[Federal Register Volume 68, Number 59 (Thursday, March 27, 2003)]
[Notices]
[Pages 15027-15031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7312]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47547; File No. SR-NYSE-2002-41]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the New York Stock Exchange, Inc. To 
Amend the Exchange's Specialist Combination Review Policy

March 20, 2003.
    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'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On 
January 27, 2003 the NYSE amended the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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 Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated January 24, 2003 (``Amendment No. 
1''). In Amendment No. 1 the Exchange provided a new Exhibit A that 
completely replaces and supersedes the proposed rule language in the 
original filing.
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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 its Specialist Combination Review 
Policy (``Policy''), which was recently codified as NYSE Rule 123E. The 
text of the proposed rule change is below. Proposed new language is in 
italics; proposed deletions are in brackets.

Rule 123E--Specialist Combination Review Policy

    (a) No specialist organization shall complete a ``proposed 
combination'' (defined below) with one or more other specialist 
organizations unless the combination has been approved pursuant to this 
policy.
    (b) Except as provided below, [I]in any case where a proposed 
combination involves or would result in a specialist organization 
accounting for more than five percent of any of the ``concentration 
measures'' (defined below), the Quality of Markets Committee (the 
``Committee'') shall review the proposed combination with the following 
considerations in mind:
    (1) Specialist performance and market quality in the stocks subject 
to the proposed combination[;], with a recommendation from the Market 
Performance Committee on these matters pursuant to paragraph (e) below.
    (2) The effects of the proposed combination in terms of the 
following criteria:
    (i) Strengthening the capital base of the resulting specialist 
organization;
    (ii) Minimizing both the potential for financial failure and the 
negative consequences of any such failure on the specialist system as a 
whole; and
    (iii) Maintaining or increasing operational efficiencies;
    (3) Commitment to the Exchange market, focusing on whether the 
constituent specialist organizations have worked to support, strengthen 
and advance the Exchange, its agency/auction market and its 
competitiveness in relation to other markets; and
    (4) The effect of the proposed combination on overall concentration 
of specialist organizations.
    The Committee shall approve or disapprove the proposed combination 
based on its assessment of these considerations. In the case where a 
combination involves an organization that is not a specialist 
organization, consideration (b)(3) shall entail an assessment of 
whether the organization will work to support, strengthen and advance 
the Exchange, its agency/auction market and its competitiveness in 
relation to other markets.
    In any case where a specialist unit currently exceeds five percent 
of any concentration measure, and then proposes a combination that 
would not result in increasing its concentration measure by more than 
two percentage points, or not result in the combined unit moving into a 
higher tier classification, the Quality of Markets Committee shall not 
review the proposed combination. The Market Performance Committee shall 
review the proposed combination from the standpoint of assessing 
specialist performance and market quality with respect to the 
securities subject to the proposed combination. The Market Performance 
Committee will approve, or disapprove in writing, such combination, and 
may impose such conditions as it deems appropriate with respect to 
specialist performance and market quality.
    (c) In any case where a proposed combination involves or would 
result in a specialist organization accounting for more than ten 
percent (a ``Tier 2 combination'') of any of the concentration 
measures, the Committee shall give primary weight to consideration 
(b)(4). The Committee shall disapprove the proposed combination unless 
the constituent specialist organizations:
    (1)(a) For a proposed combination which involves or would result in 
a specialist unit accounting for more than ten percent, but less than 
or equal to 15%, of a concentration measure, prove, by a preponderance 
of the evidence; or
    (b) For a proposed combination that involves or would result in a 
specialist unit accounting for more than 15% of a concentration measure 
(a ``[15%] Tier 3 combination'') present clear and convincing evidence 
that, if approved, the proposed combination:
    (i) Would not create or foster concentration in the specialist 
business detrimental to the Exchange and its markets;

[[Page 15028]]

