Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30171

3The term ‘‘RVP/DVP transaction’’ is defined in

NSCC Rule 1 to mean any wholly executory receiptversus-payment or delivery-versus-payment

transaction between an NSCC member and an RVP/

DVP customer. The term ‘‘RVP/DVP customer’’ is

defined in Rule 1 to mean a party who has executed

a RVP/DVP transaction with an NSCC member for

whom NSCC has declined or ceased to act, or with

an introducing broker who clears through an NSCC

member for whom NSCC has declined or ceased to

act.

4Supra note 3.

5This notice would typically be sent via The

Depository Trust Company’s electronic message

dissemination system.

6 15 U.S.C. 78q–1(b)(3)(F).

7 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240. 19b–4.

3See Letter from James E. Buck, Senior Vice

President and Secretary, NYSE, to Terri Evans,

Attorney, Division of Market Regulation

(‘‘Division’’), Commission, dated February 4, 2000

(‘‘Amendment No. 1’’).

4Securities Exchange Act Release No. 42487

(March. 2, 2000), 65 FR 12603.

The rule change also adds the

following terms to NSCC Rule 1

(Definition and Description): ‘‘CNS

Position,’’ ‘‘New Close Out Position,’’

‘‘RVP/DVP Transaction,’’ and ‘‘RVP/

DVP Customer.’’

b. DVP/RVP Transactions

The rule change adds a new Section

3 to Rule 18, which pertains to CNS or

balance order RVP/DVP transactions.3

The RVP/DVP transactions covered by

proposed Section 3 are those in which

the RVP/DVP customer 4 (1) has

executed an RVP/DVP transaction with

the NSCC member for which NSCC has

ceased to act or with an introducing

broker-dealer which clears through an

NSCC member for which NSCC has

ceased to act and (2) would have taken

delivery of the cash or securities from

the broker-dealer for which NSCC has

ceased to ace on an RVP/DVP basis at

its custodian bank or other depository

agent in the absence of the default.

Under the new rule, after NSCC has

ceased to act for a member, NSCC will

attempt to complete: (1) All open RVP/

DVP transactions of which NSCC is

aware prior to ceasing to act but only to

the extent that the completion of the

RVP/DVP transactions would not

increase the size of the position in any

security that NSCC would have to closeout and (2) any additional open RVP/

DVP transactions to the extent deemed

appropriate by NSCC’s Board of

Directors. NSCC’s obligation set forth in

(1) remains regardless of whether NSCC

would gain or lose money by

completing such transactions, and any

determinations by the NSCC Board to

complete any additional RVP/DVP

transactions would be made without

regard to the potential profit or loss for

NSCC in any individual transaction. In

either case, NSCC would have no

obligation to complete any open RVP/

DVP transaction in an issue if: (1) NSCC

believed it could not complete all RVP/

DVP transactions in such issue that it

would be obligated to attempt to

complete under this new provision; (2)

there were allegations of fraud or other

questionable activities with respect to

an issue; or (3) NSCC believed that the

completion of an RVP/DVP transaction

in an issue could not be completed.

The rule change requires NSCC to

provide notice of NSCC’s intent to

complete the RVP/DVP transactions to

the trustee or receiver of the member for

whom NSCC has ceased to act (if one

has been appointed) and to the relevant

RVP/DVP customers or the RVP/DVP

customers’ depository agents or their

depository agents’ depositories. This

notice will alert the RVP/DVP customer

that completion of any such transaction

with NSCC constitutes a presumed

waiver by the RVP/DVP customer of any

claim arising out of such transactions

against the member for whom NSCC has

ceased to act, its receiver or trustee (or

any successor trustee), or SIPC.5

II. Discussion

Section 17A(b)(3)(F) 6 of the Act

requires that the rules of a clearing

agency be designed among other things,

to protect investors and the public

interest. As set forth below, the

Commission finds that NSCC’s rule

change is consistent with this obligation

under the Act.

