[Federal Register Volume 65, Number 175 (Friday, September 8, 2000)]
[Notices]
[Pages 54589-54591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23026]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43230; File No. SR-NYSE-00-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the New York Stock Exchange, 
Inc. Relating to Decimal Pricing

August 30, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
May 3, 2000, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the NYSE. 
The Exchange amended the proposal on August 7, 2000.\3\ The NYSE filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act,\4\ and Rule 
19b-4(f)(6) thereunder,\5\ which renders the proposal effective upon 
filing with the Commission.\6\ 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.
    \3\ See Letter from Daniel P. Odell, Assistant Secretary, NYSE, 
to Alton Harvey, Chief, Office of Market Watch, Division of Market 
Regulation (``Division''), Commission, dated August 7, 2000 
(``Amendment No. 1''). Amendment No. 1 replaced and superseded the 
original filing in its entirety.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ The Commission agreed to waive the 5-day pre-filing notice 
requirement because the proposal implements decimal pricing pursuant 
to the ``Decimals Implementation Plan for the Equities and Options 
Markets'' (``Plan'') submitted to the Commission on July 24, 2000.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend various NYSE rules, as listed below, 
to implement decimal pricing, as provided for in the Plan. The Exchange 
also proposes to amend NYSE Rule 15 to make it conform to a proposed 
amendment to the Intermarket Trading System (``ITS'') Plan. The NYSE 
has designated this proposal as non-controversial, and requests that 
the Commission waive the 30-day pre-operative waiting period contained 
in Rule 19b-4(f)(6)(iii) under the Act.\7\ The text of the proposal is 
available at the NYSE and at the Commission.
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    \7\ 17 CFR 240.19b-4(f)(6)(iii).
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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 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
    On June 8, 2000, the Commission ordered the national securities 
exchanges and the National Association of Securities Dealers, Inc. 
(``NASD'') to submit a phase-in plan to the Commission by July 24, 2000 
providing for decimal pricing in exchange listed securities and options 
by September 5, 2000, and for phase-in of decimal pricing for at least 
some Nasdaq securities by March 12, 2001.\8\ The June 8th Order also 
requires the exchanges and the NASD to file by August 7, 2000 rule 
changes necessary to implement the Plan.
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    \8\ Securities Exchange Act Release No. 42914 (June 8, 2000), 65 
FR 38010 (June 19, 2000) (``June 8th Order'').
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    Phase I will begin on August 28, 2000. The Exchange will begin 
quoting on that date seven listed securities in decimals on a pilot 
basis. The seven listed securities and their trading symbols are: 
Anadarko Petroleum Corp. (APC); Forest City Enterprises Inc. Class A 
(FCE A); Forest City Enterprises Inc. Class B (FCE B); FedEx Corp. 
(FDX); Gateway Inc. (GTW); Hughes Supply Inc. (HUG); and MSC Software 
Corp. (MNS).
    Quoting in all other listed securities will continue in fractions 
of \1/16\ of a dollar. After approximately one month, the pilot will be 
expanded to include approximately 50 stocks. Additional expansion of 
the program will take place after extensive evaluation by the Exchange 
and other securities industry participants. It is anticipated that 
decimal pricing will be extended to all listed securities in the first 
quarter of 2001.
    The Exchange proposes to amend various NYSE rules, changing 
references from fractions to decimals within the rules to accommodate 
the implementation of decimal pricing in accordance with the Plan. 
Specifically, the Exchange proposes to amend NYSE

[[Page 54590]]