    (ii) Would foster competition among specialist organizations; [and]
    (iii) Would enhance the performance of the constituent specialist 
organization and the quality of the markets in the stocks involved; 
[and]
    (iv) Demonstrate that, if approved, the proposed combination is 
otherwise in the public interest.
    (d) The Committee may condition any approval under either paragraph 
2 or paragraph 3 upon compliance by the resulting specialist 
organization with any steps the Committee may specify to address any 
concerns it may have in regard to considerations 2 (a)-(d).
    [With respect to proposed combinations which involve or would 
result in specialist units accounting for more than five percent, but 
less than or equal to 10%, of a concentration measure, the Committee 
shall not grant approval unless the proponents of the combination agree 
to maintain 1.5 times the capital requirement specified in Rule 104.20 
with respect to each of the combined entity's stocks that are component 
stocks of the Standard and Poor's Stock Price Index.]
    In addition, with respect to proposed combinations which involve or 
would result in specialist units accounting for more than ten percent 
of a concentration measure, the Committee shall not grant approval 
unless the proponents of the combination[:] [(i)] submit an acceptable 
risk management plan with respect to any line of business in which they 
engage[;], and [(ii)] submit an operational certification prepared by 
an independent, nationally recognized management consulting 
organization with respect to all aspects of the firm's management and 
operations.[;]
    [(iii) agree to maintain a minimum of 1.5 times (2 times, in the 
case of a 15 percent combination) the total capital requirement 
specified in Rule 104.20 with respect to the combined entity's stocks;
    (iv) agree to maintain 2 times (2.5 times, in the case of a 15 
percent combination) the capital requirement specified in Rule 104.20 
with respect to each of the combined entity's stocks that are component 
stocks of the Standard and Poor's 500 Stock Price Index; and
    (v) agree that all capital required to be dedicated to specialist 
operations be accounted for separate and apart from any other capital 
of the combined entity, and that such specialist capital may not be 
used for any other aspect of the combined entity's operations;]
    (e)(1) In all situations involving a proposed combination of 
specialist units, the Market Performance Committee shall assess the 
impact of the proposal upon specialist performance and market quality 
with respect to the subject securities. In making such assessment, the 
Market Performance Committee shall:
    (a) review the individual unit's overall performance in various 
measures of specialist performance, such as ratings on the Specialist 
Performance Evaluation Questionnaire, SuperDOT turnaround performance 
and administrative response times, capital utilization, dealer 
participation rates, stabilization rates, continuity, depth, quote 
spreads, as well as recent regulatory and disciplinary history; and
    (b) review performance specifically with respect to each component 
stock of the Dow Jones Industrial Average, if applicable, if the 
combination is a Tier 1 combination (more than five percent, but not 
more than 10 percent of any concentration measure), and, in addition, 
performance with respect to each component stock of the S&P 100 Stock 
Price Index, if applicable, if the combination is a Tier 2 or Tier 3 
combination.
    (2) Proponents of a specialist unit combination must make a written 
submission to the Quality of Markets Committee or the Market 
Performance Committee, as appropriate, discussing all factors relevant 
under this policy to that Committee's review of the proposal. In 
addition to addressing the specialist performance and market quality 
considerations noted above, the proponents of the combination must 
discuss:
    (a) performance in any stocks received through previous 
combinations or transfers of registrations during the preceding two 
years; and
    (b) whether existing levels of clerical support will be maintained 
or increased.
    (3) Proponents of any combination subject to a Tier 2 or Tier 3 
review by the Quality of Markets Committee must demonstrate that:
    (a) the combined unit will have a separate corporate relations 
department fully staffed to maintain appropriate relations with each of 
its listed companies, and that it is capable of keeping listed company 
officials apprised of market developments on a daily basis. Each unit 
involved in the combination must demonstrate full compliance with Rule 
106, or must submit to the Committee a plan providing specific, 
tangible steps to come into full compliance; and
    (b) the combined units will have a real-time surveillance system 
that monitors specialist trading and uses exception alerts to detect 
unusual trades or trading patterns.
    (4) In addition, the proponents of a Tier 2 or Tier 3 review must 
discuss whether it has disaster recovery facilities for its computer 
network and software, whether it has designated specific individuals to 
handle unusual situations on the Floor (if so, the names of the 
individuals), whether the combined unit will employ a ``zone'' or other 
management system on the Floor (with identification of the names of the 
individuals and their specific responsibilities, as applicable), and 
whether the combined unit will designate a senior specialist to be 
responsible for reviewing specialist performance data, with specific 
procedures for correcting any deficiencies identified.
    (f) Proponents of a specialist unit combination subject to review 
by either the Quality of Markets Committee or the Market Performance 
Committee under this policy must agree that:
    (i) the total amount of capital which each unit had separately 
prior to the proposed combination shall not be reduced, regardless of 
whether it would exceed the combined unit's new capital requirement; 
and
    (ii) all required specialist capital be accounted for separately 
from any other capital, and be used solely for the specialist business.
    [(e)](g) For purposes of this policy, a ``proposed combination'' 
includes:
    (1) A merger of specialist organizations or an acquisition of one 
organization by another;
    (2) The formation of a joint account involving two or more existing 
organizations;
    (3) The ``split-up'' of an existing organization (including an 
organization operating under a joint account) and recombination with 
another organization;
    (4) An individual specialist leaving an existing organization and 
proposing to take stocks with him to join another existing 
organization; and
    (5) Any other arrangement that would result in previously separate 
organizations operating under common control.
    [(f)](h) For purposes of this policy, the ``concentration 
measures'' are:
    (1) The common stocks listed on the Exchange;
    (2) The 250 most active common stocks listed on the Exchange;
    (3) The total share volume of trading in common stocks on the 
Exchange; and
    (1) The total dollar value of trading in common stocks on the 
Exchange.
    Supplementary Material:
.10 Guidelines for Applying Consideration (b)(3)
    Consideration (b)(3) entails the Committee's review of the 
constituent

