[Federal Register Volume 68, Number 110 (Monday, June 9, 2003)]
[Notices]
[Pages 34453-34458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14369]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47961; File No. SR-NYSE-2002-32]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the New York Stock 
Exchange, Inc. Relating to the Addition of Interpretive Material to 
Several Exchange Rules

June 2, 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 12, 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 NYSE. On March 11, 
2003, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ On May 21, 2003, the Exchange filed Amendment No. 2 to the 
proposed rule change.\4\ 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 Mary Yeager, Assistant Secretary, NYSE, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated March 10, 2003 (``Amendment No. 
1''). In Amendment No. 1, the Exchange submitted a new Form 19b-4, 
which replaced the original filing in its entirety.
    \4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE 
to Nancy J. Sanow, Assistant Director, Division, Commission, dated 
May 20, 2003 (``Amendment No. 2''). In Amendment No. 2, the Exchange 
corrected a typographical omission to the version of NYSE Rule 72(b) 
provided in Amendment No. 1. The Exchange also amended NYSE Rule 75 
in order to reflect that Senior Floor Officials and Executive Floor 
Officials would be permitted to sit on panels to resolve disputes 
among members under certain circumstances. In addition, the Exchange 
amended NYSE Rule 91.10 to clarify that a member may reject a trade 
as soon as practicable under the prevailing circumstances after 
receiving an execution report that the member acted as principal. 
The Exchange also amended NYSE Rule 91.10 to clarify that disputes 
between members as to whether there was sufficient time to reject a 
trade would be resolved under NYSE Rule 75. In addition, NYSE Rule 
91.50 was amended to make clear that a Floor Official's review of a 
pattern of a member's rejections does not compromise the 
unconditional right of the specialist to reject any trade where the 
specialist trades as principal.
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    I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change
    The proposed rule change, as amended, consists of the addition of 
long-standing interpretive material to several NYSE rules.
    The text of the proposed rule change, as amended, is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.\5\
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    \5\ The rule text provided herein includes corrections of 
typographical errors from the rule text that the NYSE submitted in 
Amendment No. 2 of the proposed rule change. Telephone conversation 
between Jeffery Rosenstruck, Senior Special Counsel, Market 
Surveillance, Rule Development, NYSE, and Tim Fox, Attorney, 
Division, Commission on May 22, 2003.
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Rule 72 Priority and Precedence of Bids and Offers

    I. 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.

[[Page 34454]]

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, 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. Following a transaction at the improved price, the member 
with the agency cross transaction shall follow the crossing procedures 
of Rule 76 and complete the balance of the cross. 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 in 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.
* * * * *

III. Sale ``Clears the Floor''

    Following a sale, all bids and offers previously entered are deemed 
to be re-entered and are on parity with each other. For example, assume 
that the market in XYZ is 0.20 bid for 5000 shares, with 5000 shares 
offered at 0.25. On the bid side of the market, Broker A is bidding for 
1000 shares and has priority. Brokers B, C, D, and E are each bidding 
for 1000 shares, with B being ahead of C, C being ahead of D, and D 
being ahead of E. On the offer side of the market, Broker F is offering 
1000 shares and has priority. Brokers G, H, I, and J are each offering 
1000 shares, with G being ahead of H, H being ahead of I, and I being 
ahead of J. Broker K enters the Crowd and sells 1000 shares to Broker 
A's bid of 0.20. The market then becomes 0.20 bid for 4000 shares, with 
5000 offered at 0.25. Brokers B, C, D, and E are now on parity on the 
bid side of the market, and Brokers F, G, H, I, and J are now on parity 
on the offer side of the market.
* * * * *

Rule 75 Disputes as to Bids and Offers

    Disputes arising on bids or offers, if not settled by agreement 
between the members interested, shall be settled by a Floor Official. 
In rendering a decision as to disputes regarding the amount traded, the 
Floor Official shall give primary weight to statements by any member 
who was not a party to the transaction and shall also take into account 
the size of orders held by parties to the disputed transaction, and 
such other facts as he deems relevant. If both parties to a dispute 
agree, and the dispute involves either a monetary difference of $10,000 
or more or a questioned trade, the matter may be referred for 
resolution to a panel of three Floor Governors, Senior Floor Officials, 
or Executive Floor Officials, or any combination thereof, whose 
decision shall be binding on the parties. As an alternative to a panel 
of three Floor Governors, Senior Floor Officials, or Executive Floor 
Officials, or any combination thereof, members may also proceed to 
resolve a dispute through long-standing arbitration procedures 
established under the Exchange's Constitution and Rules.
* * * * *

