[Federal Register Volume 68, Number 90 (Friday, May 9, 2003)]
[Notices]
[Pages 25073-25074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11589]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47792; File No. SR-NYSE-2002-41]


Self-Regulatory Organizations; New York Stock Exchange; Order 
Approving Proposed Rule Change by the New York Stock Exchange, Inc. 
Amending the Exchange's Specialist Combination Review Policy in NYSE 
Rule 123E

May 2, 2003.

I. Introduction

    On August 29, 2002, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), 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 its Specialist Combination Review Policy 
(``Policy''). On January 27, 2003 the NYSE amended the proposed rule 
change.\3\ On March 20, 2003, the rule proposal, as amended, was 
published for comment in the Federal Register.\4\ The Commission 
received no comments on the proposal. This order approves the amended 
proposed rule change.
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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completely replaced and superseded the proposed rule language in the 
original filing.
    \4\ See Securities Exchange Act Release No. 47547 (March 20, 
2003), 68 FR 15027 (March 27, 2003).
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II. Description of the Proposed Rule Change

    NYSE Rule 123E sets forth the NYSE's Specialist Combination Review 
Policy. \5\ Currently, the Policy requires the Quality of Markets 
Committee (``QOMC'') to review proposed specialist unit combinations 
that exceed five, ten, or fifteen percent tier levels in any one of 
four concentration measures.\6\
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    \5\ See Securities Exchange Act Release No. 46579 (October 1, 
2002), 67 FR 63004 (October 9, 2002) (SR-NYSE-2002-31) (formal 
codification as Rule 123E); Securities Exchange Act Release No. 
34167 (June 6, 1994), 59 FR 30625 (June 14, 1994) (SR-NYSE-93-45) 
(permanent pilot approval).
    \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 proposed rule change removes the QMOC review requirement for 
combinations that result in an increase in any concentration measure of 
less than two percentage points within a tier level. If, however, the 
percentage change increase results in the unit moving into a higher 
tier classification, a review will result. The proposed rule change 
also eliminates capital position requirements for the various tiers in 
light of recent amendments of other Exchange requirements to Exchange 
Rules 104.21 and 104.22.\7\ The proposed rule change also delegates to 
the Market Performance Committee (``MPC'') the responsibility of 
reviewing and approving, or disapproving in writing, a specialist 
combination to see what effect it will have on market quality. 
Furthermore, the proposed rule change amends the Policy to require that 
proponents of the combined units

[[Page 25074]]

maintain separate corporate relations departments and disclose whether 
the existing clerical support of the combined units will be maintained 
or increased. Additionally, the rule now describes the type of 
information the QMOC considers in determining whether the public 
interest factor has been met. Finally, the proposal adopts factors the 
MPC must consider when assessing the impact of the proposed combination 
upon specialist performance and market quality with respect to the 
subject securities.
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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). See also 
Exchange Rule 104.22 that 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.
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III. Discussion and Commission Findings

    After careful review, 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.\8\ 
Specifically, the Commission finds the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ which requires among 
other things, that the rules of the Exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and national market system, and in general, to 
protect investors and the public interest.
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    \8\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change is a 
reasonable modification of the Policy. The Commission does not believe 
that consolidations among specialist units are inherently harmful, and 
believes that in certain situations they can be beneficial, 
particularly for those units with limited capital. At the same time, 
the Commission recognizes that undue concentration may have negative 
effects on market quality by, among other things, hampering competition 
among specialists and reducing incentives for specialists to provide 
better markets.
    The Commission believes that the modifications are reasonably 
designed to result in approval of proposed combinations that will not 
have an adverse impact on market quality or result in undue 
concentration. Although the Commission recognizes that the Policy, as 
amended, could result in prohibiting a combination from occurring, the 
Commission believes the factors for consideration in reviewing the 
impact of concentration are related to legitimate market quality issues 
that the NYSE should be permitted to weigh. The proposal should also 
benefit specialist units, as well as the MPC, because it sets forth the 
specific factors the MPC must consider when reviewing specialist 
combinations. The Commission also notes that the MPC denials must be in 
writing, and must be communicated to the specialist. This will ensure 
that the basis for any denial is provided to the specialist unit.
    The Commission believes that the proposal does not impose any 
unnecessary or inappropriate burden on competition under Section 
6(b)(8) of the Act,\10\ in that it establishes review procedures to 
prevent potential under capitalization of specialist units that could 
hinder market quality. Accordingly, any potential burden on competition 
resulting from the proposal is justified as necessary and appropriate 
under the Act.
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    \10\ 15 U.S.C. 78f(b)(8).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the amended proposed rule change (SR-NYSE-2002-41) be, 
and hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    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. 03-11589 Filed 5-8-03; 8:45 am]
BILLING CODE 8010-01-U