[Federal Register Volume 64, Number 116 (Thursday, June 17, 1999)]
[Notices]
[Pages 32595-32596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15355]



[[Page 32595]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41497; File No. SR-NYSE-98-42]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment No. 1 to the 
Proposal Amending MOC/LOC Order Entry and Cancellation Procedures 
During Regulatory Halts

June 9, 1999.

I. Introduction

    On November 25, 1998, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``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 market-on-close 
(``MOC'') and limit-on-close (``LOC'') order entry and cancellation 
procedures during regulatory halts. On March 19, 1999, the Exchange 
submitted Amendment No. 1 to the proposed rule change.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Donald Seimer, Director, Market Surveillance, 
NYSE, to Richard Strasser, Assistant Director, Division of Market 
Regulation (``Division''), SEC, dated March 15, 1999 (``Amendment 
No. 1''). In Amendment No. 1, the Exchange provided information 
regarding the Exchange's regulatory trading halt policy and 
clarified that the Exchange does not seek to amend its regulatory 
trading halt policy in the current proposed rule change.
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    The proposed rule change, including Amendment No. 1, was published 
for comment in the Federal Register on April 29, 1999.\4\ The 
Commission received no comments on the proposal. This order approves 
the proposal, as amended.
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    \4\ Securities Exchange Act Release No. 41315 (April 20, 1999), 
64 FR 23142.
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II. Description of the Proposal

    The Exchange utilizes special order entry and cancellation 
procedures for MOC/LOC orders.\5\ This proposed rule change amends the 
Exchange's MOC/LOC order entry and cancellation procedures during 
regulatory halts.\6\
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    \5\ A description of the Exchange's current procedures can be 
found in Securities Exchange Act Release No. 40094 (June 15, 1998), 
63 FR 38230 (July 15, 1998); and Exchange Information Memo No. 98-20 
(June 22, 1998).
    \6\ A regulatory condition may exist if news is pending about 
the stock or if time is needed for news dissemination about a stock. 
The exchange follows procedures contained in the section on Trading 
Halt and Suspension Procedures of the Consolidated Tape Association 
Plan. See Securities Exchange Act Release No. 10787 (May 10, 1974), 
39 FR 17799; and Securities Exchange Act Release No. 16983 (July 16, 
1980), 45 FR 49414 (July 24, 1980).
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1. Cancellation of MOC/LOC Orders During Regulatory Halts

    Current MOC/LOC procedures product Exchange members from canceling 
MOC and LOC orders after 3:40 p.m., except when a member entering an 
order has made a legitimate error or a member must cancel an order to 
comply with NYSE Rule 80A(c).\7\ Therefore, if a stock is subject to a 
regulatory halt at 3:40 p.m. or if a regulatory halt is instituted 
after that time, market participants are prohobited from canceling 
their MOC or LOC coders in such stock, regardless of whether the stock 
reopens at a price substantially different from the last sale.
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    \7\ Exchange Rule 80A(c) requires index arbitrage orders in any 
stock in the Standard & Poor's 500 Stock Price Index entered on the 
Exchange to be stabilizing (i.e., the order must be marked either 
buy minus or sell plus) when the Dow Jones Industrial Average 
advances or declines by the 2% point level determined by the 
Exchange each quarter. Securities Exchange Act Release No. 41041 
(February 11, 1999), 64 FR 8424 (February 19, 1999). When Rule 
80A(c) goes into effect, a MOC index arbitrage order without the 
appropriate tick restriction must be canceled unless it is related 
to an expiring derivative index product.
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    The proposed rule change amends this policy by allowing market 
participants to cancel MOC or LOC orders if a regulatory halt \8\ is in 
effect at 3:40 p.m. or later. Exchange members will be permitted to 
cancel MOC or LOC orders until 3:50 p.m. or the reopening of the stock, 
whichever occurs first.
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    \8\ The proposed rule change does not amend existing MOC/LOC 
procedures with respect to non-regulatory halts.
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2. Entry of MOC/LOC Orders During Regulatory Halts

    Currently, Exchange procedures only allow members to enter MOC and 
LOC orders after 3:40 p.m. to offset a published imbalance. If any type 
of trading halt is in effect at 3:40 p.m., however, MOC/LOC imbalances 
are not published.\9\ Accordingly, no MOC or LOC orders could be 
entered after 3:40 p.m. during a trading halt. In addition, if a 
regulatory halt occurs after an imbalance has been published at 3:40 
p.m., market conditions may differ substantially from those that 
existed at the time the imbalance was published.
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    \9\ Specialists are required to publish tape indications to 
reopen a stock after a trading halt. Current Exchange policy 
concerning tape indications requires a minimum of ten minutes to 
elapse between the first indication and the reopening of a stock, 
and a minimum of five minutes to elapse between the last indication 
and the reopening of a stock, provided that a minimum of ten minutes 
has elapsed since the first indication. See Securities Exchange Act 
Release No. 38225 (January 31, 1997), 62 FR 5875 (February 7, 1997); 
and Exchange Information Memo No. 97-23 (May 8, 1997).
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    The proposed rule change amends the Exchange's MOC/LOC order entry 
procedures when a regulatory halt is in effect at 3:40 p.m. or later. 
If a regulatory halt is in effect at 3:40 p.m. or later, market 
participants would be permitted to enter MOC and LOC orders on either 
side of the market until 3:50 p.m. or until the stock reopens, 
whichever occurs first. If an order imbalance is published following a 
regulatory halt, however, MOC and LOC orders may only be entered to 
offset any imbalance.