Rule 91 Taking or Supplying Securities Named in Order

* * * * *
[sbull] [sbull] [sbull] Supplementary Material
    .10 Confirmation of transactions.--When a member or member 
organization is notified to send a [representative] member to a 
specialist's post for the purpose of confirming a transaction with 
another member who has elected to take or supply for his own account 
the securities named in an order entrusted to him, the member or member 
organization so notified or a member representing the notified party 
must respond [promptly] as soon as practicable under the prevailing 
circumstances following notification to the member or member 
organization of the report of execution of the transaction. The 
transaction must then be either confirmed or rejected with a member and 
not with a clerk. [The representative] Transactions which are not then 
confirmed in accordance with the procedures above are deemed to have 
been accepted. If the specialist took or supplied the securities, the 
member so notified must initial the memorandum record of the specialist 
which shows the details of the trade and return it to the specialist. 
The specialist must keep such memoranda records for a period of three 
years.
    Any disagreement as to whether a member or member organization has 
taken timely action pursuant to this paragraph shall be resolved in 
accordance with the principles of Rule 75.
    .20 Principal transactions against orders in specialists' 
possession.--A specialist occasionally may effect a transaction as 
principal against an order which had been entered for an account 
carried by the specialist's organization or serviced by someone at his 
organization. In such cases, [it is desirable that] all specialists 
must follow a uniform procedure. The customer for whom the order had 
been entered [should] must be contacted promptly. The fact that the 
stock has been taken or supplied as principal against his order 
[should] must be explained to him so that he may then accept or reject 
the transaction.
* * * * *
    .50 Rejection of specialist's principal transactions--If there is a 
continued pattern of rejections of a specialist's principal 
transactions, a Floor Official may be called upon and require the 
broker to review his or her actions. It should be noted, however, that 
if a customer gives instructions to his or her broker to reject trades 
with the specialist's name on the other side, this would be a 
conditional order and should not be entrusted to the specialist for 
execution.
    The foregoing does not compromise the unconditional right of a 
broker to reject any trade where the specialist trades as principal. In 
addition, no disciplinary process would be triggered against the broker 
for exercising his right to reject the trade.

Rule 95 Discretionary Transactions

    (a) No member while on the Floor shall execute or cause to be 
executed on the Exchange, or through ITS or any other Application of 
the System, any transaction for the purchase or sale of any stock with 
respect to which transaction such member is vested with discretion as 
to (1) the choice of security to be bought or sold, (2) the total 
amount of any security to be bought or sold, or (3) whether any such 
transaction shall be one of purchase or sale. The member must receive 
all material terms of an order, as referenced in (1), (2), and (3), 
from the member's customer off the Floor, and may not

[[Page 34455]]

simply rely on a general understanding of the customer's intentions and 
thereby create an order or a material term of an order on the Floor. 
For example, a member who has purchased stock pursuant to a customer's 
off-Floor order may not simply rely on an understanding of the 
customer's strategy to sell the stock if it becomes profitable to do 
so, but must first obtain a new order to sell entered by the customer 
from off the Floor. See also Rule 90 and the supplementary material 
thereto.
* * * * *

