[Federal Register Volume 66, Number 47 (Friday, March 9, 2001)]
[Notices]
[Pages 14239-14240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5799]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44033; File No. SR-NYSE-00-30]


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change and Amendment No. 1 Thereto by the New York Stock Exchange, 
Inc. Amending NYSE Rule 104

March 2, 2001.
    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 June 29, 2000, the New York Stock Exchange, Inc. (``NYSE'') or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. On February 21, 20001, the Exchange filed Amendment No. 1 
(``Amendment No. 1'') to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the amended 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\ In Amendment No. 1, the Exchange proposed to: (1) Revise the 
proposed rule text to clarify that the relief afforded from 
obtaining Floor Official approval for destabilizing transactions to 
bring a listed foreign security into parity with the price of a 
foreign ordinary security is available only where the Exchange is 
not the principal market for the security; (2) add language to the 
proposed rule text that affirmatively states that specialists must 
not effect consecutive direct tick destabilizing trades unless the 
transaction is effected to bring a foreign listed security into 
parity with the price of a foreign ordinary security and a Floor 
Official has approved the transaction; (3) clarify that it will 
consider the home country market as the principal market for a 
foreign security, unless a significant volume of the shares traded 
in that security take place otherwise than in that market; (4) 
require that specialists keep a record of the source of exchange 
rate information they utilize; and (5) issue a memorandum to all 
specialists and Floor Officials to explain the relief afforded by 
the proposed rule change and to provide specific reference to the 
interaction between specialists destabilizing parity transactions 
and certain Exchange rules, upon receiving Commission approval of 
the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change consists of an amendment to NYSE Rule 104 
to permit specialists to make certain destabilizing transactions for 
his or her own account without Floor Official approval to bring the 
price of a listed foreign security into parity with the price of the 
foreign ordinary security.
    The text of the proposed rule change is available at the NYSE and 
at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filling 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. 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
    The Exchange is proposing to amend NYSE Rule 104 to facilitate 
specialist market making in foreign securities traded on the Exchange. 
Currently, NYSE Rule 104 requires specialists to obtain Floor Official 
approval when purchasing on a direct plus tick or selling on a direct 
minus tick, or when purchasing on a zero plus tick more than 50% of the 
stock offered. These transactions are seen as destabilizing, and may be 
effected by the specialist only with Floor Official approval. The 
Exchange is proposing to amend NYSE Rule 104 to provide that, without 
first obtaining Floor Official approval, specialists may engage in 
these destabilizing transactions, under certain circumstances to be 
discussed below, to bring a listed foreign security into parity with 
the price of the foreign ordinary security.\4\
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    \4\ The proposed rule defines a listed foreign security as a 
security traded on the Exchange, which is a foreign ordinary 
security, or a depositary receipt that represents a foreign 
company's publicly traded security.
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    With respect to a listed foreign security, the price of the 
transaction to bring the security into parity (a) must be based on the 
last sale price in the home country market, if that market is open, or 
(b) if the home country market is not open, the parity price must be 
between the then current bid and offer in the London (UK) market, i.e., 
the London Stock Exchange, or (c) must be based at any time on changes 
in the home country-U.S. dollar exchange rate.\5\ The transactions 
described above to bring a listed foreign security into parity with the 
price of the foreign ordinary security in any other market would 
continue to require Floor Official approval.
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    \5\ Currency exchange rate information is displayed on the Floor 
of the Exchange utilizing information from Reuters. Specialists may 
also utilize other sources of vendor-supplied exchange rate 
information. Specialists must keep a record of the source of the 
exchange rate information they utilize. See Amendment No. 1, supra 
note 3.
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    NYSE Rule 104.10(7), as amended, also clarifies specialists' 
responsibilities with respect to consecutive direct tick destabilizing 
parity transactions in foreign securities.\6\ The Exchange proposes 
that a specialist must not effect consecutive direct tick destabilizing 
trades unless these transactions are effected to bring a listed foreign 
security into parity with the price of the foreign ordinary security 
and a Floor Official has approved the transaction. For example, a 
specialist may want to trade on consecutive direct tick destabilizing 
transactions for his or her own account to bring the security into 
parity when a stock is not actively traded on the Exchange, but is 
active in its home country. The NYSE believes that the specialist's 
transactions in this situation could benefit the market and public 
investors by maintaining parity if there is an absence of public 
orders. Such consecutive direct tick destabilizing transactions would 
require Floor Official approval. Floor Officials would look at all 
circumstances surrounding the request.
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    \6\ See Amendment No. 1, supra note 3.
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    The main change being effected by the proposal is that non-
consecutive destabilizing transactions as described above, which are 
effected to achieve parity, would not require Floor Official approval 
as currently mandated by NYSE Rule 104. The Exchange represents that 
this proposal is analogous to the provisions currently in NYSE Rule 104 
with respect to transactions effected to bring the price of an 
investment company unit into parity with the value of the index on 
which it is based or with the net asset

[[Page 14240]]

value of the securities comprising the unit.\7\
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    \7\ Securities Exchange Act Release No. 37016 (March 22, 1996), 
61 FR 14185 (March 29, 1996) (approving SR-NYSE-96-04).
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    Proposed NYSE Rule 104.10(7), as amended, also clarifies that the 
relief afforded from obtaining Floor Official approval for 
destabilizing transactions to bring a listed foreign security into 
parity with the price of the foreign ordinary security is available 
only where the Exchange is not the principal market for the foreign 
security. The Exchange will consider the home country market as the 
principal market for a foreign security, unless a significant volume of 
the shares traded in that security take place outside that market.\8\
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    \8\ See Amendment No. 1, supra note 3.
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    Finally, the Exchange will issue a memorandum to all specialists 
and Floor Officials explaining the relief afforded by the change to 
NYSE Rule 104 upon receiving approval of the proposed rule change.\9\ 
This memorandum will provide specific reference to the interaction 
between specialists destabilizing parity transactions and certain 
Exchange rules, including NYSE Rule 123A.30 on percentage orders, NYSE 
Rule 123A.40 on election of stop orders, NYSE Rule 127 on specialists 
trading as principal in parity adjustment situations, and NYSE Rule 
440B on the short sale rule.\10\ Specialists will also be informed that 
destabilizing parity trades must be reported on Form 81. Specialists 
will remain subject to all other requirements of NYSE Rule 104 with 
respect to their affirmative and negative obligations to maintain a 
fair and orderly market.
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    \9\ See Amendment No. 1, supra note 3.
    \10\ The Exchange will reference NYSE Rule 440B on the short 
sale in the memorandum that will be issued to specialists and Floor 
Officials. Telephone conversation between Donald Siemer, Director, 
Market Surveillance, NYSE, and Jennifer Colihan, Special Counsel, 
Division of Market Regulation, Commission, on February 15, 2001.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under section 6(b)(5) \11\ that an Exchange have rules that 
are 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. The proposed amendment is consistent 
with these objectives in that it fosters efficient market making in 
foreign securities traded on the Exchange.
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    \11\ 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 Comments 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. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of 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 it 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 Number SR-NYSE-00-30 and should be submitted by March 30, 
2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5799 Filed 3-8-01; 8:45 am]
BILLING CODE 8010-01-M