[Federal Register Volume 63, Number 23 (Wednesday, February 4, 1998)]
[Notices]
[Pages 5829-5830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2691]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39583; File No. SR-NYSE-97-38]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. to Amend its Rule 13 to 
Create a New Percentage Order Type to be Called ``Immediate Execution 
or Cancel Election''

January 27, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 2, 1998, 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, II and III below, which Items have been prepared by the NYSE. 
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 Rule 13 to provide that if 
a percentage order is marked ``Immediate Execution or Cancel 
Election,'' the elected portion of a percentage order with this 
designation is to be executed immediately in whole or in part at the 
price of the electing transaction. If the elected portion cannot be so 
executed, the election shall be deemed cancelled, and shall revert back 
to the percentage order and be subject to subsequent election or 
conversion. 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 NYSE 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 NYSE 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
    Currently, NYSE Rule 13 provides for three types of percentage 
orders: straight limit, last sale (which pursuant to a recently 
approved amendment, can be further designated ``last sale cumulative 
volume''), and ``buy minus/sell plus.'' The election provisions of each 
type of percentage order operate as follows:

    Straight Limit: When a trade takes place, an amount of shares 
equal to the size of that trade is ``elected'' as a limit order, and 
becomes a ``held'' order executable at a price within the overall 
limit on the order. Typically, the limit price is above the market 
when the order is entered (in the case of an order to buy), or below 
the market (in the case of an order to sell).
    Last Sale: When a trade takes place, an amount of shares equal 
to the size of that trade is ``elected'' as a limit order, and 
becomes a ``held'' order executable at the price of that trade, or 
at a better price, within the overall limit of the order. If the 
order is further designated ``last sale cumulative volume,'' an 
elected portion of such order can move with the market and become a 
held limit order executable at the price of subsequent transactions 
that are higher (in the case of a buy order) or lower (in the case 
of a sell order), within the overall limit price on the order. 
Typically, the limit price is above the market when the order is 
entered (in the case of a buy order) or below the market (in the 
case of a sell order).
    ``Buy Minus/Sell Plus'': When a trade takes place, an amount of 
shares equal to the size of the trade is elected, and becomes a 
``held'' order executable only on stabilizing ticks. An order of 
this type must be further qualified by placing an overall limit 
price on the order.

    The Exchange believes that the application of the election 
provisions do not meet the interests of some investors placing 
percentage orders, particularly straight limit and last sale percentage 
orders:

    Straight Limit: Investors entering percentage orders seek to 
trade along with the trend of the market, without initiating price 
changes or otherwise influencing the equilibrium of buying and 
selling interest. When a straight limit percentage order is elected, 
it will typically receive an execution in one of two ways:
    (1) There is sufficient additional liquidity at the price of the 
electing transaction for the elected portion to receive an immediate 
execution at the price of the electing transaction; or
    (2) If the order cannot receive an immediate execution at the 
price of the electing transaction, it is, as a held order whose 
limit is above the market (in the case of a buy order) or below the 
market (in the case of a sell order), required to be immediately 
executed (or stopped) against the contra side of the market.


[[Page 5830]]


    An execution pursuant to (2) above may initiate a price change, 
contrary to the ``go along'' expectations of the customer. In most 
instances percentage orders represent a desire to trade along with, 
rather than ahead of, the market.

    Last Sale: Investors entering last sale percentage orders also 
seek to trade along with the trend of the market. When a last sale 
percentage order is elected, it will typically receive an execution 
in one of three ways:
    (1) There is sufficient additional liquidity at the price of the 
electing transaction for the elected portion to receive an immediate 
execution at the price of the electing transaction; or
    (2) If the order cannot receive an immediate execution at the 
price of the electing transaction, it is sequenced with other limit 
orders at that price, and will receive an execution when there is 
sufficient contra side interest for trades to be effected at that 
price; or
    (3) In the case of a last sale cumulative volume percentage 
order, the order's executable price can move to the level of prices 
of subsequent trades, but the order will receive an execution only 
when there is sufficient contra side interest for trades to be 
effected at those subsequently established prices.

    Executions pursuant to (2) and (3) above may not always be able to 
be effected, as the market trend may continue to move away from the 
price at which the order may be executed. Elected portions of the last 
sale percentage order may lag behind movement of the market, which 
defeats the investor's purpose in entering the order.
    In response, the Exchange is proposing a new percentage order type 
called ``immediate execution or cancel election.'' The Exchange 
believes that consistent with the underlying philosophy of the 
percentage order rules, any proposed approach to accommodating 
investors should limit the specialist's discretion in representing such 
orders, while still allowing a degree of flexibility to meet the needs 
of those entering the orders. The Exchange notes that ``Immediate or 
Cancel'' is a recognized order type under Exchange Rule 13. By placing 
this designation on the percentage order, the investor would require 
the specialist to treat an election as cancelled unless the elected 
portion can be executed immediately (in whole or in part) at the price 
of the electing transaction. If the order cannot be so executed, the 
election would be cancelled, and the unexecuted elected portion would 
revert to the percentage order, subject to subsequent election (and 
execution/cancellation as above) or conversion. The NYSE believes that 
this approach sets forth objective criteria to guide the specialist's 
representation of the order, while ensuring that the elected portion 
does not lead the market by initiating any significant price change, 
thereby defeating the investor's objectives. The investor's 
instructions, not the specialist's discretion, would dictate how the 
order is handled. The Exchange notes that an investor seeking to have a 
percentage order executed under current rules would be free to continue 
to do so by simply designating the order as one of the three currently 
existing order types.
2. Statutory Basis
    The NYSE believes the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act \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. The Exchange believes that the 
proposed rule change will remove impediments to and perfect the 
mechanism of a free and open market to accommodate investors by 
requiring the specialist to treat an election as cancelled unless the 
elected portion can be executed immediately at the price of the 
electing transaction.
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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 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 of 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:
    A. By order approve such 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, including whether the proposed rule 
change is consistent with the Act. 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 this 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-97-38 and should be 
submitted by February 25, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2691 Filed 2-3-98; 8:45 am]
BILLING CODE 8010-01-M