The Commission finds that allowing

NSCC to complete RVP/DVP

transactions after it ceases to act for an

insolvent member could benefit

customers, counterparties, and creditors

of the insolvent broker-dealer by

minimizing the disruptive market

effects and the large administrative

burdens and costs associated with the

insolvency of a broker-dealer. The

Commission also finds that the merging

within NSCC’s rules of the actions

NSCC will take when it ceases to act for

a member, regardless of whether it

ceases to act because of the insolvency

of the member or for some other reason,

simplifies and makes clearer NSCC rules

without effecting any real changes to its

rules. As such, the Commission finds

that NSCC’s proposed rule change is

consistent with NSCC’s statutory

obligation to protect investors and the

public interest.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

NSCC–98–14) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret McFarland,

Deputy Secretary.

[FR Doc. 00–11608 Filed 5–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42746; File No. SR–NYSE–

99–34]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change and Amendment No. 1 Thereto

Relating to the Exchange’s Allocation

Policy and Procedures

May 2, 2000.

I. Introduction

On July 20, 1999, the New York Stock

Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’), filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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

amending the Exchange’s Allocation

Policy and Procedures (‘‘Policy’’). On

February 7, 2000, the Exchange

submitted Amendment No. 1 to the

proposed rule change.3 The proposed

rule change, as amended, was published

for comment in the Federal Register on

March 9, 2000.4 This order approves the

NYSE proposal, as amended.

II. Description of the Proposal

According to the Exchange, its Policy

is intended to: (1) Ensure that the

allocation process for securities is based

on fairness and consistency and that all

specialist units have a fair opportunity

for allocations based on established

criteria and procedures; (2) provide an

incentive for ongoing enhancement of

performance by specialist units; (3)

provide the best possible match between

a specialist unit and security; and (4)

contribute to the strength of the

specialist system.

Since 1987, the Exchange’s Quality of

Markets Committee has appointed a

number of Allocation Review

Committees (‘‘ARCs’’) to review the

30172 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

5See Securities Exchange Act Release No. 38372

(March 7, 1997), 62 FR 13421 (March 20, 1997)

(containing recommendations made by ARCs I

through IV).

6The floor broker Governors are automatically

members of the Market Performance Committee and

the Panel.

Policy and make recommendations with

respect to changes.5 In February 1999,

the Quality of Markets Committee again

appointed an ARC, ARC V, to review the

Policy and make recommendations with

respect to improvements in the

allocation process. Those

recommendations, which the Exchange

is proposing as changes to the Policy,

are discussed below.

A. Composition of Allocation Committee

Currently, the Allocation Committee

is composed of nine members,

consisting of seven floor brokers

(including (1) three broker Governors

(one of whom may be an independent/

two dollar broker) and (2) four other

floor brokers from the Allocation Panel)

(‘‘Panel’’) (one of whom must be an

independent/two dollar broker)) and

two allied members from the Market

Performance Committee or the Panel.

The Allocation Committee presently

does not have representation from

institutional investor organizations. The

proposal would add one institutional

investor representative member to the

Allocation Committee, drawn from the

Panel or from the institutional investor

members of the Market Performance

Committee. The Exchange does not

believe that it is necessary to expand the

size of the Allocation Committee.

Therefore, the Exchange proposes to

decrease the number of floor brokers on

the Committee from seven to six by

decreasing the number of other floor

brokers from the Panel to three (one of

whom must be an independent/two

dollar broker).

B. Composition of Allocation Panel

According to the NYSE, the Panel is

the resource from which the Allocation

Committee is assembled. A Panel is

appointed by the Exchange’s Quality of

Markets Committee from individuals

nominated by the Exchange’s

membership. The Panel consists of 28

floor brokers; twelve allied members

(including the four allied members

serving on the Market Performance

Committee); eight floor broker

Governors, who are part of the Panel by

virtue of their appointment as

Governors; and a minimum of five

Senior Floor Official brokers.