[[Page 15029]]

units' past conduct. For example, the Committee shall assess each 
constituent unit's:
    (a) Participation upon request in the Exchange's FACTS program, in 
its marketing seminars, in sales calls and in other of its marketing 
initiatives seeking to attract order flow and new listings.
    (b) Acceptance of innovations in order-routing and other trade-
support systems and willingness to make optimal use of the systems once 
they become fully operational.
    (c) Willingness to apply for a broad range of new listings and for 
allocations of stocks that are less lucrative from the standpoint of 
profitability to the specialist.
    (d) Assistance to other units by providing capital and personnel in 
unusual market situations, such as ``breakouts'' and difficult 
openings.
    (e) Efforts at customer relations with both listed companies and 
order providers, as evidenced by personal contact, return of telephone 
calls, prompt resolution of complaints, assessment of customer needs 
and anticipation of customer problems.
    (f) Efforts to streamline the efficiency of its own operations and 
its competitive posture.

.20 Guidelines for Applying Consideration (c)(1)(a)(iv)

    Consideration (c)(1)(a)(iv) requires review of whether a proposed 
combination is in the public interest. For example, the Committee may 
consider the unit's efforts to enhance market quality, its capabilities 
for maintaining ongoing communications with its listed companies and 
customers in compliance with Rule 106, and its commitment to applying 
for new listings and other activities.

