[Federal Register Volume 63, Number 233 (Friday, December 4, 1998)]
[Notices]
[Pages 67160-67161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32323]


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SECURITIES AND EXCHANGE COMMISSION

[(Release No. 34-40711; File No. SR-NYSE-98-34)]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. To Amend Rule 104.10 By 
Deleting the Odd-Lot Exception

November 25, 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 October 16, 1998, the New York Stock Exchange, Inc. (``NYSE'') filed 
with the Securities and Exchange Commission (``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 Exchange is proposing to amend NYSE Rule 104.10(6)(i) by 
eliminating paragraph (C), which provides an exception to the Floor 
Official approval requirement for specialist purchases and sales on 
destabilizing ticks to offset positions acquired by the specialist in 
executing odd-lot orders on the same day.

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
    NYSE Rule 104 governs specialists' dealings in their specialty 
stocks. In particular, NYSE Rule 104.10(6) describes the manner in 
which a specialist may liquidate or increase his

[[Page 67161]]

or her position in a specialty stock. In general, the rule requires 
such transactions to be effected ``in a reasonable and orderly manner'' 
in relation to the overall market. The rule also requires the market in 
the particular stock and the adequacy of the specialist's position to 
meet the reasonably anticipated needs of the market. NYSE Rule 
104.10(6)(i)(A) provides that a specialist may liquidate a position by 
selling stock on a direct minus tick or by purchasing stock on a direct 
plus tick (destabilizing ticks), only if the transaction is reasonably 
necessary in relation to the specialist's overall position in the stock 
and if Floor Official approval is obtained. Floor Official approval 
provides an independent review of these destabilizing transactions for 
compatibility with the reasonableness test.
    NYSE Rule 104.10(6)(i)(C) provides an exception to the Floor 
Official approval requirement for specialist purchases and sales on 
destabilizing ticks to offset position acquired by the specialist in 
executing odd-lot orders on the same day. Odd-lot orders are executed 
throughout the day in the odd-lot system against the specialist in that 
stock. Periodically, the specialist receives an automated notification 
of the net amount of odd lots that have been executed against his or 
her position. The specialist can then offset these odd-lot transactions 
by buying or selling for his or her own account.
    The basis for the exception was that these odd-lot offsets would 
not have an impact on the market as a whole. However, there has been a 
marked increase in the volume of odd-lot transactions in the last 
several years \3\ and, as a result, an increase in specialist offset 
transactions. The Exchange believes that odd-lot offsets should be 
treated as other liquidating transactions and be netted with round lot 
transactions. All destabilizing transactions would require Floor 
Official approval pursuant to Exchange Rules.\4\ Therefore, the 
Exchange is proposing to delete the exception for odd-lots in paragraph 
(C).
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    \3\ Odd-lot volume exceeded 1 billion shares on the NYSE in 
1997, an 87% increase from 1994. Telephone conversation between 
Agnes Gautier, Vice President, Market Surveillance, NYSE, and Robert 
B. Long, Attorney, Division of Market Regulation, Commission, on 
October 23, 1998.
    \4\ See Letter from Agnes Gautier, Vice President, Market 
Surveillance, NYSE, to Richard Strasser, Assistant Director, 
Division of Market Regulation, Commission, dated November 20, 1998.
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2. Statutory Basis
    The NYSE believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \5\ in that the proposed rule change 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, in general, to protect investors and the public interest.
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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 NYSE does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written 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 the 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 proposal is 
consistent with the Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW, Washington, DC 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. 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 No. SR-NYSE-98-34 and should be 
submitted by December 28, 1998.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32323 Filed 12-3-98; 8:45 am]
BILLING CODE 8010-01-M