[Federal Register Volume 63, Number 71 (Tuesday, April 14, 1998)]
[Notices]
[Pages 18244-18245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9801]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39837; File No. SR-NYSE-97-38]


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

April 8, 1998.

I. Introduction

    On January 2, 1998, 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 amend its Rule 13 to create a new percentage 
order type to be called ``Immediate Execution or Cancel Election.''
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on February 4, 1998.\3\ No comments were received on the 
proposal. This order approves the proposed rule change.
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    \3\ See Securities Exchange Act Release No. 39583 (January 27, 
1998) 63 FR 5829.
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II. Description of the Proposal

    Currently, NYSE Rule 13 provides for three types of percentage 
orders: straight limit, last sale, and ``buy minus/sell plus.'' The 
Exchange believes that the election provisions of these existing types 
of percentage orders do not adequately meet the need of some investors 
placing percentage orders, particularly straight limit and last sale 
percentage orders. For example, investors rely on percentage orders as 
a way to trade along with the trend of the market without initiating 
price changes or otherwise influencing the equilibrium or buying and 
selling interest. However, certain executions of the existing types of 
percentage orders may initiate price changes, contrary to the ``go 
along'' expectations of the customer. In addition, executions of last 
sale percentage orders 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.
    In response, the Exchange proposes to amend Rule 13 to create a new 
percentage order type to be called ``Immediate Execution or Cancel 
Election.'' Under the terms of the proposal, the elected portion of a 
percentage order marked ``Immediate Execution or Cancel Election'' 
would be required to be executed immediately in whole or in part at the 
price of the electing transaction, or better.\4\ If the elected portion 
cannot be executed at that price or better, the election would be 
deemed canceled, and the unexecuted elected portion would revert back 
to a percentage order, subject to subsequent election or conversion.
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    \4\ The Commission notes that the rule language does not 
explicitly state that the elected portion of the percentage order 
must be executed at a better price than the electing price, if 
immediately available. According to the Exchange, it is clearly 
implied that the percentage order must be executed at a better price 
than the price of the electing transaction, if immediately 
available. Telephone conversation between Donald Siemer, Director of 
Market Surveillance, NYSE, and Michael Walinskas, Senior Special 
Counsel, Division, Commission, on April 7, 1998.
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    For example, where an ``Immediate Execution or Cancel Election'' 
buy percentage order for 1000 shares at 30\1/2\ is placed with the 
specialist and the next transaction is for 500 shares at 30\1/4\, the 
specialist would elect 500 shares and must immediately execute the 
order at the price of the electing transaction, 30\1/4\, or better. If 
there is liquidity sufficient to execute only 300 shares at the price 
of the electing transaction, 30\1/4\, or better, the specialist would 
execute 300 shares at that price and the election of the remaining 200 
shares would be canceled and the 200 shares would revert back to an 
unelected percentage order. If, instead, the market moves away from the 
price of the electing transaction to, for instance, 30\3/8\, the 
election would be canceled \5\ and the unexecuted elected portion would 
revert back to a percentage order.\6\
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    \5\ The specialist would not execute the order at 30\3/8\, even 
though such an execution is within the maximum limit of the 
percentage order (30\1/2\). In this regard, an Immediate Execution 
or Cancel Election percentage order is treated similar to a last 
sale percentage order.
    \6\ According to the NYSE, the Exchange's interpretation of the 
manner in which the proposed ``Immediate Execution or Cancel 
Election'' percentage order would operate corresponds with the 
examples developed by Commission staff and set forth above. 
Telephone conversation between Donald Siemer, Director of Market 
Surveillance, NYSE, and Michael Walinskas, Senior Special Counsel, 
Division, Commission, on April 7, 1998.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6 of the Act \7\ and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
The Commission believes that the proposed rule change is consistent 
with and furthers the objectives of Section 6(b)(5) of the Act \9\ in 
that it is 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.
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    \7\ 15 U.S.C. 78f.
    \8\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market by 
providing additional flexibility to investors entering percentage 
orders. Specifically, the proposed ``Immediate Execution or Cancel 
Election'' percentage order should allow investors to achieve their 
investment goals while continuing to limit the specialist's discretion 
in representing such orders. The Commission believes that requiring the 
specialist to treat an election as canceled, unless the elected portion 
can be executed immediately at the price of the electing transaction or 
better,\10\ should ensure that the investor will not be trading ahead 
of, nor lagging behind, the market when there is insufficient interest 
to execute the elected portion of

[[Page 18245]]

the order at the price of the electing transaction.
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    \10\ See note 4, supra.
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    The Commission also believes that the proposed approach sets forth 
adequate objective criteria to guide the specialist's representation of 
the order. Although the execution of certain percentage orders, 
particularly percentage orders that have been converted by a 
specialist, present issues relating to the proper amount of discretion 
allowed to the specialist executing such orders, ``Immediate Execution 
or Cancel Election'' percentage orders do not raise such concerns. 
Specifically, a specialist must execute an ``Immediate Execution or 
Cancel Election'' percentage order at the instructed election price 
immediately upon the occurrence of a trade at the electing price or 
better, or treat the transaction as canceled.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-97-38) is approved.

    \11\ 15 U.S.C. 78s(b)(2).
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    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. 98-9801 Filed 4-13-98; 8:45 am]
BILLING CODE 8010-01-M