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, 
andStatutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Policy, which was 
formally codified as NYSE Rule 123E.\4\ It has been previously filed 
with, and approved by, the Commission pursuant to Rule 19b-4.\5\
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    \4\ See Securities Exchange Act Release No. 46579 (October 1, 
2002), 67 FR 63004 (October 9, 2002) (SR-NYSE-2002-31).
    \5\ It was last approved in Securities Exchange Act Release No. 
35343 (February 8, 1995), 60 FR 8437 (February 14, 1995) (SR-NYSE-
94-46).
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    The Policy requires Exchange approval of proposed specialist unit 
combinations exceeding five, ten, or fifteen percent of any one of four 
concentration measures.\6\ The Policy provides that the Quality of 
Markets Committee (``QOMC'') review proposed combinations which, by 
virtue of the size of the resulting unit (as defined by the four 
concentration measures), may raise concerns as to: (1) Overall 
concentration in the specialist community and reduced competition among 
specialist units as an incentive for allocations of newly-listed 
stocks; (2) the maintenance of market quality in the unit's stocks; and 
(3) the maintenance of the financial stability of the specialist 
system.
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    \6\ The concentration measures include a specialist unit's share 
of: (1) common stocks listed on the Exchange; (2) the 250 most 
active listed common stocks for the last 12 months; (3) total listed 
common stock share volume for the last 12 months; and (4) total 
listed common stock dollar volume for the last 12 months.
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    The QOMC has conducted 40 concentration reviews under the Policy 
since its adoption in 1987. This includes 24 Tier 1 reviews (any 
concentration measure exceeding 5%, but less than or equal to 10%), 
eight Tier 2 reviews (any concentration measure exceeding 10%, but less 
than or equal to 15%) and eight Tier 3 review (any concentration 
measure exceeding 15%). 32 of the 40 reviews (and seven of the eight 
Tier 2 reviews) occurred after 1993. In the concentration reviews, the 
QOMC examined the proposals on their own merits, and focused 
principally on whether the combinations would adversely impact market 
quality (with input from the Market Performance Committee) and the 
prospects for financial and operational success of the combined 
entities.
    The NYSE believes that the environmental factors that prompted the 
adoption of the Policy in December 1986 are even more significant 
today. The Exchange faces increasing competitive pressures in several 
areas. In addition, market volatility has increased substantially in 
the last half dozen years. Daily movements in the S&P 500 Stock Price 
Index of two percent or more are now as frequent as one percent 
movements were in 1993. This has required specialists to maintain more 
capital to cushion price movements and to contribute to the maintenance 
of fair and orderly markets. The Exchange believes that there is 
general agreement on the need for a policy to review specialist 
combinations which, on the one hand, enhances competition among 
specialists, maximizes the quality of Exchange markets and the services 
provided by specialists, and minimizes the risk of financial failure, 
while on the other hand, contributes to improved operational 
efficiencies, enhances risk management capabilities, and ensures that 
the specialist units are adequately capitalized and staffed to be 
better equipped to handle active and volatile markets. To this end, the 
Exchange believes that the current Policy has worked well, and that the 
combinations reviewed by the QOMC have enhanced the performance of the 
specialist organizations and the market quality in the stocks involved. 
However, the Exchange is continuing to evolve toward a smaller 
community of specialists. Therefore, it is important that the Policy 
contain specific guidelines to assist the QOMC in determining whether 
future combinations will strengthen the Exchange market and specialist 
system.
    The Exchange proposes the following amendments to the Policy.

Scope of Quality of Markets Committee Reviews

De Minimis Increase in Concentration Measure

    The filing proposes that when a combination of specialist firms 
results in an increase in any concentration measure of less than two 
points within a tier level, no review by the QOMC would be required. A 
review by the QOMC would still be required if a percentage change of 
less than two points nonetheless resulted in a unit moving into a 
higher tier classification (e.g., from Tier 1 to Tier 2). If a 
combination results in a specialist firm's percentage in any of the 
concentration measures moving from below 5% (where no QOMC review is 
required) to over 5% (e.g., moving from 4.5% to 6.3%), a QOMC review 
will be required, regardless of whether the percentage increase is 
above or below two points.
    The Exchange believes that a 2% or more increase is an acceptable 
level to

[[Page 15030]]

establish the need for QOMC review of a combination. Combinations below 
this figure do not usually have a significant impact on specialist 
operations in terms of capital or manpower. Combinations less than 2% 
will still require Market Performance Committee review and approval 
with respect to an assessment of the impact of the proposal on 
specialist performance and market quality. Requiring QOMC review for 
combinations greater than 2% is desirable initially to gauge the impact 
these have on specialist concentration. The Exchange may consider a 
different de minimis level after it gains experience with the 2% level.
    The Exchange will explain how the de minimis provision of the 
Concentration Policy will be applied as part of the Information Memo 
that will be distributed to all members when the proposed rule change 
is made effective.

Combinations Not Approved

    The QOMC has approved each of the proposed combinations presented 
to the Committee since the adoption of the Policy. The Market 
Performance Committee has approved all but one of the combinations it 
has reviewed.

