[Federal Register Volume 64, Number 4 (Thursday, January 7, 1999)]
[Notices]
[Pages 1055-1057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-311]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40837; File No. SR-NYSE-98-29]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 Thereto by the New York Stock Exchange, Inc. to Adopt Exchange Rule
437 (``Participation in Year 2000 Testing'')
December 28, 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 September 17, 1998, as amended on December 23, 1998,\3\ the New York
Stock Exchange, Inc. (``NYSE'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons
and to approve the proposal and Amendment No. 1 thereto on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Richard Strasser, Assistant Director, Division
of Market Regulation, Commission, dated December 21, 1998. The
original filing was not noticed in the Federal Register.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposal consists of the adoption of new Rule 437
(``Participation In Year 2000 Testing'').
The text of the proposed rule change is below. Proposed new
language is italicized.
* * * * *
Rule 437
Participation in Year 2000 Testing
Rule 437. Each member not associated with a member organization,
and each member organization shall participate in industry testing of
computer systems designed to prepare for Year 2000, in a manner and
frequency as prescribed by the Exchange.
Supplementary Material * * *
10 Members and member organizations that do not have or use
computer systems in the conduct of their business, other than those
supplied by the Exchange, are not subject to the requirements of this
Rule.
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 Exchange 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 and is set forth in Sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rule 437 is intended to provide the Exchange with the ability to
require certain members and member organizations to participate in
industry testing of computer systems in preparation for the Year 2000
in such manner and frequency as prescribed by the Exchange.
Significant industry attention is being directed to proper systems
preparation in order to avoid potential computer problems that may
arise relating to the Year 2000. The primary concern is that computer
systems may incorrectly read the date ``01/01/00'' as being the Year
1900 or another incorrect date.
The securities industry has cooperatively been addressing the
potential ``Year 2000 Problem'' in stages which have included
assessment of the problem, implementation of remedial measures, and
internal testing. The next stage involves industry-wide testing of
computer systems. Test participants are scheduled to include, among
others, exchanges, registered clearing corporations and depositories,
data processors, and broker-dealers.
Testing by and among a broad range of securities industry
participants will be of critical importance to ensure that
[[Page 1056]]
the markets continue to operate efficiently after January 1, 2000. To
facilitate testing on an integrated, industry-wide basis, the
Securities Industry Association (``SIA'') has undertaken to coordinate
these efforts. The first test is scheduled for March 6, 1999.
The testing encompassed by proposed Rule 437 may include the
integrated industry-wide testing coordinated by SIA and such other
testing as the Exchange deems necessary and appropriate. Excluded from
the requirements of the rule are members and member organizations that
do not use computers in the conduct of their business, other than those
provided by the Exchange for order entry and similar purposes such as
the Designated Order Turnaround (DOT) and other similar systems.
Background. The Exchange has been conducting an ``awareness''
program since mid-1997. NYSE Information Memorandum 97-30, dated May
22, 1997, required completion of a survey by all members and member
organizations to help the Exchange assess the membership's approach and
progress in addressing the Year 2000 (``Y2K'') problem.
Subsequently, the Exchange implemented a program of quarterly
contacts of members and member organizations by our surveillance
coordinators to monitor each organization's progress in meeting its
milestones for achieving Y2K readiness. In addition, the Exchange's
financial/operations examination scope requires examiners to discuss
with key personnel and document as part of the examination each firm's
milestones.
NYSE Testing. The Exchange will require all members and member
organizations with a direct line to the NYSE, i.e., through the Online
Comparison System (``OCS'') and the Common Message Switch (``CMS'') to
conduct point-to-point tests \4\ and extended point-to-point tests \5\
with the NYSE. The types of member organizations with such direct lines
include clearing firms, i.e., those that self-clear and those that
clear for correspondent firms. Also, Specialist, whether self-clearing
or not, must participate in point-to-point testing with the Exchange.
The term ``Specialist'' for testing purposes means an organization, not
a natural person. Introducing organizations having no direct lines to
the Exchange will not be required to test with the Exchange. Rather, it
is expected that clearing organizations will test with their respective
introducing organizations. The Exchange will monitor this effort and
the Exchange may require additional testing if necessary.
