[Federal Register Volume 64, Number 235 (Wednesday, December 8, 1999)]
[Notices]
[Pages 68710-68712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31781]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42184; File No. SR-NYSE-99-40]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the New York
Stock Exchange, Inc., Amending Exchange Rule 123B To Prohibit
Specialists From Charging Commissions on SuperDot Orders
November 30, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 4, 1999, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change. The Exchange
filed Amendment No. 1 on November 17, 1999 \3\ and Amendment No. 2 on
November 29, 1999.\4\ The proposed rule change, as amended, is
described in Items I and II below, which Items have been prepared by
the Exchange. The Commission is publishing this notice and order to
solicit comments on the proposed rule change from interested persons
and to grant accelerated approval to the proposed rule change for a 90-
day pilot to expire on February 26, 2000.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1 the Exchange increased the timeframe for
commission-free orders executed through the Exchange's SuperDOT
System from two minutes to five minutes. See letter from James E.
Buck, Senior Vice President and Secretary, Exchange, to Richard
Strasser, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated November 16, 1999.
\4\ In Amendment No. 2, the Exchange requested that the
Commission approve the proposal on a pilot basis for 90 days. See
letter from James E. Buck, Senior Vice President and Secretary,
Exchange, to Richard Strasser, Assistant Director, Division,
Commission, dated November 29, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes three amendments to Exchange Rule 123B. The
first relates to commission-free execution of orders received by
specialists through the SuperDOT System pursuant to Rule 123B(b)(1);
the second sets forth the Exchange's policy under Rule 123B(b)(3) with
respect to the timeframe in which specialists must issue an execution
report for stopped orders; and the third clarifies the treatment of
canceled and replaced orders. The text of the proposed rule change is
available at the Exchange 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 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 III below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 68711]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes the following three amendments to Rule 123B.
Commission-Free Execution. Under Exchange Rule 123B(b)(1),
specialists may not charge floor brokerage (i.e., a commission imposed
on exchange floor brokers) for executing market and marketable limit
orders \5\ received by means of the Exchange's automated order routing
system known as SuperDOT. The Exchange proposes to amend Rule 123B and
add .10 in the Supplementary Material to the Rule to extend the no
commission policy to all orders received by specialists via SuperDOT
that are executed within five minutes of receipt. This proposal would
extend the commission-free execution to include limit orders that are
not marketable at the time of receipt by the specialist but that are
executed within the five-minute timeframe. The Rule will be amended to
eliminate reference to ``market'' and ``marketable limit orders'' since
all orders received through SuperDOT will be eligible for commission-
free execution. The provision allowing the specialist to charge a
commission on orders to sell short is also being eliminated.
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\5\ A marketable limit order is defined as an order with a limit
price which is at or better than the prevailing quotation at the
time the order is received by the specialist. See Exchange Rule
123B(b)(1).
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Execution of Guaranteed Orders. Orders received by specialists via
SuperDOT must be executed in accordance with Exchange auction market
procedures. Specialists must expose system orders to the trading crowd,
and system orders are deemed to be ``held'' orders. A specialist may be
deemed to have ``missed the market'' if any such order is not executed
against prevailing contra side interest in the market at the time the
order is received.\6\
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\6\ If a specialist has ``missed the market'' and the order is
executed outside of the five-minute timeframe, the specialist will
not be allowed to charge floor brokerage. Telephone conversation
between Don Siemer, Director, Market Surveillance, Exchange, and
Marc McKayle, Attorney, Division, Commission, on October 20, 1999.
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Exchange specialists may ``stop'' and order in an attempt to better
the price that order would receive in the current market. Under
Exchange Rule 116, a stop by the specialist at a specific price
guarantees that the order will receive that price if the specialist is
unable to improve it.\7\
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\7\ For orders that are stopped within the five-minute timeframe
from receipt but executed outside of the five-minute timeframe from
receipt, specialists will not be allowed to charge floor brokerage.
As with all stopped orders, if the order is executed at a price less
favorable than the stopped price, the specialist will be liable for
the differences in the two prices. Id.
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Exchange Rule 123B(b)(3) provides that the Exchange's SuperDOT
system will issue a report of execution at the stop price if the
specialist has not done so ``within such time period as the Exchange
may specify from the time the stop was granted.'' The Exchange proposes
to amend Rule 123B to specify in .10 in the Supplementary Material to
the Rule that the time period after which a system-generated execution
report will be issued at the stop price will be two minutes. This
proposed provision should help to ensure the timely execution of orders
that are stopped.
Canceled and Replaced Orders. The Exchange proposes to add .20 in
the Supplementary Material to Rule 123B to clarify that if an order
with the specialist is canceled and replaced, the replacement order is
considered a new order for purposes of the Rule.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of Section 6(b)(5) \8\ in that it is
designed to remove impediments to and perfect the mechanism of a free
and open market and a national market system, and to protect investors
and the public interest.
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\8\ 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange reviewed the proposed rule change with members and
organizations representing various constituencies of the Exchange. No
written comments were solicited or received with respect to the
proposed rule change.
III. 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, NW., Washington, DC 20549-0609.
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. Copies of such filing will also be
available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-NYSE-99-40, and
should be submitted by December 29, 1999.
IV. Commission's Findings and Order Granting Accelerated Approval
of the Proposed Rule Change
The Commission finds that the proposed pilot is consistent with the
requirements of the Act.\9\ In particular, the Commission finds the
proposal is consistent with Section 6(b)(5) \10\ of the Act. Section
6(b)(5) requires, among other things, that the rules of the exchange be
designed to facilitate transactions in securities and to remove
impediments to and perfect the mechanisms of a free and open market and
a national market system, and to protect investors and the public.
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\9\ In addition, pursuant to Section 3(f) of the Act, the
Commission has considered the proposal's impact on efficiency,
competition and capital formation. 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposed rule change, by reducing
transaction costs associated with SuperDot orders, should facilitate
such transactions. Also, clearly identifying the time within which an
execution report must be issued for stopped orders should help to
ensure that timely execution of stopped orders takes place, thereby
providing for the efficient execution of orders received through the
SuperDOT system. Finally, because new orders are granted specific
execution rights, it is important to clearly identify what will be
considered a new order for purposes of rule 123B.
In light of the cost-saving benefits that will flow to market
participants entering SuperDot orders, the Commission finds good cause
for approving the proposed rule change prior to the thirtieth day after
the date of publication of notice thereof in the Federal Register.
It is therefore ordered, pursuant to 19(b)(2) of the Act,\11\ that
the proposed
[[Page 68712]]
rule change (SR-NYSE-99-40) is approved through February 26, 2000.\12\
\11\ 15 U.S.C. 78s(b)(2).
\12\ The approval of the pilot should not be interpreted as
suggesting that the Commission is predisposed to approving the
proposal permanently.
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(9)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-31781 Filed 12-7-99; 8:45 am]
BILLING CODE 8010-01-M