Capital

    The Policy currently requires units subject to Tier 1 reviews to 
maintain a minimum of 1\1/2\ times the Rule 104.20 position requirement 
for each stock that is included in the S&P 500 Stock Price Index 
(``S&P500''); units subject to Tier 2 reviews to maintain 2 times the 
position requirement for all S&P 500 stocks, and 1\1/2\ times the 
requirement for all other stocks; and units subject to Tier 3 reviews 
to maintain 2\1/2\ times the requirement for S&P 500 stocks, and 2 
times the requirement for all other stocks. These requirements are 
proposed to be removed from the Policy in light of proposed amendments 
of other Exchange requirements.
    In connection with maintaining more stringent capital requirements 
for the larger specialist organizations, the formula shown below was 
approved in changes to Exchange Rule 104.21.\7\ In addition, Exchange 
Rule 104.22 requires any new specialist entities that result from 
merger, acquisition, consolidation, or other combination of specialist 
assets to maintain net liquid assets (NLA) equivalent to the greater of 
either: (1) The aggregate of the NLA of the specialist entities prior 
to their combination, or (2) the capital requirement prescribed by Rule 
104. Below is a chart that shows the current NLA requirement.\8\
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    \7\ See Securities Exchange Act Release No. 43098 (July 31, 
2000), 65 FR 49044 (August 10, 2000) (SR-NYSE-99-46).
    \8\ The NYSE requested that the Commission insert this sentence 
for clarification. Telephone discussion between Jeff Rosenstrock, 
Senior Special Counsel, NYSE and Mia C. Zur, Attorney, Division, 
Commission (March 5, 2003).

Dow Jones Stocks            $4.0 million per stock
S&P 100 Stocks              $2.0 million per stock
S&P 500 Stocks              $1.0 million per stock
Non-S&P Stocks              $0.5 million per stock
Bond Funds                  $0.1 million per stock
Preferred Stocks and        $0.1 million per stock
 Structured Products
Investment Company Units    $0.5 million per ETF \9\
 (Exchange-Traded Funds)
 (``ETFs'')
 

    The Exchange also proposes to require that a unit subject to a 
concentration review must agree that all required specialist unit 
capital be accounted for separately from any other capital, and be used 
solely for the specialist business.

Market Performance Committee Assessment

    The Market Performance Committee (``MPC'' or the ``Committee'') is 
charged with the responsibility of reviewing and approving, or 
disapproving in writing, a specialist combination to see what effect it 
will have on market quality.\10\ The MPC has reviewed specialist 
combinations since its inception. The Committee receives a summary of 
the proposal, letters from the specialist firms or individuals 
involved, information with respect to the stocks involved, historic and 
proposed capital of the combined units, capital requirements, personnel 
information, clearing arrangements and operational statistics of the 
units (e.g., SPEQ ratings, dealer participation rates, stabilization 
rates, etc.).\11\ The proponents of a combination may be asked to 
appear before the MPC to answer any questions it may have. The MPC then 
utilizes its expertise and judgment to decide what effect a proposed 
combination will have on market quality in the stocks involved. If the 
MPC determines that a proposed combination will significantly erode 
market quality, it would be required to inform the units of its 
concerns. If the parties persist in their plans, the MPC can inform 
them that some or all of the affected stocks will be put up for 
reallocation.
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    \9\ A unit registered in only one ETF would be subject to the 
$1m minimum capital requirement of Rule 104.20 See SR-NYSE-2001-08 
(approved in Securities Exchange Act Release No. 44616)) (July 30, 
2001), 66 FR 40761 (August 3, 2001).
    \10\ In Amendment No. 1, the Exchange added rule language to 
require that disapprovals be made in writing. The NYSE requested 
that the Commission modify this sentence to indicate this change. 
Telephone discussion between Jeff Rosenstrock, Senior Special 
Counsel, NYSE and Mia C. Zur, Attorney, Division, Commission (March 
5, 2003).
    \11\ See Section 5 of the Policy.
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    The MPC's assessment of the impact on market quality in the stocks 
would include a specific assessment of the performance of each 
specialist who will be designated to trade a component stock of the Dow 
Jones Industrial Average (DJIA), if a Tier 1 review; and any S&P 100 
stock if a Tier 2 or Tier 3 review. The unit under review must discuss 
in particular the performance statistics for stocks it received through 
previous combinations or transfers of registration within the last two 
years.