The Exchange proposes three changes

to the composition of the Panel. First,

the Exchange proposes to expand the

Panel to add nine institutional investor

organization representatives, including

the five serving on the Market

Performance Committee, to be

consistent with the proposal to add

institutional investor representatives to

the Allocation Committee.

Representatives from institutional

investor organizations would be chosen

in the same manner as other Panel

members, (i.e., through nominations

from the membership and appointment

by the Quality Markets Committee).

Second, the Exchange is proposing to

increase the number of floor broker

Governors on the Panel from eight to ten

to reflect the increased number of floor

Governors appointed under Exchange

Rule 46.6 Finally, at the time the

number of floor Governors was

increased, the number of allied member

representatives on the Market

Performance Committee was increased

from four to five. Therefore, the

Exchange proposes to amend the

composition of the Panel to reflect this

increase.

Under these proposed revisions to the

Policy, the new composition of the

Panel would be 28 floor brokers; 13

allied members (including the five

allied members serving on the Market

Performance Committee); nine

institutional members (including the

five representatives of institutional

investor organizations serving on the

Market Performance Committee); then

floor broker Governors, who are part of

the Panel by virtue of their appointment

as Governors; and a minimum of five

Senior Floor Official brokers.

C. Allocation Committee Quorum

Requirement

The proposal would not alter the

Allocation Committee’s existing quorum

requirement that there be at least six

floor brokers, at least two of whom are

Governors, and one allied member.

According to the Exchange, the presence

of the instutional representative would

not be required for a quorum because,

at times, it may be difficult to obtain the

participation of a representative of an

institutional investor organization.

D. Contact Between Listing Companies

and Specialist Units

Under the Policy, specialist units or

any individual acting on their behalf are

prohibited from having any contact with

a company that has applied for listing

from the date applications (known as

‘‘green sheets’’) are solicited from

specialists for the purpose of allocating

the stock to a specialist organization.

The Exchange proposes to change this

non-contact period to the earlier of the

date written notice is given that the

listing company filed its listing

application with the Exchange or the

date allocation applications are

solicited, (i.e., the date the ‘‘green sheet’’

is posted). The Exchange presently

publishes this notice of listing

applications in its Weekly Bulletin. This

proposal would move the start of the

period as to when contact is prohibited

to an earlier date in those cases where

the ‘‘green sheet’’ is issued after the

Weekly Bulletin notice of an application

to list has been published.

E. Listing Company Request for

Additional Specialist Information

Following Interviews

The Policy currently permits a listing

company to pick its specialist unit after

interviewing a pool of three, four, or five

units selected by the Allocation

Committee. Furthermore, any follow-up

questions conveyed to the Exchange

from a listing company regarding

specialist unit(s) it interviewed are

restricted to questions regarding

publicly-available information. The

Exchange must approve the request and

all units in the group of units

interviewed must be notified by the

Exchange of the request.

The NYSE proposes that if a listing

company has a follow-up question for

any specialist unit(s) it interviewed, it

must be conveyed to the Exchange. The

Exchange would contact the unit(s) to

which the question pertains and would

provide any information received from

the unit(s) to the listing company. The

NYSE further proposes to eliminate the

requirement that only publicly-available

information be provided and the

language requiring Exchange approval,

as well as the requirement that the

Exchange notify the other units

interviewed of the company’s request.

F. Common Stock Listing After Preferred

Currently, the Policy does not address

the situation involving a common stock

being listed after its preferred stock has

been allocated. Accordingly, the

Exchange is proposing that the

allocation of the common stock of a

company listing after its preferred stock

has been listed would be open to all

specialist units. Under the terms of the

proposal, the company may select

Option 1 (in which the Allocation

Committee selects the specialist unit to

be allocated the company’s stock) or

Option 2 (in which the company selects

a specialist unit from among a group of

units chosen by the Allcoation

Committee). If Option 2 is selected, the

specialist unit that trades the preferred

stock must be included in the group of

units comprising the interview pool.

