[Federal Register Volume 67, Number 142 (Wednesday, July 24, 2002)]
[Notices]
[Pages 48499-48500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18697]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46227; File No. SR-NYSE-2001-18]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval of Amendment No. 1 to the 
Proposed Rule Change Relating to NYSE Rule 72 Regarding Clean Crosses 
of Orders of 100,000 Shares or More, and Providing That a Specialist 
May Not Effect a Proprietary Transaction to Provide Price Improvement 
to One Side of a Clean Cross or the Other

July 18, 2002.

I. Introduction

    On July 3, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 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 proposal was published for notice 
and comment in the Federal Register on November 6, 2001.\3\ The 
Commission received three comments on the proposal.\4\ On January 29, 
2002, the NYSE responded to the comments.\5\
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    \1\15 U.S.C. 78s(b)(1).
    \2\17 CFR 240.19b-4.
    \3\See Securities Exchange Act Release No. 45004 (October 31, 
2001), 66 FR 56143.
    \4\See November 27, 2001 letter from Craig S. Tyle, General 
Counsel, Investment Company Institute, to Jonathan G. Katz, 
Secretary, SEC (``ICI Letter''); December 18, 2001 letter from 
Thomas N. McManus, Executive Director and Counsel, Morgan Stanley 
(``Morgan Stanley Letter''); February 11, 2002 letter from Alton B. 
Harris, Ungaretti & Harris (``Ungaretti Letter''). All of the 
comment letters focused on the provision allowing clean crosses of 
100,000 shares or more when a member organization is facilitating a 
customer order. This provision was subsequently deleted from the 
proposed rule change. See footnote 6, infra. The Commission reviewed 
the comment letters. Because the letters pertained to those portions 
of the original proposed rule change that were subsequently removed 
by Amendment No. 1, the Commission has not included a summary of 
comments in this order.
    \5\See January 29, 2002 letter from Darla C. Stuckey, Corporate 
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC (``NYSE 
Response Letter'').
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    On June 18, 2002, the NYSE amended the proposal by removing the 
proposed amendment to Rule 72(b) relating to clean crosses of 100,000 
shares or more.\6\ This order approves the proposed rule change. Also, 
Amendment No. 1 is approved on an accelerated basis.
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    \6\See June 14, 2002 letter from Darla C. Stuckey, Corporate 
Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, SEC and attachments (``Amendment No. 1'').
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II. Description of the Proposed Rule Change

    As a result of Amendment No. 1, the proposed rule change consists 
only of the NYSE's amendment of NYSE 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 NYSE believes the proposed rule 
change, as amended, 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.

III. Discussion and Commission Findings

    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\7\ and, in 
particular, the

[[Page 48500]]

requirements of Section 6 of the Act\8\ and the rules and regulations 
thereunder. The Commission finds specifically that the proposed rule 
change is consistent with Section 6(b)(5) of the Act\9\ in that the 
Rule 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. 
The Commission believes that the proposed rule change, while 
eliminating the opportunity for specialists to effect a proprietary 
transaction to provide price improvement to one side of a clean cross 
or the other, preserves the auction market principle of price 
improvement by continuing to allow non-proprietary interest of 
specialists and particular Floor brokers in the market to offer price 
improvement at any minimum variation.
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    \7\In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\15 U.S.C. 78f.
    \9\15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving Amendment No. 1 
before the 30th day after the date of publication of notice of filing 
thereof in the Federal Register. Amendment No. 1 simply removes the 
provision from the original filing that would have allowed clean 
crosses of 100,000 shares or more when a member organization is 
facilitating a customer order. This provision was the focus of the 
comment letters. Because Amendment No. 1 removes this provision, the 
Commission believes it is appropriate to approve Amendment No. 1 on an 
accelerated basis. For these reasons, the Commission finds good cause 
for accelerating approval of Amendment No. 1.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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 NYSE. All 
submissions should refer to file number SR-NYSE-2001-18 and should be 
submitted by August 14, 2002.

V. Conclusion and Order

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSE-2001-18), including 
Amendment No. 1, is approved.
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    \10\15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-18697 Filed 7-23-02; 8:45 am]
BILLING CODE 8010-01-P