[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