[Federal Register Volume 67, Number 228 (Tuesday, November 26, 2002)]
[Notices]
[Pages 70796-70799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29942]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46852; File No. SR-NYSE-2002-39]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Proposed 
Amendment to Exchange Rule 123D: Openings and Halts in Trading

November 19, 2002.
    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 August 29, 2002, 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 
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 proposed rule change consists of an amendment to NYSE Rule 123D 
\3\ with respect to openings, reopenings and halts in trading for 
stocks traded on the Exchange. Specific changes to shorten the minimum 
time period between tape indications and reopenings in stocks that are 
subject to a trading halt during the trading day are proposed to be 
made.
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    \3\ See SR-NYSE-2002-31 (August 12, 2002) (codifying the 
Exchange's policy on trading halts and delayed openings in NYSE Rule 
123D).
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    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
    Rule 123D: Openings and Halts in Trading
    (1) Delayed Openings/Halts in Trading--It is the responsibility of 
each specialist to ensure that registered stocks open as close to the 
opening bell as possible, while at the same time not unduly hasty, 
particularly when at a price disparity from the prior close. Openings 
and reopenings should be timely, as well as fair and orderly, 
reflecting a professional assessment of market conditions at the time, 
and appropriate consideration of the balance of supply and demand as 
reflected by orders represented in the market. Specialists should, to 
the best of their ability, provide timely and impartial information at 
all phases of the opening process. Specialists should ensure adequate 
personnel are assigned and call upon additional clerical and relief 
specialist resources to assist in order management and Crowd 
communication, when appropriate. It is also incumbent upon specialists 
to seek the advice of Floor Officials when openings are delayed or when 
a halt in trading may be appropriate due to unusual market conditions.
    Brokers should recognize the difficulty in providing accurate 
information in a constantly changing situation, and that significant 
changes are often occasioned by single orders or substantial interests 
delivered via DOT. Brokers should make every effort to ascertain the 
client's interest as early as possible and to inform the specialist so 
that such interest can be factored into the opening process. Brokers 
should communicate to clients the problems caused by delaying their 
interest until the last minute. Brokers should expect to have time to 
communicate the essential facts to their clients and to react to the 
changing picture. They should not expect, however, to be able to delay 
the opening for every last fragment of this change, and should 
recognize their obligation to a timely opening. Once a relatively 
narrow range of opening possibilities is given, the broker and his or 
her client should have sufficient information to enter a final order. 
In this regard, brokers should advise their clients against limits 
which are not firm, or are based solely on where the opening looked at 
the time the information was given. Brokers should not expect to be 
given endless opportunities to adjust those limits. Whenever possible 
the broker should have discretion within a range of the client's 
interest, and have the power to react to last minute changes without 
having to go back to the phone. This is particularly true for orders in 
amounts that represent a small fraction of the total opening volume, 
but applies to all orders. Brokers must recognize that orders or 
cancellations merely dropped on the counter can be lost or misplaced, 
and should hand the order directly to the specialist or his or her 
assistant and orally state the terms. Failure to do so could result in 
a monetary error to the broker as well as the specialist.
    Floor Officials participate in the regulatory process by providing 
an impartial professional assessment of unusual situations, as well as 
advice with respect to pricing when a significant disparity in supply 
and demand exists. The specialist, however,

[[Page 70797]]