Rule 115A Orders at Opening or in Unusual Situations

* * * * *
[sbull] [sbull] [sbull] Supplementary Material
    .20 Arranging an opening or price.--
* * * * *
    ``Pair-offs.''--A specialist who, as provided in (1) above, holds a 
market order of another member or gives up his own name instead of 
holding the order, may, in arranging the opening, ``pair-off'' such an 
order against any order held by the specialist or by another member.
    The member who leaves such an order with the specialist should, as 
promptly as possible after the opening of the stock, return to the 
Post. The specialist must retain the order slip and must advise the 
member as to the broker and the name given up on the opposite side of 
the transaction. The member should proceed as promptly as possible to 
confirm the transaction with the broker on the opposite side.
    Failure to comply with the time periods specified in the paragraph 
``Responsibility for Losses'' below shall relieve the specialist from 
responsibility for any loss that may result.
    In the event that the specialist has given up his own name instead 
of holding a member's order, and, based upon such order, the specialist 
has effected a ``pair-off'' against an order of another member, the 
specialist should notify the member to whom he originally gave his own 
name of the broker and the name given up on the opposite side of the 
transaction. Such member should proceed as promptly as possible to 
confirm the transaction with the broker on the opposite side. If the 
specialist has effected the ``pair-off'' against an order which he 
handled as a broker, he should send a give-up notice to the member to 
whom he originally gave his own name.
    ``Stopping.''--When a specialist has been unable to ``pair-off'' a 
market order which has been left with him, as provided in (1) above, he 
may, after opening of the Exchange but before the opening of the stock, 
``stop'' at the offer price any such market order to buy, or at the bid 
price any such market order to sell. In such cases, the specialist 
should notify the broker who left the order with him that the order is 
``stopped'' and inform him of the price at which it is ``stopped.'' In 
the event that the specialist is unable to execute the order at a 
better price, he should send for the broker who left such order with 
him, and allow the broker to consummate the transaction.
    Establishing a fair price.--A specialist or other member who holds 
orders in order to assist in establishing a fair price, as provided in 
(2) above, should, after the establishment of such price, send for the 
members whose orders were held for that purpose. Such members should 
proceed as promptly as possible to confirm the transactions with the 
brokers on the opposite side.
    Responsibility for losses.--A specialist or other member who makes 
an error in arranging an opening or establishing a fair price shall not 
be responsible for any loss involved if the member whose order has been 
held or represented neglects to endeavor to confirm the transaction.
    In the event that a member endeavors to confirm a transaction 
resulting from an order left with the specialist as provided in (1) 
above, but is unable to do so because of an error made by the 
specialist in arranging an opening, the specialist shall be responsible 
for any loss which may be involved, except when:
    (1) The broker who left such order fails to return to the Post 
within 30 minutes after the opening sale; or
    (2) The broker who left such order returns to the Post within 30 
minutes after the opening sale, but neglects to endeavor to confirm the 
transaction with the broker on the opposite side within 30 minutes 
after returning to the Post.
* * * * *

Rule 116 ``Stop'' Constitutes Guarantee

    An agreement by a member to ``stop'' securities at a specified 
price shall constitute a guarantee of the purchase or sale by him of 
the securities at that price or its equivalent.
    If an order is executed at a less favorable price than that agreed 
upon, the member who agreed to stop the securities shall be liable for 
an adjustment of the difference between the two prices.
[sbull] [sbull] [sbull] Supplementary Material
    .10 Reporting ``stops''.--Members and member organizations should 
report to their customers that securities have been stopped with 
another member only if the stop is unconditional and the other member 
had definitely agreed thereto.
    .20 ``Stopping'' stock.--The privilege of stopping stock, other 
than rights, shall not be granted or accepted by a [member] Floor 
broker [in cases where the spread in the quotation is only the minimum 
variation of trading in the particular stock], except that, in a 
minimum variation market, a [member] Floor broker who holds 
simultaneously an order to buy at the market and an order to sell the 
same stock at the market may stop such purchase and selling orders 
against each other and pair them off at prices and in amounts 
corresponding to those of the subsequent sales in the stock as they 
occur in the market. This exception will also apply when two [members] 
Floor brokers, one holding an order to buy at the market and the other 
holding an order to sell the same stock at the market, arrive in the 
Crowd at the same time.
    For the purpose of the exceptions provided herein, a limited order 
to buy which is possible of execution at the prevailing offer price or 
a limited order to sell which is possible of execution at the 
prevailing bid price may be regarded as a market order.
    .30 Restrictions on ``stopping'' stock.--No specialist may stop 
stock against the book or for his own account at a price at which he 
holds an order capable of execution at this price except that he may 
stop stock:
    (1) in connection with an opening or reopening;
    (2) when there is a broker in the Crowd representing another order 
at the stop price; or
    (3) when a member acting on behalf of either a public customer's 
account or an account in which such member or another member has an 
interest makes an unsolicited request that a specialist grant him a 
stop if:
    (a) (i) the spread in the quotation is not less than twice the 
minimum variation of trading in the stock; or, (ii) where the spread in 
the quotation is the minimum variation of trading in the stock[,] and 
an imbalance in the quotation suggests the likelihood of price 
improvement for the stopped order, the size of any order as to which a 
stop is granted does not exceed 2,000 shares, and the aggregate number 
of shares as to which stops are in effect does not exceed 5,000 shares, 
unless a

