[Federal Register Volume 62, Number 216 (Friday, November 7, 1997)]
[Notices]
[Pages 60297-60299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29473]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39288; File No. SR-NYSE-97-30]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. to Amend and Make Permanent 
the Allocation Policy and Procedures Pilot Program

October 30, 1997.
    Pursuant to Section 19(b)(1) of the Securities Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 20, 1997, the New 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, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change seeks to amend and to obtain permanent 
approval of the Exchange's Allocation Policy and Procedures pilot 
program. The text of the proposed rule change is available at the 
Office of the Secretary, the NYSE, and at the Commission.

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

[[Page 60298]]

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 purpose of the proposed rule change is to amend and to make 
permanent the Exchange's Allocation Policy and Procedures pilot 
program. The Exchange's Allocation Policy and Procedures (``Policy'') 
are intended: (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 ongoing enhancement of 
performance by specialist units; (3) to provide the best possible match 
between specialist unit and security; and (4) to contribute to the 
strength of the specialist system.
    On February 28, 1997, the Exchange proposed to change the Policy 
with respect to listing company input. The Commission approved the 
filing as a seven-month pilot program, effective March 7, 1997 until 
October 7, 1997.\3\ On October 6, 1997, the Commission approved an 
extension of the Exchange's pilot program, until November 28, 1997.\4\
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    \3\ See Securities Exchange Act Release No. 38372 (March 7, 
1997) 62 FR 13421 (March 21, 1997) (notice of filing and immediate 
effectiveness of File No. SR-NYSE-97-04). On April 16, 1997, the 
Exchange filed another proposed change to its Policy not covered 
under the pilot program. See Securities Exchange Act Release No. 
38828 (July 9, 1997) 62 FR 39043 (July 21, 1997) (order approving 
File No. SR-NYSE-97-12).
    \4\ See Securities Exchange Act Release No. 39206, 62 FR 53679 
(October 15, 1997) (order approving File No. SR-NYSE-97-27).
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    Under the pilot, listing companies may: (1) have the Allocation 
Committee select their specialist unit; or (2) make the final selection 
of a specialist unit from among a group of three to five specialist 
units selected by the Allocation Committee. The listing company may 
submit a generic letter to the Allocation Committee which may describe 
desired general characteristics of a specialist unit, but may not 
mention particular specialist units. Under the second option, the 
listing company meets, either in person or by teleconference, with the 
specialist units selected by the Allocation Committee within two 
business days after their selection. The listing company must make its 
decision as to a specialist unit by the next business day.
    The Exchange proposes the following additional changes to its 
Policy based upon the staff's experience with the pilot program:

Listing Company Input

    When the listing company selects Option (2), the Allocation 
Committee will select a group of three, four or five units that are the 
most qualified specialist units among the units that apply. It is 
proposed that if three units are selected, the Allocation Committee may 
select an alternate specialist unit to be among the group of units that 
a company may interview in the event a unit is elimated. A unit could 
be eleimated if it or the specialist designated to trade the stock 
cannot meet with the listing company at the appointed time. A unit 
chosen as an alternate will be informed of its status as such. 
Currently, the policy is silent regarding this procedure.

Company Letter

    The Exchange proposes that the letter submitted by the listing 
company focus on the history and background of the company and its 
industry; how the company historically has funded its operations; 
characteristics of its shareholder based and any unusual trading 
patterns that may result therefrom; and any public information 
regarding the company's plans for the future. The letter may also 
include the company's specific views on being traded by a specialist 
unit with experience in trading in its industry or country and the 
company's preference, if any, that its stock not be traded by 
specialist units which trade competitors, in which case, names of 
direct competitors should be included in the letter. Currently, the 
listing company's letter to the Allocation Committee describes 
characteristics that focus on the specialist rather than the listing 
company. The Allocation Committee has found that letters which describe 
the listing company are more helpful to the Allocation Committee in 
assessing the type of specialist unit that would be more appropriate 
for the company.

