[Federal Register Volume 62, Number 122 (Wednesday, June 25, 1997)]
[Notices]
[Pages 34334-34336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16574]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38744; File No. SR-NYSE-97-20]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Temporary Accelerated Approval of a Proposed Rule Change by
the New York Stock Exchange, Inc. Relating to Trading Differentials for
Equity Securities
June 18, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 16, 1997, the New
York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization (``SRO''). The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to grant accelerated
approval on a temporary basis to the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
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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 Rules
62, 95.30, 118, 127, and 440B to provide flexibility in determining
minimum trading variations. The Exchange is proposing to implement
these rule changes on a temporary accelerated basis.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, 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 III 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.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Exchange Rule 62 currently provides fixed minimum trading
variations for stocks traded on the Exchange. For example, the rule
currently states that ``Bids or offers in stocks above one dollar per
share shall not be made at a less variation than \1/8\ of one dollar
per share.'' In order to provide greater flexibility to adjust trading
variations as may be appropriate, the Exchange is proposing to amend
Rule 62 so that the minimum trading variation may be changed from time
to time.
This increased flexibility would allow the Exchange to determine
trading variations on an expedited basis, without undergoing the delays
inherent in the regulatory approval process. This would put the
Exchange in a comparable regulatory position with respect to minimum
trading variations with other exchanges that are able to change
variations at any time.
In addition, the amendment to Rule 62 will provide flexibility so
that the Exchange could permit its members to trade at increments
smaller than NYSE-established trade variations in order to match other
markets' bids or offers for the purpose of preventing Intermarket
Trading System (``ITS'') trade-throughs. For example, assume that the
established minimum trading variation is one-sixteenth of a dollar, and
the best bid on the Exchange for a particular stock is 10, but there is
a bid for that stock on the ITS at 10\1/32\. The Exchange specialist,
or broker in the Crowd with a ``not held'' order, could execute a
marketable limit order or market order to sell at 10\1/32\ in order to
match the ITS bid. However, the specialist could not accept an order
with a limit of 10\1/32\ because it is not the minimum variation at
which trading is effected on the Exchange.
The Exchange initially intends to set a minimum variation of one-
sixteenth of one dollar.
In addition to Rule 62, several other Exchange rules incorporate
specific references to minimum trading variations. These rules, viz.,
Rule 95.30, Rule 118, Rule 127, and Rule 440B, would be amended to
remove references to specific minimum trading variations of one-eighth
of one dollar.
The Exchange intends to implement the proposed rule change on a
temporary accelerated basis for a 90-day period, during which the
Commission will consider the Exchange's request for permanent approval
of the proposed rule change.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \2\ of the Act in general and furthers the objectives of
Section 6(b)(5) \3\ in particular in that it is designed to remove
impediments to and perfect the mechanism of a free and open market, to
promote just and equitable principles of trade and, in general, to
protect investors and the public interest.
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\2\ 15 U.S.C. 78f(b).
\3\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will 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.
III. 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 Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. Also, copies of such filing will be available for
inspection and copying at the principal office of the NYSE. All
submissions should refer to File No. SR-NYSE-97-20 and should be
submitted by July 16, 1997.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, with the requirements of Section 6 and Section 11A of the
Act.\4\
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\4\ 15 U.S.C. 78f(b) and 78k-1. In approving this rule change,
the Commission notes that it has considered the proposal's impact on
efficiency, competition, and capital formation, consistent with
Section 3 of the Act. Id. section 78c(f).
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Recently, there has been a movement within the industry to reduce
the minimum trading and quotation increments imposed by the various
SROs. Both the American Stock Exchange (``Amex'') and The Nasdaq Stock
Market (``Nasdaq'') have recently reduced their minimum increments.\5\
In addition, several third market makers have begun quoting securities
in increments smaller than the primary markets. The proposed rule
change will allow the NYSE the flexibility it needs to address this
development and remain competitive with these markets. Nevertheless,
the Commission notes that any further change in the minimum increments
constitutes (1) a change in a stated policy, practice, or
interpretation with respect to the meaning, administration, or
enforcement of an existing rule of the NYSE, or (2) a change in an
existing order-entry or trading system of an SRO, or (3) both.