[[Page 34456]]

Floor Official has approved, as appropriate under prevailing market 
conditions, the granting of a stop for an order or orders of a larger 
specified size, or the granting of stops as to a larger specified 
aggregate number of shares as to which stops may be in effect;
    (b) after the granting of the stop the spread between the bid and 
offer is reduced, in any case where, prior to the granting of the stop, 
the spread in the quotations was not less than twice the minimum 
variation of trading in the stock;
    (c) the specialist does not reduce the size of the market following 
the stop; and
    (d) on the election of the stop the order or orders on the 
specialist's book entitled to priority will be executed against the 
stopped stock.
    .40 ``Stopping'' stock on market-at-the-close orders.--
Notwithstanding any provisions of this Rule or of any other Exchange 
Rule to the contrary, a member shall execute market-at-the-close orders 
in a stock as provided below, where the member is holding 
simultaneously both buy and sell market-at-the-close orders.
    (A) Where there is an imbalance between the buy and sell market-at-
the-close orders, the member shall, at the close of trading on the 
Exchange in that stock on that day, execute the imbalance against the 
prevailing bid or offer on the Exchange, as appropriate. (An imbalance 
of buy orders would be executed against the offer. An imbalance of sell 
orders would be executed against the bid.) The member shall then stop 
the remaining buy and sell orders against each other and pair them off 
at the price of the immediately preceding sale described above. The 
``pair off'' transaction shall be reported to the consolidated last 
sale reporting system as ``stopped stock''.
    (B) Where the aggregate size of the buy market-at-the-close orders 
equals the aggregate size of the sell market-at-the-close orders, the 
buy orders and sell orders shall be stopped against each other and 
paired-off at the price of the last sale of the Exchange just prior to 
the close of trading in that stock on that day. The transaction shall 
be reported to the consolidated last sale reporting system as ``stopped 
stock''. See Rule 123C for discussion of procedures applicable to 
market-at-the-close and limit-at-the close orders.

