Page 13423]]

convened in November 1993. The Committee's recommendations were filed 
with the Commission, and approved in September 1994.\6\ In December 
1995, the QOMC appointed ARC IV to continue to review the allocation 
process. The Committee's recommendations are embodied in this proposed 
rule change.
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    \3\ Securities Exchange Act Release No. 27803 (Mar. 14, 1990), 
55 FR 10740 (Mar. 22, 1990) (order approving File No. SR-NYSE-88-
32).
    \4\ Securities Exchange Act Release No. 33121 (Oct. 29, 1993), 
58 FR 59085 (Nov. 5, 1993) (order approving File No. SR-NYSE-92-15).
    \5\ Securities Exchange Act Release No. 34906 (Oct. 27, 1994), 
59 FR 55142 (Nov. 3, 1994) (order approving File No. SR-NYSE-94-30).
    \6\ Securities Exchange Act Release No. 34626 (Sept. 1, 1994), 
59 FR 46457 (Sept. 8, 1994) (order approving File No. SR-NYSE-94-
18).
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    The principle changes to the Exchange's Allocation Policy and 
Procedures are described below.

Listing Company Input

    Currently, listed companies do not have the option of selecting 
their specialist units. Instead, the Exchange's Allocation Committee 
selects the specialist unit to be assigned to a listed company.
    Under the proposal, listing companies will have two options, 
either: (1) to have their specialist unit selected by the Allocation 
Committee according to existing allocation criteria, with company input 
permitted in the form of a ``generic letter'' which may describe 
desired general characteristics of a specialist unit, but may not 
mention particular units or describe characteristics that would be 
applicable to a readily identifiable specialist unit; or (2) to make 
the final selection of a specialist unit from among three to five units 
selected by the Allocation Committee, based partly on the generic 
letter from the company describing desired specialist unit 
characteristics. In the case of both options, if a generic letter is 
submitted, the letter would be distributed to all specialist units 
along with allocation data sheets (``green sheets'').
    The Exchange is not proposing any change to the criteria by which 
the Allocation Committee makes its allocation decisions. Such decisions 
would continue to be made pursuant to the criteria specified in the 
policy, which include review and consideration of the results of the 
Specialist Performance Evaluation Questionnaire, objective measures of 
specialist performance, and the professional judgment of the members of 
the Allocation Committee. If a listing company selects the second 
option discussed above, the Allocation Committee would be required to 
select only those units demonstrably deemed to be the most qualified to 
receive such allocation from among the units that apply, based upon the 
criteria set forth in the policy.

Meetings With Specialist Units

    Currently, the Allocation Committee selects a specialist unit, with 
a letter from the listing company to be assessed in accordance with the 
Committee's professional judgment; the letter may name specific units. 
A listing company may choose to interview specialist units; the 
Exchange takes a neutral position on this practice and will neither 
arrange interviews nor recommend units to be interviewed.
    Under the proposal, companies selecting option two would meet with 
units chosen by the Allocation Committee (in person at the Exchange or 
by teleconference) within two business days (or such longer time period 
as permitted by the Exchange in a particular case) of the Allocation 
Committee meeting, and would select one unit within one business day 
thereafter. The number of company representatives attending would not 
be limited, but at least one must be a senior official for the company 
of the rank of Corporate Secretary or higher. Specialist units are 
limited to three attendees, all of whom must be employees of the unit 
and at least one of whom must be the specialist designated to trade the 
stock.

Specialist Unit Applications/Company Contracts

    Currently, company letters are not distributed to specialist units. 
If a unit is requested in a company letter, the unit must submit a 
statement describing any meetings or discussions held with the company, 
including any representations or commitments made. There is no 
requirement that units advise the Committee of a change of specialists.
    Under the proposal, if a generic letter is distributed, specialist 
units must indicate how they meet the characteristics described. 
Specialist units must disclose all contacts by them or any individual 
acting on their behalf pertaining to a listing on the Exchange with any 
employee of the listing company, or any individual acting on the 
company's behalf, within six months prior to distribution of the 
``green sheets.'' If a specialist unit wishes to change specialists 
within six months of the date a company begins trading, the unit must 
inform the Allocation Committee in writing and disclose its reasons 
therefor. These letters shall be maintained in the permanent records of 
the Committee.