3. Order Imbalance Publication After any Trading Halt

    Current Exchange policy requires that if a stock reopens at or 
before 3:50 p.m. following any type of trading halt, the specialist 
will publish imbalances of 50,000 shares or more (or less than 50,000 
shares with the approval of a Floor Official) as soon as practicable 
after 3:50 p.m. The proposed rule change amends this policy to provide 
that a specialist must publish imbalances of 50,000 shares or more (or 
less than 50,000 with Floor Official approval) for stocks opening after 
3:50 p.m., if practicable.\10\ If a halt occurs after 3:50 p.m., the 
stock will not reopen on that day and MOC and LOC orders will not be 
executed.
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    \10\ The decision of whether an imbalance shall be published for 
a stock opening after 3:50 p.m. will be made by an Exchange Floor 
Director or other Exchange Floor Official. Telephone call between 
Betsy Lampert Minkin, Senior Project Specialist, NYSE, and Kelly 
McCormick, Attorney, Division, SEC, on January 13, 1999.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act \12\ which requires, among other thigns, that the rules of an 
exchange be 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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    \11\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The proposed changes to the Exchange's MOC/LOC order cancellation 
procedures should allow market participants to make informed trading 
decisions in response to information disseminated during regulatory 
halts. Current Exchange

[[Page 32596]]

policy prohibits market participants from canceling MOC or LOC orders 
after 3:40 p.m. unless a legitimate error was made or the member had to 
comply with Rule 80A(c). This policy, by precluding market participants 
from canceling MOC/LOC orders based on information generated during a 
regulatory halt even if the stock reopened at a price substantially 
different from the last sale could unnecessarily expose market 
participants' positions to market risk.
    The proposed rule change will allow market participants with 
pending MOC or LOC orders to react to news generated during a 
regulatory halt put into effect at 3:40 p.m. or later by enabling them 
to cancel such orders. A member's ability to cancel a MOC/LOC order 
after a regulatory halt put into effect at 3:40 p.m. or later is 
limited, however, to only allow cancellations to be made by 3:50 p.m. 
or when the stock reopens, whichever is first.
    The proposed rule change also amends the Exchange's policy 
concerning MOC/LOC order entry after 3:40 p.m. Currently, market 
participants are only permitted to enter MOC or LOC orders after 3:40 
p.m. to offset a published imbalance. If any type of trading halt is in 
effect at 3:40 p.m., no MOC or LOC orders could be entered because 
imbalances are not published. Moreover, market participants are 
prohibited from entering orders if a regulatory halt occurs after 3:40 
p.m. even if an imbalance has been published. Again, these provisions 
could unnecessarily expose market participants to market risk.
    The proposal would allow market participants to enter MOC or LOC 
orders after 3:40 p.m. if a regulatory halt has been put into effect at 
3:40 p.m. or later. Market participants may enter orders on either side 
of the market until 3:50 p.m. or until the stock reopens, whichever 
occurs first. If an imbalance is published following a regulatory halt, 
however, market participants will only be permitted to enter MOC or LOC 
orders to offset the published imbalance. The imbalance publication 
procedure also has been amended to provide that if a stock reopens 
after 3:50 p.m., the specialist must publish an imbalance of 50,000 
shares or more (or less than 50,000 shares with approval of a Floor 
Official), if practicable. This provision recognizes that from a 
practical standpoint it may not always be feasible for specialist to 
publish an imbalance late in the trading day after a trading halt. The 
proposal will provide specialists with the flexibility to consult with 
Exchange officials to determine whether such a post trading halt 
imbalance must be published.
    The proposed changes to MOC/LOC order entry and cancellation 
procedures should promote just and equitable principles of trade 
because they enable market participants to respond to news disseminated 
during regulatory halts. The proposed policy should enable market 
participants to make informed order entry and cancellation decisions 
based on current, disseminated information. The proposed rule changes, 
however, limit the ability of market participants to enter or cancel 
MOC or LOC orders to specific times. The Commission believes that these 
limitations should provide specialists with adequate time to expedite 
the orderly closing of their stocks.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NYSE-98-42), as amended, is 
approved.

    \13\ 15 U.S.C. 78s(b)(2).
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    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-15355 Filed 6-16-99; 8:45 am]
BILLING CODE 8010-01-M