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 NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change, as 
amended, 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 purpose of this filing is to add explanatory or clarifying 
material to several NYSE rules. The proposed rule change, as amended, 
does not constitute a substantive change to any NYSE rule or policy, 
and is responsive to recommendations made by an Independent Consultant 
retained by the Exchange.\6\
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    \6\ See In the Matter of New York Stock Exchange, Inc., 70 
S.E.C. Docket 106, Securities Exchange Act Release No. 41574 (June 
29, 1999), Administrative Proceeding File No. 3-9925.
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    NYSE Rule 72. The Exchange is proposing to add a sentence to NYSE 
Rule 72(b) making it clear that a broker must ``recross'' a proposed 
clean agency cross pursuant to Exchange auction procedures following a 
transaction which provides price improvement to one side of the cross. 
The Exchange represents that this is consistent with NYSE auction 
procedures that require exposure of bids and offers by brokers 
effecting a cross before a transaction may be completed.
    The Exchange is also proposing to specify in the Rule its long 
standing interpretation of its auction rules that a transaction 
``clears the Floor,'' meaning bids and offers not satisfied in the 
transaction are deemed to be simultaneously re-entered and on parity 
with each other. This is a fundamental concept that has long been 
deemed essential to the efficient functioning of the auction market.
    NYSE Rule 75. The Exchange is proposing to codify formally in NYSE 
Rule 75 its long-standing practice that Floor disputes involving 
$10,000 or more, or questioned trades, can be referred for resolution 
to a panel of three Floor Governors, Senior Floor Officials, or 
Executive Floor Officials, or any combination thereof if the parties to 
the dispute so agree.\7\ The decision of the panel is then binding on 
the parties. This practice, which is essentially a form of expedited 
arbitration, has proven to be a very efficient means of ensuring timely 
resolution of Floor disputes.
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    \7\ See Amendment No. 2. According to the NYSE, Executive Floor 
Officials and Senior Floor Officials perform many of the same 
functions performed by Floor Governors. Executive Floor Officials 
are former Floor Governors and are empowered to perform any duty, 
make any decision or take any action assigned to or required of a 
Floor Governor. Floor officials entering their fifth or sixth year 
of service as a Floor Official are eligible for appointment as 
Senior Floor Officials. They are also empowered with the authority 
of a Floor Governor. See Securities Exchange Act Release No. 44673 
(August 9, 2001), 66 FR 43279 (August 17, 2001) (SR-NYSE-2001-16).
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    As an alternative to a panel of three Floor Governors, Executive 
Floor Officials, and/or Senior Floor Officials (as stated above), 
members may also proceed to resolve a dispute through long-standing 
arbitration procedures established under the NYSE's Constitution and 
Rules.
    NYSE Rule 91. The Exchange is proposing to clarify NYSE Rule 91.10 
to make clear in the Rule that only a member may confirm a transaction 
in the situations covered by the Rule. The Exchange is also proposing 
to add a sentence to the Rule to clarify that transactions which are 
not confirmed are deemed to have been accepted. The NYSE represents 
that both of these changes described above reflect consistent Exchange 
interpretations of NYSE Rule 91.10.
    In addition, the Exchange is proposing to replace the term 
``promptly'' with the phrase ``as soon as practicable under the 
prevailing circumstances.'' Specifically, the Exchange proposes to 
amend NYSE Rule 91.10 to provide that a member receiving a report of 
execution of a transaction where another member \8\ acted as principal 
triggers the member's unconditional right to reject the trade as soon 
as practicable, given the prevailing circumstances. In addition, the 
Exchange is amending NYSE Rule 91.10 to clarify that disputes as to 
whether there was sufficient time to reject the trade would be resolved 
under NYSE Rule 75, either through a panel of three Floor Governors, 
Senior Floor Officials, or Executive Floor Officials, or any 
combination thereof, or through arbitration procedures established 
under the Exchange's Constitution and Rules.\9\
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    \8\ The Exchange clarified that NYSE Rule 91.10, except the 
provision dealing with the memorandum record of the specialist, 
applies to transactions when any member elects to take or supply for 
his own account the securities named in an order entrusted to him. 
Telephone conservation between Jeffery Rosenstruck, Senior Special 
Counsel, Market Surveillance, Rule Development, NYSE, and Tim Fox, 
Attorney, Division, Commission on May 28, 2003.
    \9\ See Amendment No. 2.
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    The Exchange represents that the proposed changes, deeming 
transactions

[[Page 34457]]