``Blanket'' Applications

    Currently, specialist units may choose to file blanket applications 
(and all have done so), at their discretion. There will be no change to 
the policy that any security allocated to a unit on the basis of its 
blanket application shall not prejudice that unit's eligibility for 
future allocations.
    Under the proposal, all specialist units shall be deemed to have 
filed with the Exchange a blanket application pursuant to which the 
applicant agrees to accept the allocation of any security.

Pilot Basis

    The Exchange intends to implement the amendments to the Allocation 
Policy discussed herein as a pilot to run for seven months from the 
date of effectiveness. The Exchange shall submit to the Commission a 
report discussing its experiences with the pilot program prior to the 
seven-month expiration date, in conjunction with any request for 
modification, or permanent approval, of the policy.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (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 
amendments are consistent with these objectives in that they enable the 
Exchange to further enhance the process by which stocks are allocated 
to ensure fairness and equal opportunity in the process.

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

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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 proposed rule change.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
(3) does not become operative for 30 days from March 3, 1997, the date 
on which

[[Page 13424]]

it was filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest; 
\7\ and (4) the Exchange provided the Commission with written notice of 
its intent to file the proposed rule change at least five business days 
prior to the filing date, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(e)(6) thereunder.\8\
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    \7\ The Commission notes that any substantive amendment to a 
proposed rule change filed under Rule 19b-4(e)(6) causes the 30 day 
delayed implementation period to be restarted from the date of the 
filing of the amendment. See Securities Exchange Act Release No. 
35123 (Dec. 20, 1994), 59 FR 66692 (Dec. 28, 1994).
    \8\ 17 CFR 240.19b-4(e)(6).
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    The Commission finds good cause for accelerating the operative date 
of the proposed rule change from the thirtieth day following the date 
of the amended filing on March 3, 1997 consistent with investor 
protection and the public interest.\9\ By accelerating the operative 
date of the proposed rule change to March 7, 1997, the NYSE will be 
able to provide issuers, whose stock will be listed on the Exchange, 
with the ability to make the final selection of a specialist unit from 
among three to five units selected by the Allocation Committee. This 
will prevent newly listed companies from delaying their listing on the 
Exchange until such time as they may avail themselves of the 
alternative approaches described herein. Moreover, the Commission notes 
that the proposal is only being implemented on a pilot basis for a 
period of seven months ending on October 7, 1997. Based on the above, 
the Commission believes that accelerating the operative date for 
implementation of the proposal to March 7, 1997 is consistent with the 
protection of investors and the public interest.
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    \9\ See supra note 7.
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    In furtherance of the public interest and investor protection, the 
Commission expects the NYSE to provide the Commission with a report 
describing its experience with the pilot program. This report should 
include, for the period in which the pilot is in operation, the 
following information: the total number of allocations; the total 
number of allocations in which the issuer chose its own specialist unit 
from a list of three to five; the total number of allocations in which 
the Allocation Committee chose the specialist unit; the number of units 
provided to the issuer by the Allocation Committee in those cases where 
the issuer selects for each such allocation; and, for each allocation, 
the number of specialist units applying for the allocations in both 
issuer-selected and Allocation Committee-selected allocations. The 
Exchange also should include in the report information that would 
permit the Commission to evaluate whether the number of units applying 
for allocations increased or decreased when compared to the period 
prior to the adoption of the pilot. The Exchange also should include in 
the report any other information that may be useful to the Commission 
in evaluating the program. The report should be submitted to the 
Commission at least two months prior to the expiration of the pilot (by 
August 7, 1997) along with any request to modify, extend, or 
permanently approve the pilot.
    At any time within 60 days of the filing of the amended proposed 
rule change,\10\ 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.
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    \10\ The 60 day abrogation period commences from March 3, 1997, 
the date of the submission of Amendment No. 1.
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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, NW., Washington, DC 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, NW., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of the New York Stock 
Exchange. All submissions should refer to File No. SR-NYSE-97-04 and 
should be submitted by May 12, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-6968 Filed 3-19-97; 8:45 am]
BILLING CODE 8010-01-M