[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