Rules 15, 62, 64, 72(b), 79A.30, 105, 123A.30, 123A.40, 192, and 
440B.15. The Exchange represents that if an Exchange rule uses a 
fraction of \1/4\, the Exchange proposes to amend the reference to $.25 
for those stocks quoting in decimal variations. Where the reference is 
a fraction that does not convert to a two-place decimal, e.g., \1/8\, 
the Exchange proposes in most cases to amend the reference to round 
down the reference to the nearest multiple of $.05 for ease of 
reference. Thus \1/8\ (0.125) would become $.10; \3/8\ (0.375) would 
become $.35 for those stocks quoting in decimal variations. However, 
references in NYSE Rule 440B.15 to \1/32\ and \2/32\ would be rounded 
to $.05 and $.10, respectively, for ease of reference.
    Most of the fractional references in the rules of the Exchange are 
for illustrative purposes only. However, the Exchange has reviewed the 
impact that the proposed changes will have on the operation of those 
rules where the reference is not merely used as an example, and has 
concluded that the change in the rule to a decimal amount, as outlined 
above, is justified. For example, NYSE Rule 64 requires that Floor 
Officials approve non-regular way trades \9\ in circumstances where the 
execution price will be more than \2/16\ away from the regular way bid 
or offer. The Exchange proposes to amend the requirement for Floor 
Official approval to $.10 for those stocks priced in decimal 
variations. The Exchange believes this will provide ample regulatory 
oversight for these orders at this level.
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    \9\ A ``non-regular way'' trade is a trade that is settled in a 
different time frame from ``regular-way'' trades, which settle on 
the third business day following the transaction.
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    The proposal will apply only to transactions in those stocks that 
are designated by the Exchange as eligible for decimal pricing, as 
stated above. The NYSE rules that are expressed in fractions will 
continue to apply to transactions in stocks that are currently not 
eligible for decimal pricing. In addition, the MPV for stocks not 
designated for decimal pricing will remain at \1/16\.
    The Exchange will announce the proposed amendments in an 
Information Memo that will be sent to all NYSE members and member 
organizations, and will publish the same on the Exchange's website.
    The Exchange's proposed rule changes are as follows:

Rule 62 (Minimum Price Variation)

    Exchange Rule 62 provides that bids and offers in securities traded 
on the Exchange will be at an MPV set by the Exchange. Notwithstanding 
the latter provision, the Exchange proposes to amend NYSE Rule 62 to 
set the MPV for decimal pricing at one cent ($.01) with respect to 
stocks trading on the Exchange in decimal price variations. The MPV for 
stocks not designated for decimal trading will remain at one-sixteenth 
(1/16).

Rule 15 (ITS and Pre-Opening Applications)

    The Exchange proposes to amend NYSE Rule 15 to conform it to a 
proposed amendment to the ITS Plan.

Rule 64 (Bonds, Rights and 100 Share-Unit Stocks)

    The Exchange also proposes to amend NYSE Rule 64 to reflect how 
Floor Official approval will be obtained for non-regular way trades for 
stocks trading in decimals. The 2/16 parameter would be changed to $.10 
for stocks quoting in decimals in situations where Floor Official 
approval must be obtained on a non-regular way trade. For trades during 
the last calendar week of the year, the approval level would be $.25 
for stocks quoting in decimals, as it is currently \1/4\ for stocks 
quoting in fractions.

Rule 72(b) (Clean Agency Cross)

    Two examples have been added to NYSE Rule 72, to demonstrate how 
members would effect cross transactions pursuant to NYSE Rule 72(b) 
with respect to those securities quoting in decimals.
    Examples 1 and 1a demonstrate the operation of NYSE Rule 72(b) in 
MPV markets. Examples 2 and 2a demonstrate the operation to Rule 72(b) 
in markets where the spread in the quotation is greater than the MPV.

Rule 79A.30 (Miscellaneous Requirements on Stock and Bond Market 
Procedures)

    The Exchange proposes to amend NYSE Rule 79A.30 to illustrate how 
Floor Official approval should be obtained for those stocks quoting in 
decimal variations.

Rule 105 (Guidelines For Specialists' Speciality Stock Opinion 
Transactions Pursuant to Rule 105)

    The Exchange proposes to amend NYSE Rule 105 to indicate how the 
rule would operate with respect to stocks quoting in decimal 
variations.

