[Federal Register Volume 62, Number 98 (Wednesday, May 21, 1997)]
[Notices]
[Pages 27822-27823]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13231]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38630; File No. SR-NYSE-97-09]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Amendments to 
Percentage Order Rule 123A.30

May 13, 1997.
    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 March 
25, 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. 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 amendments to Exchange Rule 
123A.30 (``Rule''). The filing proposes to amend the Rule to provide 
that the percentage orders held by a specialist may be elected by the 
execution of a previously elected portion of a percentage order that is 
on the opposite side of the market. The filing also proposes to amend 
the Rule to permit the specialist to convert a percentage order on a 
destabilizing tick, as otherwise permitted by the Rule, when the 
transaction is 10,000 shares or more or represents a quantity of stock 
having a market value of $500,000 or more (whichever is less).\1\
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    \1\ The Exchange previously filed a proposed change to Rule 
123A.30 which would provide that a converted percentage order 
retains its status on the specialist's book unless the transaction 
is effected on a higher bid, or a new higher bid is made, or the 
percentage order was not converted at its maximum limit price. That 
proposed rule change is still pending with the Commission. See 
Securities Exchange Act Release No. 37495 (July 30, 1996), 61 FR 
40699 (August 5, 1996) (File No. SR-NYSE-96-16).
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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 percentage order is a limited price order to buy or sell fifty 
percent (50%) of the volume of a specified stock after its entry. A 
percentage order is essentially a memorandum entry left with a 
specialist which becomes a ``live'' order capable of execution in one 
of two ways: (i) All or part of the order can be ``elected'' as a limit 
order on the specialist's book based on trades in the market; or (ii) 
all or part of the order can be ``converted'' into a limit order to 
make a bid or offer or to participate directly in a trade. Percentage 
orders were first adopted in 1972 to permit large size orders to trade 
along with the trend of the market.
    The election process. Under the election process, as trades occur 
at the percentage order's limit price or better, an equal number of 
shares of the percentage order are ``elected'' and become a limit order 
on the specialist's book at the price of the electing sale. Most 
percentage orders are entered as ``last sale percentage orders,'' 
meaning that they may be executed at the price at which they were 
elected, or at a better price. These orders may not, however, be 
executed at an inferior price to the electing sale even if that 
inferior price is still within the limit price on the order.
    The Rule provides that percentage orders shall not be elected by 
any portion of volume which results from the execution of a previously 
elected portion of a percentage order. The intent of this restriction 
is to prevent ``chain reaction'' executions of percentage order whereby 
executions of elected portions of percentage orders trigger additional 
elections. Such a result would usually be contrary to the objectives of 
those entering percentage orders, who generally want to go along with 
the overall trend of the market as reflected by other market interest, 
without necessarily leading that trend.
    As currently drafted, the Rule does not distinguish between 
election of percentage orders on the same side of the market and 
percentage orders on opposite sides of the market. The Exchange 
believes that the rationale of the Rule, however, suggests that the 
restriction should be applied only to percentage orders on the same 
side of the market, as ``same side'' orders are the ones to be executed 
along with the market trend (i.e., buy percentage orders would be 
executed along with other buying interest, and sell percentage orders 
would be executed along with other selling interest).
    Proposed change to the election process. The Exchange is proposing 
to amend the Rule to provide that the percentage orders held by a 
specialist may be elected by the execution of a previously elected 
portion of a percentage order that is on the opposite side of the 
market.
    For example, assume that the market is 20 to 20\1/4\, 2,000 by 
2,000, with the 2,000 share offer representing 2,000 ``elected'' shares 
of a percentage order to sell. The specialist then receives a 
percentage order to buy 10,000 shares at a limit price of 20\5/8\ after 
which he receives through SuperDOT an order to buy 1,000 shares at the 
market. After bidding 20\1/8\ on behalf of the SuperDOT order, the 
specialist executes that order

[[Page 27823]]

against the 2,000 share offer at 20\1/4\. Under the current rule, no 
portion of the buy percentage order would be elected, and no additional 
portion of the sell percentage order would be elected. Under the 
proposed rule change, 1,000 shares of the buy percentage order would be 
elected at 20\1/4\, and would then trade with the remaining 1,000 share 
balance of the offer at 20\1/4\. No portion of the sell percentage 
order would be elected.
    The conversion process. Under the Rule, the specialist may convert 
a percentage order into a ``live'' limit order on a destabilizing tick 
where: (i) The transaction for which the order is being converted is 
for 10,000 shares or more; and (ii) the price at which the converted 
percentage order is to be executed is no more than \1/4\ point away 
from the last sale price; provided, however, that this price parameter 
may be modified, in appropriate cases, with the prior approval of a 
Floor Official and the written consent of the broker who entered the 
order.\2\
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    \2\ For a more detailed description of the procedures under 
which a percentage order may be converted on a destabilizing tick, 
see Securities Exchange Act Release No. 24505 (May 22, 1987), 52 FR 
20484 (June 1, 1987) (order approving amendment to Rule 123A.30 to 
permit the conversion of percentage orders on destabilizing ticks).
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    Proposed change to the conversion process. The Exchange is 
proposing to amend the Rule to permit the specialist to convert a 
percentage order on a destabilizing tick, as otherwise permitted by the 
rule, when the transaction is 10,000 shares or more or represents a 
quantity of stock having a market value of $500,000 or more (whichever 
is less).
    This amendment will make the size of permitted transactions 
consistent with the definition of a block in NYSE Rule 97, and thus 
facilitate conversion of percentage orders in stocks where the size of 
the trade has the appropriate market value to qualify as a block 
transaction, but may not have a share size of 10,000 or more.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \3\ 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 proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market by increasing opportunities for percentage orders' participation 
in the Exchange's auction when a percentage order may be elected by the 
execution of a previously elected portion of a percentage order on the 
opposite side of the market. In addition, increasing the opportunity 
for percentage orders to be converted based on a transaction size or 
market value will promote liquidity and depth in the market place.
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    \3\ 15 U.S.C. 78f(b)(5).
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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.

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

    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 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-97-09 and should be 
submitted by June 11, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13231 Filed 5-20-97; 8:45 am]
BILLING CODE 8010-01-M