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\4\ A point-to-point test verifies that a firm has the ability
to receive data form the Exchange, process that data and send the
data output to the Exchange.
\5\ An extended point-to-point test allows a firm to execute
multiple point-to-point tests in one day.
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SIA Testing. The NYSE expects that its member clearing firms will
participate in the SIA-coordinated testing, scheduled for March 6,
1999. While the Exchange anticipates that all clearing firms will
participate, the SIA may determine that a particular firm is ``not
ready'' or there may not be sufficient capacity for all clearing firms
to participate. Should this happen, the Exchange will track alternative
testing engaged in by such member organization.
Currently, the Exchange has one hundred forty-four (144) clearing/
carrying member organizations and one hundred forty-six (146)
introducing organizations that deal with the public, as well as thirty-
two (32) specialist organizations. There are also ten (10) registered
competitive market makers (``RCMMs'') and one hundred ninety-five (195)
independent brokers (``$2 brokers'') who use NYSE systems which will be
tested by the Exchange. RCMMs and $2 brokers will not be required to
test with the NYSE as they do not have their own electronic links to
the Exchange.
Exemptive Authority. The Exchange does not believe it necessary to
amend the proposed rule to provide the Exchange with authority to
exempt certain types of members or member organizations from testing.
This authority currently exists within the proposed rule which provides
the Exchange with the flexibility to prescribe the manner and frequency
of testing for members and member organizations.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \6\ that an Exchange have rules that
are designated to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
to 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 proposed rule change is designed to authorize the
Exchange to require its members and member organizations to participate
in industry-wide testing of computer systems in preparation for the
Year 2000 in a manner and frequency prescribed by the Exchange.
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\6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
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 the Proposed Rule Change
Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
After careful consideration, the Commission has concluded, for the
reasons set forth below, that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder. Mandating Year 2000 testing and reporting is consistent
with Section 6(b)(5) of the Act, which, among other aspects, requires
that the rules of an exchange promote just and equitable principles of
trade, foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing informaiton with respect to,
and facilitating transactions in securities, and remove impediments to
and perfect the mechanism of a free and open market and a national
market system. The Commission believes that the proposed rule change
will facilitate the NYSE's and member firms' efforts to ensure the
securities markets' continued smooth operation during the period
leading up to and beyond January 1, 2000.
The Exchange has requested that the Commission approve the proposed
rule change prior to the 30th day after the date of publication of
notice of the filing in the Federal Register to ensure that members and
member firms participate in all required systems testing on a timely
basis, in anticipation of industry-wide testing that begins on March 6,
1999. The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publication of notice of
the filing in the Federal Register. It is vital that SROs such as the
NYSE have the authority to mandate that their member firms participate
in Year 2000 testing and that
[[Page 1057]]
they report test results (and other Year 2000 information) to the SROs.
The proposed rule change will help the NYSE participate in coordinating
Year 2000 testing, including industry-wide testing, and in remediating
any potential Year 2000 problems. This, in turn, will help ensure that
the industry-wide tests and the NYSE's Year 2000 efforts are
successful. The proposed rule change will also help the NYSE work with
its member firms, the SIA, and other SROs to minimize any possible
disruptions the Year 2000 may cause.
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 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 in the
Commission's Public Reference Room in 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 above-
mentioned self-regulatory organization. All submissions should refer to
the file number in the caption above and should be submitted by January
28, 1999.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act
\7\ that the proposed rule change (SR-NYSE-98-29) and Amendment No. 1
thereto is hereby on an accelerated basis.\8\
\7\ 15 U.S.C. 78s(b)(2).
\8\ In approving the proposal, the Commission has considered the
rule's impact on efficiency, competition and capital formation. 15
U.S.C. 78c(f).
For the Commission, by the Division of Market Regulation,
pursuant to the delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-311 Filed 1-6-99; 8:45 am]
BILLING CODE 8010-01-M