The company would not be able to

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30173

7A structured product is a security, which is

based on the value of another security.

8The structured product company would

designate which of its officers is a senior officer.

9 In approving this rule, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

10 15 U.S.C. 78f(b)(5).

11 15 U.S.C. 78k(b).

12 17 CFR 240.11b–1.

13See 17 CFR 240.11b–1; NYSE Rule 104.

select the specialist unit trading the

preferred stock without going through

the allocation process.

G. Listed Company Mergers

Currently, when two listed companies

merge, the merged entity is assigned to

the specialist in the company that is

determined to be the survivor-in-fact.

Where no surviving entity can be

identified, the matter is referred to the

Allocation Committee and all specialists

are invited to apply. The merged

company may request either Option 1 or

Option 2, with no provisions to include

or exclude any unit from consideration

by the Allocation Committee. The

Exchange notes that there is no

provision for the merged company to

select a unit that trades one of the listed

companies, which is merging, without

going through the allocation interview

process.

The Exchange is proposing several

changes to the Policy relating to listed

company mergers. The Exchange is

proposing that in cases where no

surviving entity can be identified, the

listing company would be permitted to

select one of the units trading the

merging companies without going

through the allocation process. If the

listing company determines to go to

allocation, it may select Option 1 or

Option 2. Under Option 1, the company

would not be able to request that the

Allocation Committee not allocate the

stock to one of the units trading the

merging companies. If the company

chooses Option 2, the interview pool

would consist of the specialist units of

the merging companies and must

include additional units. The number of

additional units must be consistent with

the Policy requirement that each pool

consists of three to five units. Under

Option 2, the company would not be

permitted to request that any of the

units trading the merging companies be

excluded from the interview pool.

H. Listed/Unlisted Company Mergers

Currently, if the unlisted company is

the survivor-in-fact, the company may

choose to remain registered with the

unit that traded the listed company

involved in the merger or may request

that the matter be referred to allocation,

with applications invited from all units.

The company may request that the unit

trading the listed company not be

allocated the stock (and, as a result, not

be included in the pool of units under

Option 2) and the Allocation Committee

must honor that request.

The Exchange is proposing to conform

this Policy to the proposed Policy

involving listed company mergers with

no survivor-in-fact. Therefore, the

Policy would be amended to preclude

the unlisted company from excluding

from consideration by the Allocation

Committee the specialist unit that trades

the listed company. Further, the Policy

would require that if the unlisted

company chooses Option 2, the unit

trading the listed company must be

included in the allocation pool.

I. Issuance of Tracking (‘‘Target’’) Stock

These securities (also known as

‘‘letter stock’’) typically are ‘‘targeted’’

to a specific aspect of an issuer’s overall

business. There are two instances in

which ‘‘target’’ stocks are being listed.

The first involves situations in which

the ‘‘target’’ stock is being ‘‘uncoupled’’

from the listed company, and itself

listing on the Exchange. Under the

current Policy, when such a security is

‘‘uncoupled’’ and becomes an

independent listing, it remains with the

specialist registered in the stock prior to

its separate listing (‘‘original stock’’),

unless the listing company requests that

the new stock be referred to the

Allocation Committee. The second type

of ‘‘target’’ stock involves a listed

company issuing a ‘‘target’’ stock to

track a separate business line. In these

instances, the issue is assigned by

Exchange staff to the specialist in the

listed company issuing the ‘‘target’’

stock. As a result, the new listing

company (the ‘‘target’’ stock) has no

input in the allocation decision. As a

result, the Exchange proposes to amend

the Policy to conform to the spin off/

related company policy.