Therefore, the Exchange is still obligated to file such proposed
changes with the Commission.\6\
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\5\ Securities Exchange Act Release No. 38571 (May 5, 1997)
(approving Amex proposal to reduce the minimum trading increment
from \1/8\ to \1/16\ for Amex-listed equity securities priced at or
above $10.00); Securities Exchange Act Release No. 38678 (May 27,
1997), 62 FR 30363 (June 6, 1997) (approving a proposed rule change
by Nasdaq to reduce the minimum quotation increment from \1/8\ to
\1/16\ for Nasdaq-listed securities whose bid price is equal to or
greater than $10.00).
\6\ These changes, however, may become effective upon filing if
they meet certain statutory requirements. See 15 U.S.C.
78s(b)(3)(A)(i) and 17 CFR 240.19b-4(e).
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The Commission also believes the proposed rule change will likely
enhance the quality of the market for the affected NYSE-listed
securities. The Exchange currently only allows quotes in eighths for
equity securities that are above $1.00, sixteenths for equity
securities that are below $1.00 but above $0.50, and thirty-seconds in
stocks below $0.50.\7\ Allowing the NYSE to quote all securities in
finer increments will facilitate quote competition.\8\ This
[[Page 34336]]
should help produce more accurate pricing of such securities and can
result in tighter quotations.\9\ In addition, if the quoted markets are
improved by reducing the minimum increment, the change could result in
added benefits to the market such as reduced transaction costs.
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\7\ NYSE Rule 62.
\8\ The rule change is consistent with the recommendation of the
Division of Market Regulation (``Division'') in its Market 2000
Study, in which the Division noted that the \1/8\ minimum variation
can cause artificially wide spreads and hinder quote competition by
preventing offers to buy or sell at prices inside the prevailing
quote. See SEC, Division of Market Regulation, Market 2000: An
Examination of Current Equity Market Developments 18-19 (Jan. 1994).
\9\ A study that analyzed the reduction in the minimum tick size
from \1/8\ to \1/16\ for securities listed on the Amex priced
between $1.00 and $5.00 found that, in general, the spreads for
those securities decreased significantly while trading activity and
market depth were relatively unaffected. See Hee-Joon Ahn, Charles
Q. Chao, and Hyuk Choe, Tick Size, Spread, and Volume, 5 J. Fin.
Intermediation 2 (1996).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register.\10\ The proposal provides the
NYSE with the ability to quickly modify its trading increment to meet
changing market conditions. This will enable the NYSE to quote
competitively with other markets. Waiting the full statutory review
period for the proposed rule change could place the NYSE at a
significant competitive disadvantage to other markets. At the same
time, the proposal is effective for only ninety days. This will provide
the Commission with a sufficient period to receive and assess comments
on the NYSE's proposal before it is adopted on a permanent basis.\11\
Therefore, the Commission believes it is consistent with Section
6(b)(5) and Section 19(b)(2) of the Act to grant accelerated approval
on a temporary basis to the proposed rule change.\12\
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\10\ A prior proposal by another exchange to reduce its minimum
fractional change was published for the full statutory comment
period without any comments being received by the Commission.
Securities Exchange Act Release No. 38571 (May 5, 1997) (approving a
proposed rule change by the Amex to reduce the minimum trading
differential from \1/8\ to \1/16\ for equity securities priced at or
above $10.00).
\11\ The Exchange has submitted a companion filing that requests
permanent approval of the procedures described herein. See
Securities Exchange Act Release No. 34-38745 (June 18, 1997)
(publishing notice of File No. SR-NYSE-97-21).
\12\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSE-97-20) is hereby
approved on an accelerated basis through September 16, 1997.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 C.F.R. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-16574 Filed 6-24-97; 8:45 am]
BILLING CODE 8010-01-M