[Federal Register Volume 66, Number 215 (Tuesday, November 6, 2001)]
[Notices]
[Pages 56143-56144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27790]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45004; File No. SR-NYSE-2001-18]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Amending NYSE Rule 72

    October 31, 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 July 3, 2001, 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, II, 
and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 NYSE Rule 72(b) to (i) permit clean 
crosses of 100,000 shares or more when a member organization is 
facilitating a customer order; and (ii) provide that a specialist may 
not effect a proprietary transaction to break up a cross being effected 
under the Rule. The text of the proposed rule change is below. Proposed 
new language is in italics.

Priority and Precedence of Bids and Offers

    Rule 72I. Bids.--Where bids are made at the same price, the 
priority and precedence shall be determined as follows:

Priority of First Bid

    (a) Except as provided in paragraph (b) below, when a bid is 
clearly established as the first made at a particular price, the maker 
shall be entitled to priority and shall have precedence on the next 
sale at that price, up to the number of shares of stock or principal 
amount of bonds specified in the bid, irrespective of the number of 
shares of stock or principal amount of bonds specified in such bid.

Priority of Agency Cross Transactions

    (b) When a member has an order to buy and an order to sell an 
equivalent amount of the same security, and both orders are of 25,000 
shares or more and are for the accounts of persons who are not members 
or member organizations, or both orders are of 100,000 shares or more, 
and one side of the proposed transaction is, in whole or any part 
thereof, for the account of a member or member organization that is 
facilitating a customer, the member may ``cross'' those orders at a 
price at or within the prevailing quotation. The member's bid or offer 
shall be entitled to priority at such cross price, irrespective of pre-
existing bids or offers at that price. The member shall follow the 
crossing procedures of Rule 76, and another member may trade with 
either the bid or offer side of the cross transaction only to provide a 
price which is better than the cross price as to all or part of such 
bid or offer. A member who is providing a better price to one side of 
the cross transaction must trade with all other market interest having 
priority at that price before trading with any part of the cross 
transaction. No member may break up the proposed cross transaction, in 
whole or in part, at the cross price. No specialist may effect a 
proprietary transaction to provide price improvement to one side or the 
other of a cross transaction effected pursuant to this paragraph. A 
transaction effected at the cross price is reliance on this paragraph 
shall be printed as ``stopped stock''.
    When a member effects a transaction under the provisions of this 
paragraph, the member shall, as soon as practicable after the trade is 
completed, complete such documentation of the trade as the Exchange may 
from time to time require.

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. The Exchange 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
    A member who has an order to buy and an order to sell an equivalent 
amount of the same security generally executes the orders against each 
other in what is commonly referred to as a ``cross'' transaction. In 
executing the cross, the member must make a public bid and offer on 
behalf of both sides of the cross in accordance with the provisions of 
Exchange Rule 76. A member who tries to execute a cross transaction in 
this manner may run the risk that other members may ``break up'' the 
proposed cross by trading with either the bid or offer side of the 
transaction as permitted under auction market procedures as codified in 
Exchange Rule 72.
    In 1992, the Commission approved an amendment to Exchange Rule 72 
to permit a member to execute certain types of cross transactions that 
are not

[[Page 56144]]

subject to ``break up'' at the cross price.\3\ Rule (b) currently 
provides priority to agency crosses of 25,000 shares or more, at or 
within the prevailing quotation, where neither side of the cross is an 
order for the account of a member or member organization. Such crosses 
may, however, be broken up at a price that is better than the proposal 
cross price for one side or the other.
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    \3\ See Securities Exchange Act Release No. 31343 (October 21, 
1992) 57 FR 48645 (October 27, 1992)(SR-NYSE-90-39).
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    In certain circumstances where a customer of a member organization 
has a large size order, a member organization may look to facilitate 
the execution of the transaction at a single price by participating in 
whole or in part on the other side of the trade. To address these 
situations, the Exchange believes it is appropriate to amend Rule 72(b) 
to provide that a cross of 100,000 shares or more may be executed 
``clean'' at the cross price if the member or member organization is 
facilitating a customer order in whole or in part. This will make it 
easier for member organizations and their customers to execute large 
size trades at a single price on the Exchange, where it is the desire 
of the trading parties to have these executions ``clean'' at the cross 
price. Such trades would not be subject to being broken up at the cross 
price, but would still be eligible for price improvement as currently 
provided for under Rule 72(b). The Exchange believes that this proposal 
addresses perceptions that because of decimal trading large cross 
transactions are at risk of being broken up at the cross price with the 
result that such transactions may not be brought to the Exchange in the 
first instance and exposed for possible price improvement. The Exchange 
believes that the 100,000-share minimum size requirement addresses the 
need for member organizations and their customers to execute large 
cross transactions promptly and efficiently, while ensuring that pre-
existing market interest at the cross price would be displaced only 
where the transaction is of a very significant size. The Exchange 
proposes to operate this amendment as a pilot to run six months after 
approval by the Commission in order to ascertain what impact it may 
have on the Exchange's market.
    The Exchange also believes it is appropriate, particularly in a 
decimal environment, to amend Rule 72(b) to provide that a specialist 
may not effect a proprietary transaction to provide price improvement 
to one side of a clean cross or the other. The Exchange understands 
that there may be a perception that specialists can break up a proposed 
cross transaction by trading for their own account at a minimally 
improved price, and, thereby, step ahead of a public customer on the 
other side of the cross. The proposed amendment will preserve the 
auction market principle of price improvement since non-proprietary 
interest of specialists and particular Floor brokers in the market may 
offer price improvement at any minimum variation. This amendment would 
not be a pilot but is filed for permanent effectiveness.
2. Statutory Basis
    The Exchange believes the proposal is consistent with the 
requirement under Section 6(b)(5) \4\ of the Act 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, in general, to protect investors and the public 
interest. The Exchange believes the proposed rule change strikes a 
reasonable balance between the ability of members and member 
organizations to execute cross transactions and the ability of other 
public market participants to offer price improvement.
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    \4\ 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 Exchange consents, the Commission will:
    (A) by order approve such 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 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 filled 
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 NYSE. All submissions should refer to file 
number SR-NYSE-2001-18 and should be submitted by November 27, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30.-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-27790 Filed 11-5-01; 8:45 am]
BILLING CODE 8010-01-M