has ultimate responsibility in this regard, and while a Floor 
Official's approval may be a mitigating factor, it will not exonerate a 
specialist when performance has been deemed not satisfactory.
    A specialist should consider the following areas of specialist 
performance when involved in an unusual market situation:
    [sbull] An opening price change that is not in proportion to the 
size of an imbalance;
    [sbull] Absence of an indication before a large opening price 
change;
    [sbull] Inadequate support after a large opening price change, 
i.e., lack of sufficient continuity and depth in the aftermarket;
    [sbull] Absence of trading without good cause or Floor Official 
approval (or an unjustified or unreasonably delayed opening or halt in 
trading);
    [sbull] Not obtaining appropriate Floor Official approvals for 
opening delays, trading halts, and wide price variations.
    In addition, a Floor Official should be consulted as soon as it 
becomes apparent that an unusual situation exists, and a Floor Governor 
should be consulted if it is anticipated that the opening price may be 
at a significant disparity from the prior close. If an unusual 
situation exists, such as a large order imbalance, tape indications 
should be disseminated, including multiple indications if appropriate 
with the supervision of a Floor Official. A second Floor Official's 
opinion in a delayed opening is required if there is difficulty in 
arriving at a decision; if the size of the price change from the 
previous NYSE close is three points or more or represents a 10% change 
in price; or if the stock has not opened within 50 minutes after the 
opening of business or 20 minutes after an extended delayed opening 
time frame. All tape indications require Floor Official approval. (See 
Appendix--Floor Official Approval Form 3)
    Exchange policy requires the dissemination of an indication in 
connection with any delayed opening--involving any stock which has not 
opened (or been quoted) by 10 a.m. In addition, the dissemination of an 
indication is mandatory for an opening which will result in a 
significant price change from the previous close:

------------------------------------------------------------------------
                                               Price change (equal or
      Previous NYSE closing price.\*\               greater than)
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Under $10.................................  1 point.
$10-$99.99................................  The lesser of 10% or 3
                                             points.
$100 and over.............................  5 points
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\*\The above guidelines are applicable to Initial Public Officerings
  based on the offering price.

    All indications require the supervision and approval of a Floor 
Official. If it involves a bank or brokerage stock, a Floor Director's 
approval is required. If a Floor Director is unavailable, a Floor 
Governor's or Senior Floor Official's approval must be obtained. In 
addition to the mandatory criteria, specialists should use their 
judgment as to when it is appropriate to seek Floor Official approval 
for disseminating a price indication.
    Mandatory indication policy applies to a foreign-listed security 
only if the opening price will be at a significant price change (see 
chart above) from its closing price in the foreign market or the 
current price in the foreign market.
    Mandatory indications for convertible preferred stocks are only 
required if an indication was disseminated in the underlying common 
stock.
    In this regard the following procedures should be followed for 
delayed opening and trading halt indications:
    [sbull] The length of time for the dissemination of indications 
should be in proportion to the anticipated disparity of the opening or 
reopening price from the prior sale.
    [sbull] The number of indications should increase in proportion to 
the anticipated disparity in the opening or reopening price, with 
increasingly definitive, ``telescoped'' indications when an initial 
narrow indication spread is impractical.
    [sbull] An indication should be published immediately when trading 
is halted for a non-regulatory order imbalance. Such indications should 
be broad enough to allow flexibility, but narrow enough to convey as 
accurate a picture of supply and demand as possible at the time. In 
most cases, a final indication with a one point spread would be 
appropriate. Further telescoping to one-half point could result in 
unnecessary delay due to a change in the terms of a pivotal order. Even 
if an indication is not disseminated, specialists should endeavor to 
provide brokers with an approximate range within which they believe a 
stock will open.
    [sbull] Tape indications before the opening should be disseminated 
at 9:15 a.m., if possible, but any tape indications disseminated prior 
to 9:30 a.m. require the approval of a Floor Director or Floor 
Governor, or the approval of a Floor Official if it relates to a spin-
off or if trading had been halted and not resumed the prior day.
    ITS Pre-Opening Applications must be followed when necessary based 
upon the anticipated opening price. For example, a Pre-Opening 
Notification must be issued if a stock is going to open more than .10 
of a point from a composite last sale under $15 or more than .25 of a 
point from a composite last sale of $15 or higher. The spread in the 
Pre-Opening Application may not exceed .50 of a point if the 
consolidated close is under $50 or one point if the consolidated close 
is $50 or higher with limited exception. If a Pre-Opening Application 
is required on an opening or any reopening and a tape indication is 
also issued, the indication satisfies the Pre-Opening Application 
requirement if it is also sent to the ITS participants by the 
specialist in the form of Pre-Opening Notification. In that case, the 
maximum ITS spread would not apply. Three minutes must elapse from the 
time a Pre-Opening Application is issued, and an additional one minute 
if subsequent notifications are required, before a stock should open.
    As with other openings, tape indications are discretionary for 
IPO's with the approval of a Floor Director or Floor Governor except 
that it is mandatory if the opening price change as measured from the 
offering price meets the requirements for a mandatory indication.
    If an indication is disseminated after the opening bell, it must be 
considered a delayed opening. In addition, any stock that is not opened 
with a trade or reasonable quotation within 30 minutes after the 
opening of business must be considered a delayed opening (except for 
IPO's) and requires Floor Official supervision, as well as an 
indication. That 30-minute time frame may only be extended by a Floor 
Director on a Floor-wide basis.
    More than one indication should be disseminated if an opening will 
be outside the first indication or if the first indication had a wide 
spread, especially if the time frame for delayed openings has been 
extended by the Floor Director. A reduction in time between indications 
can be used when multiple indications are disseminated. Generally, a 
minimum of 10 minutes must elapse between the first indication and a 
stock's opening as measured by the time the indication appears on the 
PDU. However, when more than one indication is disseminated, a stock 
may open five minutes after the last indication provided that at least 
10 minutes must have elapsed from the dissemination of the first 
indication.