which are not confirmed or rejected as accepted and replacing 
``promptly'' with ``as soon as practicable under the prevailing 
circumstances,'' aim to maintain a degree of flexibility in the Rule to 
accommodate various situations occurring during the trading day. Given 
today's enormous volume of trading on the Floor (over 1 billion shares 
daily), the NYSE believes that it is not practical to impose an 
affirmative obligation on members to confirm each and every transaction 
where another member acted as principal, nor does the Exchange believe 
that it is practical for members to have to obtain the confirmations. 
Thus, if no action is taken by a member to confirm a transaction, the 
transaction would be deemed confirmed under the proposed Rule.\10\
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    \10\ Id.
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    In NYSE Rule 91.20, the Exchange is proposing to replace the term 
``should'' with ``must,'' to reflect the mandatory nature of the 
procedures outlined.
    NYSE Rule 91.50 is proposed to be added to explain the rejection of 
specialist's principal transactions. The proposed language states that 
if there is a continued pattern of rejections of a specialist's 
principal transactions, a Floor Official may be called upon to require 
the broker to review his actions. However, if a customer gives 
instructions to his broker to reject trades with the specialist's name 
on the other side, this would be a conditional order and should not be 
entrusted to the specialist for execution.
    The Exchange states that a Floor Official's reviewing a pattern of 
rejections of a specialist's principal transactions and requiring a 
broker to review his or her actions do not compromise the unconditional 
right of a broker to reject any trade where the specialist trades as 
principal. If a customer gives a continued pattern of rejection 
instructions to a Floor broker to reject any trade where the specialist 
acted as principal, a Floor Official would be able to review the 
appropriateness of the continued pattern of rejections by the broker, 
to make sure he is representing his customer as fiduciary and not 
giving the specialist, in effect, a kind of conditional order that is 
not recognized under Exchange rules. If a continued pattern of 
rejections does occur because the customer will not accept executions 
with the specialist as contra party, the Floor broker should represent 
the order himself or herself to ensure appropriate representation of 
the order in accordance with the broker's fiduciary responsibility to 
the customer. Because the right to reject a trade pursuant to NYSE Rule 
91 is unconditional, no disciplinary process would be triggered by the 
broker exercising his or her right to reject a trade.\11\
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    \11\ Id.
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    NYSE Rule 95. Under NYSE Rule 95, an Exchange Floor broker cannot 
effect a transaction if that broker has discretion regarding the choice 
of security to be bought or sold, the total amount of the security to 
be bought or sold, or whether the transaction shall be a purchase or a 
sale. The Exchange is proposing to add material to NYSE Rule 95(a) 
making clear that members may not create an order or a material term of 
an order, but must receive an order from off the Floor, regardless of 
how familiar they are with a customer's strategy. This is a long-
standing interpretation of NYSE Rule 95 and the Exchange believes is 
reasonably and fairly implied by the text of the existing Rule.
    NYSE Rule 115A. NYSE Rule 115A, among other matters, provides 
procedures for members to confirm transactions on openings. The Rule 
provides in one place that members should confirm transactions as 
promptly as possible, and in another place states that a specialist 
shall not be responsible for losses if the broker does not return to 
the specialist's post within 30 minutes after the opening sale. The 
Exchange is proposing to add to the Rule a cross reference to make 
clear that while a broker should confirm a transaction as promptly as 
possible, the specialist is not responsible for losses thirty minutes 
after the opening. This is a simple cross-referencing point that the 
Exchange believes is reasonably and fairly implied by the text of the 
current Rule.
    NYSE Rule 116. The Exchange is proposing three changes to NYSE Rule 
116. Exchange Rule 116.20 would be revised to directly state a 
prohibition against a Floor broker ``stopping'' stock. This is not a 
new prohibition, as section 11(a) of the Act \12\ and NYSE rules 
regulating on-Floor trading would have the effect of prohibiting a 
broker from effecting an on-Floor proprietary trade to execute the 
order at the ``stop'' price if other market interest traded with the 
bid or offer against which the broker's order was stopped and the 
broker was thus obligated to effect a proprietary trade to fulfill the 
``stop.'' The Exchange has consistently interpreted NYSE Rule 116.20 in 
this manner.
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    \12\ 15 U.S.C. 78k(a).
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    The Exchange is also proposing to amend NYSE Rule 116.30(3)(a) to 
make clear in the Rule that a specialist should ``stop'' an order in a 
minimum variation market only when there is an imbalance in the 
quotation suggesting the likelihood of price improvement for the 
``stopped'' order. This proposed rule change to NYSE Rule 116.30(3)(a) 
has been the Exchange's consistent interpretive position. In addition, 
the Exchange is proposing to add to NYSE Rule 116.40 a cross reference 
to new NYSE Rule 123C,\13\ which codifies in detail the Exchange's 
policies regarding execution of market-on-close and limit-on-close 
orders.
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    \13\ See Securities Exchange Act Release No. 46579 (October 1, 
2002), 67 FR 63004 (October 9, 2002) (SR-NYSE-2002-31).
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2. Statutory Basis
    The NYSE believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\14\ in general, and further 
the objectives of Section 6(b)(5),\15\ in particular, because it is 
designed to promote just and equitable principles of trade, to remove 
impediments and to perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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, as 
amended, 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

    Written comments on the proposed rule change, as amended, were 
neither solicited nor received.

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 NYSE consents, the Commission will:
    (A) By order approve such proposed rule change, as amended; or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

[[Page 34458]]

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, as 
amended, 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 filings will also be available for 
inspection and copying at the principal office of the NYSE. All 
submissions should refer to File No. SR-NYSE-2002-32 and should be 
submitted by June 30, 2003.

For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-14369 Filed 6-6-03; 8:45 am]
BILLING CODE 8010-01-P