Target stocks, whether the target stock

itself is joining the Exchange as a

separate listing (e.g., Con Edison Inc.

issuing distinct securities in Con Edison

of New York) or where the target stock

represents a tracking of a business line

of the current listed company (e.g., GM

and GMH), will be treated in the same

manner as spin-offs and listing of

related companies. According to the

exchange, the Policy allows the listed/

listing company to choose to stay with

the specialist unit registered in the

related listed company or be referred to

the Allocation Committee. In the latter

case, the company may request not to be

allocated to the parent’s specialist and

the Allocation Committee will honor

such request. Alternatively, the

company may request the exclusion or

inclusion of the parent’s specialist in

the allocation pool under Option 2.

J. Allocation Sunset Policy

When the Exchange allocates a

company that is listing its shares from

its initial public offering, that allocation

decision remains effective for three

months. If the company does not list

within that time, the matter is referred

again to the Allocation Committee.

However, the Exchange is proposing to

amend the Policy to permit a listing

company to choose whether to stay with

the merged specialist unit, or be referred

to allocation if the selected specialist

unit mergers or is involved in a

combination within the three-month

period.

K. Listing Company Attendees at

Specialist Interviews

The current Policy requires that a

senior official of the listing company of

the rank of Corporate Secretary or above

be present at the interviews with

specialists under Option 2. In the case

of structured products’ listings,7 the

corporate makeup contemplated by the

existing requirement often does not

exist. The Exchange proposes to amend

the Policy to clarify that any senior

officer 8 of the issuer may be present at

the interview to satisfy the requirement.

III. Discussion

The Commission finds that the

proposal is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange.9

Specifically, the Commission believes

that the proposal is consistent with the

requirements of Section 6(b)(5) of the

Act,10 because it is designed to promote

just and equitable principles of trade, to

remove impediments to, and perfect the

mechanism of a free and open market

and, in general, to protect investors and

the public interest. Further, the

Commission finds that the proposal also

is consistent with Section 11(b) of the

Act 11 and Rule 11b–1 12 thereunder,

which allow exchanges t promulgate

rules relating to specialists to ensure fair

and orderly markets.

Specialists play a crucial role in

providing stability, liquidity, and

continuity to the trading of securities.

Among the obligations imposed upon

the specialists by the Exchange, and by

the Act and the rules thereunder, is the

maintenance of fair and orderly markets

in their designated securities.13 To

ensure that specialists fulfill these

obligations, it is important that the

Exchange develop and maintain stock

30174 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

allocation procedures and policies that

provide specialists an initiative to strive

for optimal performance.

A. Composition of Allocation Committee

The Exchange first proposes to add

one institutional investor representative

member to the Allocation Committee

drawn from the Panel or from the

institutional investor members of the

Market Performance Committee. In

conjunction with this proposed change,

the Exchange proposes to decrease the

number of floor brokers on the

Allocation Committee from seven to six

by decreasing the number of other floor

brokers from the Panel to three. The

Commission believes that institutional

investors are significant participants in

the securities markets, including the

Exchange and, therefore, that such

representation enhances the expertise

and objectivity of the allocation process.

The Commission further believes that it

is reasonable for the Exchange to

determine not to increase the size of the

Allocation Committee with the addition

of an institutional investor.

B. Composition of Allocation Panel

The Exchange also proposes three

changes to the composition of the Panel.

First, in order to be consistent with the

proposal to add institutional investor

representatives to the Allocation

Committee, the Exchange proposes to

expand the Panel to add nine

institutional investor organization

representatives, including the five

serving on the Market Performance

Committee. Second, the Exchange

proposes to increase the number of floor

broker Governors on the Panel from

eight to ten to reflect the increased

number of floor Governors appointed

under Exchange Rule 46. Third, the

Exchange proposes to amend the

composition of the Panel to reflect the

increase in the number of allied member

representatives on the Market

Performance Committee from four to

five. The Commission believes that

these changes to the composition of the

Panel are reasonable and consistent

with the Act, and merely reflect the

proposed inclusion of institutional

investor representatives in the

allocation process or incorporate prior

changes made by the Exchange.