[[Page 70798]]

    With respect to a post-opening trading halt, a minimum of five 
minutes must elapse between the first indication and a stock's 
reopening. However, where more than one indication is disseminated, a 
stock may re-open three minutes after the last indication, provided 
that at least five minutes must have elapsed from the dissemination of 
the first indication.
    Tape indications must be disseminated with the approval of a Floor 
Official prior to the opening or reopening in a stock subject to a 
regulatory or nonregulatory halt in trading or a delayed opening. A 
Floor Governor should be consulted if a significant price change is 
anticipated.
    A Floor Director or Floor Governor should be consulted in any case 
where there is not complete agreement among the Floor Officials 
participating in the discussion.
    Floor Governors should keep apprised of developments when 
consulted, and should seek the assistance of Floor Directors, when 
appropriate, as soon as possible. Floor Governors should be prepared to 
balance the opportunity for brokers to participate in the opening with 
the need for timeliness, and should assist in identifying opportunities 
for opening the security, based upon the shifting supply and demand in 
conjunction with appropriate specialist participation.
    Specialists should make every effort to balance timeliness with the 
opportunity for customer reaction and participation. Although the 
correct price based on information available at the time is always the 
goal, specialists and supervising Floor Governors should recognize 
customers' desires for a timely opening. When the specialist and Floor 
Governor agree that all participants have had a reasonable opportunity 
to participate, the specialist should open the stock.
    Once trading has commenced, trading may only be halted with the 
approval of a Floor Governor or two Floor Officials. A Floor Director, 
or in their absence a Senior Floor Governor, should be consulted if it 
is felt that trading should be halted in a bank or brokerage stock due 
to a potential misperception regarding the company's financial 
viability.
    Sometimes the Client Service Division is notified by a listed 
company in advance of publication concerning news which might have a 
substantial market impact. That Division will immediately notify the 
Floor Operations Division, which will advise a Floor Director or Floor 
Governor, or in their absence a Floor Official.
    If Client Service Division makes a recommendation that trading 
should be halted in a stock pending a public announcement by the 
company and the Floor Director or Floor Governor disagrees, he or she 
should seek the opinion of another Floor Director or Floor Governor. If 
the Floor Directors or Floor Governors are in agreement that trading 
should not be halted, trading should continue. If one of the two is in 
agreement with the recommendation to halt trading, then trading should 
be halted. While the time period may vary from case-to-case as a result 
of the particular circumstances involved, normally if the announcement 
is not made within approximately 30 minutes after the delay or halt is 
implemented, the Exchange may commence the opening or reopening of 
trading in the stock. Special care is taken to ensure that material 
non-public information is not disclosed, even inadvertently, as a 
result of someone overhearing details relating to trading halts or 
delayed opening situations.
    Stopped stock prior to a halt should be printed as ``sold'' with 
the specialist as contra and adjusted if the reopening is at a more 
advantageous price.
    It is important that all appropriate Floor Official forms are 
completed.
    (2) Equipment Changeover--The Exchange has established a non-
regulatory trading halt condition designated as ``Equipment 
Changeover''.
    This condition may be used when trading in a particular security is 
temporarily inhibited due to a systems, equipment or communications 
facility problem or for other technical reasons.
    In making a determination on whether to halt trading in a security 
because of an ``Equipment Changeover'' condition, it is important to 
keep in mind that once halted, trading cannot be resumed for at least 5 
minutes even though, in many cases, the systems or equipment problem 
may be corrected in a much shorter period of time. Further, if, during 
the ``Equipment Changeover'' trading halt, a significant order 
imbalance (one which would result in a price change from the last sale 
of one point or more for stocks under $10, the lesser of 10% or three 
points for $10-$99.99 and five points if $100 or more--unless a Floor 
Governor deems circumstances warrant a lower parameter) develops or a 
regulatory condition occurs, the nature of the halt will be changed, 
notice must be disseminated and trading cannot resume until 10 minutes 
after the first indication after the new halt condition. This factor 
should be taken into consideration along with market condition factors 
in making a determination on whether to declare an official trading 
halt.
    As with any other halt, an ``Equipment Changeover'' trading halt 
requires the approval of a Floor Governor or two Floor Officials. All 
other policies relating to non-regulatory halts would apply including 
price indications.
* * * * *