Personnel

    The Policy is proposed to be amended to require the proponents of 
the combined units to disclose whether the existing clerical support of 
the combined units will be maintained or increased. The Policy is also 
proposed to be amended to provide that specialist units involved in a 
Tier 2 or Tier 3 combination must have a separate corporate relations 
department fully staffed to maintain good relations with each listed 
company and major member organizations, and be capable of keeping 
listed company officials apprised of market developments on a daily 
basis. Each unit must show that they have satisfied the listed company 
and member firm contact requirements of Rule 106, and, if they have 
not, they must present an acceptable plan to the QOMC that provides 
specific, tangible steps to improve such contact.

Commitment to the Exchange

    Section b(3) of the Policy is proposed to be amended to require 
that the QOMC assess each constituent unit's willingness to apply for a 
broad range of new listings and for allocations of stocks that are less 
lucrative from the standpoint of profitability to the specialist.

Management and Operations

    As proposed, the Policy will require that the unit under review in 
a Tier 2 or Tier 3 review must discuss whether it will:

--Designate a senior specialist to be responsible for reviewing 
specialist performance data;
--Have procedures for correcting any deficiencies identified;
--Designate specific individuals to handle unusual situations on the 
Floor and, if so, the names of the individuals;
--Employ a ``zone management'' system on the Floor and, if so, who will 
be responsible for overseeing each

[[Page 15031]]

zone throughout the trading day; and
--Have disaster recovery facilities for its computer network and 
software.
    The Committee will assess these responses in considering the 
proposed combination.
    The Policy is proposed to be amended to require that the unit in a 
Tier 2 or Tier 3 review must have a real-time surveillance system that 
monitors specialist trading and uses exception alerts to detect unusual 
trades or trading patterns.

Public Interest

    The Policy (section c(1)(a)(iv)) provides that specialist units 
that are involved in a Tier 2 or Tier 3 review must ``demonstrate that, 
if approved, the proposed combination is otherwise in the public 
interest.'' The Exchange proposes to add to the Policy a guideline 
outlining what the QOMC may consider under this provision. This 
includes: (a) The unit's efforts to enhance market quality; (b) its 
capability of maintaining ongoing communications with their listed 
companies and customers in compliance with Rule 106; and (c) the unit's 
commitment to applying for new listings and other activities.

Reasons for a Specialist Combination Review Policy

    The Exchange views the Policy as a necessary mechanism for the 
review of proposed specialist combinations that may lead to a level of 
concentration within the specialist community that may be of concern to 
the Exchange and the quality of its markets. The Exchange recognizes 
that some specialist organizations seek to grow or attract capital 
through mergers or acquisitions. The Policy offers a structured 
approach for reviewing proposed combinations that may raise 
concentration-related issues. The amendments to the Policy proposed in 
this filing are part of the Exchange's continued effort to see that the 
Policy addresses these issues. As the Commission noted in its approval 
of the Exchange's filing first proposing the Policy, ``the Commission 
believes it is appropriate for the NYSE to adopt a policy that 
authorizes it to monitor specialist combinations to determine their 
impact upon the competitive environment necessary to maintain an 
orderly market.'' \12\
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    \12\ See Securities Exchange Act Release No. 24411 (April 29, 
1987), 52 FR 17870 (May 12, 1987).
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Other Matters

Specialists Ability to Monitor Real Time Trading

    The larger specialist units, representing a significant portion of 
listed stocks and trading volume, have the capability to monitor the 
unit's trading on a real-time basis, and use exception alerts to 
identify unusual trading patterns.

Statistical Information

--There are currently 10 specialist firms, including 3 firms that are 
registered solely in Exchange-Traded Funds (``ETFs'').
--There are currently 460 members registered as specialists.
--At the end of June 2002, there were 2,796 companies that had common 
and preferred issues listed on the NYSE.
1. Statutory Basis
    The NYSE believes the proposed rule change is consistent with 
section 6(b)(5) \13\ of the Act, which requires 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 NYSE believes the proposed 
amendments are consistent with these objectives in that they address 
concerns about capitalization, and operational efficiency where 
proposed combinations would result in large-sized specialist units.
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    \13\ 15 U.S.C. 78f(b).
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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, as amended, 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-2002-41 and should be submitted by April 17, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7312 Filed 3-26-03; 8:45 am]
BILLING CODE 8010-01-P