[Federal Register Volume 62, Number 153 (Friday, August 8, 1997)]
[Notices]
[Pages 42847-42848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20828]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38897; File No. SR-NYSE-97-21]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Trading 
Differentials for Equity Securities

August 1, 1997.
    On June 16, 1997, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to replace references to specific minimum 
variations with general language regarding minimum variations, to 
replace its minimum increment of one-eighth of a dollar with one-
sixteenth of a dollar, and to make conforming changes to several other 
rules.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In order for the Exchange to meet quickly changing market 
conditions, the Commission granted the changes described in this 
proposal temporary accelerated approval on June 18, 1997. See 
Securities Exchange Act Release No. 38744 (June 18, 1997), 62 FR 
34334 (June 25, 1997).
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    The proposed rule change was published for comment in the Federal 
Register on June 25, 1997.\4\ No comments were received. This order 
approves the proposal.
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    \4\ Securities Exchange Act Release No. 38745 (June 18, 1997), 
62 FR 34336 (June 25, 1997).
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    Exchange Rule 62 currently provides fixed minimum trading 
variations for stocks traded on the Exchange. The Exchange proposes to 
amend Rule 62 to remove the references to specific minimum variations 
and to replace it with general language. The Exchange believes this 
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. The Exchange proposes to set the

[[Page 42848]]

minimum variation for most stocks at one-sixteenth of a dollar.\5\
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    \5\ The Exchange previously only allowed 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. NYSE Rule 62.
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    In addition to Rule 62, several other Exchange rules incorporate 
specific references to minimum trading variations. The Exchange 
proposes to make conforming changes to these rules (Rule 95.30, Rule 
118, Rule 127, and Rule 440B) by removing references to specific 
minimum trading variations of one-eighth of a dollar.
    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. In particular, 
the Commission believes the proposal comports with the requirements of 
Section 6 and Section 11A of the Act.\6\
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    \6\ 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. Sec. 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 
self-regulatory organizations (``SROs''). Both the American Stock 
Exchange (``Amex'') and The Nasdaq Stock Market (``Nasdaq'') have 
recently reduced their minimum increments.\7\ 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.\8\
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    \7\ Securities Exchange Act Release No. 38571 (May 5, 1997), 62 
FR 25682 (May 9, 1997) (approving an Amex proposal to reduce the 
minimum trading increment to \1/16\ for certain Amex-listed equity 
securities); Securities Exchange Act Release No. 38678 (May 27, 
1997), 62 FR 30363 (June 6, 1997) (approving a Nasdaq rule change to 
reduce the minimum quotation increment to \1/16\ for certain Nasdaq-
listed securities).
    \8\ 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. Allowing the NYSE to permanently quote all securities in 
finer increments will facilitate quote competition.\9\ This should help 
produce more accurate pricing of such securities and can result in 
tighter quotations.\10\ 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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    \9\ 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).
    \10\ 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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    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-97-21) is approved.

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-20828 Filed 8-6-97; 8:45 am]
BILLING CODE 8010-01-M