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
    The current policy on reopening trading after a stock has been 
halted during the trading day requires a minimum of 10 minutes to 
elapse between the first price indication and the reopening of a stock, 
and a minimum of 5 minutes to elapse after the last indication, when it 
does not overlap the prior indication, or a minimum of 5 minutes to 
elapse after the last indication when it overlaps the prior indication, 
provided in all cases that the minimum 10 minutes has elapsed since the 
first indication. It is proposed that these minimum time periods before 
reopening a stock be compressed from 10 to 5 minutes after the first 
indication, and to 3 minutes after the last indication, provided that 
the minimum 5 minutes has elapsed since the first price indication.
    Over the years, in developing procedures for openings and 
reopenings, the Exchange has focused on providing a balance between 
timeliness and appropriateness of price discovery, i.e., achieving a 
price that reflects market conditions at the time. As the speed of 
communications has increased, the Exchange believes it is desirable to 
provide the flexibility to react more quickly if circumstances are such 
so as to permit a reopening of trading in a shorter period of time. The 
Exchange believes that the revised

[[Page 70799]]

procedures for reopening after a trading halt strike an appropriate 
balance between preserving the price discovery process while providing 
timely opportunities for investors to participate in the market. It 
should be noted, however, that it is not mandatory that a stock reopen 
at the end of the new, shorter time period. If at the end of the 5 
minute period, an equilibrium has been established, there would be no 
purpose served by extending the halt for a longer period. It may be 
however, that more time will be needed to bring supply and demand into 
balance. Trading halts are overseen by Floor Officials who will use 
their judgment to see that the stock reopens at an appropriate time.
2. Statutory Basis
    The NYSE believes that the basis under the Act for this proposed 
rule change is the requirement under section 6(b)(5) \4\ 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 rule change 
also is designed to support the principles of section 11A(a)(1) \5\ of 
the Act in that it seeks to assure economically efficient execution of 
securities transactions, make it practicable for brokers to execute 
investors' orders in the best market and provide an opportunity for 
investors' orders to be executed without the participation of a dealer.
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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78k-1(a)(1).
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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 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-2002-39 and 
should be submitted by December 17, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority\6\.
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    \6\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29942 Filed 11-25-02; 8:45 am]
BILLING CODE 8010-01-P