Rule 123A.30 (Percentage Orders)

    The Exchange proposes an amendment to NYSE Rule 123A.30 to 
illustrate the conversion of percentage orders for stocks quoting in 
decimal variations. Percentage orders may be converted on a 
destabilizing tick if the order meets certain requirements of size 
(10,000 shares or more or $500,000 in market value) and the execution 
price of the converted percentage order is no more that \1/4\ point 
away from the last sale. The \1/4\ parameter would be converted to $.25 
for those stocks quoting in decimal variations. Percentage orders may 
also be converted on a destabilizing tick to narrow a quotation spread 
as long as the bid is no more than \1/8\ higher than the last sale. The 
\1/8\ parameter would be changed to $.10 for those stocks quoting in 
decimal variations.

Rule 123A.40 (``Stop Orders'')

    The Exchange proposes amending NYSE Rule 123A.40 to indicate where 
Floor Official approval must be obtained pursuant to the rule for 
stocks quoting in decimals. For example, the \2/16\ parameter would be 
changed to $.10 (for stocks quoting in decimals) in situations where 
Floor Official approval must be obtained when a specialist's 
transaction for his or her own account elects stop orders.

Rule 192 (Part-Paid Securities)

    The Exchange proposes amending NYSE Rule 192 to reflect the method 
of computation pursuant to the Rule, for those stocks quoting in 
decimal variations.

Rule 440B.15 (Short Sale Rule Interpretations)

    The Exchange proposes to amend NYSE Rule 440B.15 to reflect the 
application of the Rule with respect to those stocks quoting in 
decimals. The examples in the last paragraph at which short sales in 
bonds may be made would be changed from \1/32\ and \2/32\ to $.05 and 
$.10 respectively, for those stocks quoting in decimal variations.
2. Statutory Basis
    The NYSE believes that the proposed rule change is consistent with 
Section 6(b) of the Act \10\ in general and furthers the objectives of 
Section 6(b)(5) \11\ in particular, 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, in general, to 
protect investors and the public interest by providing for certain 
securities to be quoted in decimals beginning on August 28, 2000.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).

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[[Page 54591]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change does not; (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from August 7, 2000, the date on which it 
was amended, it has become effective pursuant to section 19(b)(3)(A) of 
the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ At any time within 60 
days of the filing of the proposed rule change, as amended, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in the 
furtherance of the purposes of the Act.\14\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ The Commission considers the abrogation period to begin on 
the date the last substantive amendment is filed with the 
Commission. In this case, the NYSE filed Amendment No. 1 on August 
7, 2000.
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    The NYSE has requested that the Commission accelerate the operative 
date. The Commission believes that it is consistent with the protection 
of investors and the public interest and therefore finds good cause to 
designate the proposal, as amended to become immediately operative upon 
filing. Acceleration of the operative date will permit the Exchange to 
begin decimal quoting for various securities described above starting 
on August 28, 2000.\15\
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    \15\ The Plan provides for MPV's for equities and options of no 
less than one cent. The June 8th Order requires the Participants to 
submit joint or individual studies two months after Full 
Implementation (as defined in the Plan) regarding the impact of 
decimal pricing on systems capacity, liquidity, and trading 
behavior, including an analysis of whether there should be a uniform 
minimum quoting increment. If a Participant wishes to move to 
quoting in an increment of less than one cent, the Participant 
should include in its study a full analysis of the potential impact 
of such trading on the Participant's market and the markets as a 
whole. Within thirty days after submitting the study, and absent 
Commission action, the Participants individually must submit for 
notice, comment, and Commission action, proposed rule changes under 
Section 19(b) of the Act to establish their individual chose of 
minimum increments by which equities or options are quoted on their 
respective markets.
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    The Commission also believes that the proposed amendments are non-
controversial as they provide housekeeping changes with respect to 
rules that express price values in fractions being changed to decimals. 
The NYSE has also requested that the Commission waive the 5-day pre-
filing requirement. The Commission also finds good cause to waive the 
5-day pre-filing requirement since the proposed rule amendments are in 
accordance with the Plan. For these reasons, the Commission designates 
that the proposal, as amended, become operative immediately upon filing 
with the Commission. \16\
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    \16\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    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-
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 pubic 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 
NYSE. All submissions should refer to File No. SR-NYSE-00-22 and should 
be submitted by September 29, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23026 Filed 9-7-00; 8:45 am]
BILLING CODE 8010-01-M