Interview Scheduling and Format

    Currently, within two business days after the selection of a group 
of specialist units by the Allocation Committee, the listing company 
must meet with the specialist unit's representative. In addition, the 
listing company must select its specialist unit within one business day 
of the interview. Experience has shown that these time frames were too 
compressed at time for company travel arrangements or preparation by 
the specialist units. Pursuant to the proposal, after the Allocation 
Committee selects a group of specialist units (under Option 2), the 
listing company must meet with the selected group of specialist units 
representatives by the close of business on the last Exchange business 
day of the week in which the selection of the group was made. As soon 
as practicable, following its meeting with representatives of the 
specialist units, the listing company must select its special unit. If 
a listing company meets with any of its specialist units on the last 
Exchange business day of the week, it must take its decision on that 
day.
    Currently, the Policy permits telephone interviews at the request 
of a listing company. In-person interviews have been shown to be more 
effective. Therefore, telephone interviews will not be permitted for 
domestic listing companies, unless the Exchange approves for compelling 
circumstances. Telephone interviews will be permitted for non-U.S. 
listing companies.

Contact Between Listing Companies and Specialist Units

    Currently, the Policy is silent regarding contact between listing 
companies and specialist units. However, the NYSE's Information Memo 
No. 97-13 states that once allocation applications are distributed, the 
exchange expects that specialist units will have no contact with the 
listing companies.
    The Exchange proposes to codify into its Policy its prohibitions on 
contact between listing companies and specialist units from the time 
allocation applications are solicited until Allocation Committee 
meetings. From the selection of an interviewing pool to the time of 
interviews, units may provide material to Exchange staff no later then 
two hours before the scheduled interview. Exchange staff will provide 
the material to the listing company on the day of the interview. Such 
material must be limited to information pertaining to the specialist 
unit, and may not contain information that refers to another specialist 
unit or units, except overall floorwide statistics.
    The Exchange proposes that at the interview, information or 
material may be provided either orally or in writing. Any material 
provided either orally or in writing by the specialist unit must relate 
only to that unit. Information regarding other units may not be 
provided, except for floorwide statistics.

[[Page 60299]]

Any information contained in Exchange documents may be provided by the 
unit orally or in writing on the unit's letterhead. Following its 
interview, a specialist unit may not have any contact with the listing 
company and any follow-up questions by the company regarding publicly 
available information on a unit must be sent to the Exchange. If the 
Exchange approves, a response will be provided. The specialist units in 
the group of units interviewed will be advised of such requests.

Spin-offs/Related Companies

    This section of the Policy covers situations in which a listing 
company is a spin-off of or related to a listed company. Currently 
these situations are handled as new listings, with allocation open to 
all specialist units.
    Under the proposed revisions of the Policy, a listing company that 
is a spin-off or related company may choose to stay with the specialist 
unit registered in the related listed company.
    If the listing company chooses to have the Allocation Committee 
select its specialist, the listing company may request, and the 
Allocation Committee will honor, that it not be traded by the 
specialist unit that trades the related listed company. Alternatively, 
the listing company may choose Option 2 and request that the Allocation 
Committee include or exclude from the group of specialist units, the 
specialist registered in the related listed stock.
    The Exchange believes that the pilot program, as amended, should be 
made permanent in that it has successfully established flexible 
procedures for the listing company to effectively participate in the 
selection process of specialist units that are most suitable to make 
quality markets in the listing company's stock.
2. Statutory Basis
    The NYSE believes the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act \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 protest 
investors and the public interest. The Exchange believes that the 
experience gained from the pilot program suggests that the amendments 
to the Policy are consistent with these objectives in that they enable 
the Exchange to further enhance the process by which stocks are 
allocated between specialist units to ensure fairness and equal 
opportunity in the process.
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal 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

    Comments were neither solicited nor received.

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:
    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 NYSE. All 
submissions should refer to File Number SR-NYSE-97-30 and should be 
submitted by November 28, 1997.

    Fifth Street, N.W., Wahsington, 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 NYSE. All submissions should 
refer to File Number SR-NYSE-97-30 and should be submitted by November 
28, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-29473 Filed 11-6-97; 8:45 am]
BILLING CODE 8010-01-M