C. Quorum

The Exchange believes that it may be

difficult at times to obtain the

participation of an institutional investor

representative and therefore has decided

not to change the Allocation

Committee’s existing quorum

requirement. The Commission

recognizes that while institutional

investor participation may be preferred,

it may be difficult to have such

participation at all times without

delaying the allocation process.

Therefore, the Commission believes that

it is reasonable not to change the

quorum requirement to reflect the

addition of institutional investor

representatives on the Allocation

Committee.

D. Contact Between Listing Companies

and Specialist Units

The proposal also changes the noncontact period between listing

companies and specialist units to the

earlier of the date written notice is given

that the listing company filed its listing

application with the Exchange or the

date allocation applications are

solicited. The Commission believes that

once the listing process has begun, the

Exchange may want to limit contacts

between specialists and the listing

company to avoid the appearance of

impropriety and, therefore, it is

appropriate to extend the limitation on

contact to reflect the earliest notification

to the specialist units of the company’s

intent to apply.

E. Requests for Additional Specialist

Information

The proposal further amends the

Policy with respect to requests by a

listing company for additional specialist

information following interviews.

Specifically, the proposal provides that

if a listing company has a follow-up

question for any specialist unit(s) it

interviewed, it must be conveyed to the

Exchange, which would then contact

the unit(s) to which the question

pertains and provide any information

received from the unit(s) to the listing

company. The proposal also eliminates

the requirement that only publiclyavailable information be provided and

the language requiring Exchange

approval, as well as the requirement

that the Exchange notify other units of

the company’s request.

The Commission believes that these

changes should allow listing companies

greater latitude in obtaining information

from specialist, as well as reduce the

burden on both the listing company and

prospective specialist units. For

example, in some cases, the listing

company may have received

information during the interview from

one specialist and desires to obtain

similar information about the other

specialists to better compare the

specialists. In other cases, the listing

company may only be interested in one

or more of the specialists in the pool

and consequently, only desire

information on those specific

specialists. Therefore, the proposed

changes should reduce the burden on

listing companies because the

companies would only have to review

responses from selected specialist. In

addition, it should also reduce the

burden on specialists to provide

information that the listing company

may not be interested in receiving from

that particular specialist.

F. Common Stock Listing After Preferred

With respect to situations where a

common stock is to be listed after its

preferred stock has been allocated, the

proposal provides that the allocation of

the common stock would be open to all

units. As a result, a company would not

be able to select the specialist unit

trading the preferred stock without

going through the allocation process.

The Commission notes that because of

the potential greater volume associated

with trading a common stock listing, a

listing company may have different

criteria for selecting a specialist for its

common stock. Therefore, the

Commission believes that the proposed

change would ensure that all special

units would be allowed to compete for

the common stock listing on an equal

basis and is, accordingly, appropriate.

G. Listed Company Mergers

With respect to listed company

mergers, the proposal provides for

several changes. First, where no

surviving entity of a merger can be

identified, the listing company would

be allowed to select one of the units

trading the merging companies without

going through the allocation interview

process. The Commission believes that

this would make the allocation process

more efficient and less time-consuming

for the listing company in those

instances in which the company

ultimately may have decided that it

would select one of the units trading the

merging companies.

Under the proposal, a listing company

may also request that the listing go to

the Allocation Committee under Option

1 or Option 2. Under Option 1, the

company would not be able to request

that the Allocation Committee not

allocate the stock to one of the units

trading the merging companies. If the

company chooses Option 2, the

interview pool would consist of the

specialist units of the merging

companies and must include additional

units. Under Option 2, the company

would not be permitted to request that

any of the units trading the merging

companies be excluded from the

interview pool. The Commission

believes that this approach strikes an

appropriate balance between the

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30175

14 15 U.S.C. 78s(b)(2).

15 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42450

(February 23, 2000), 65 FR 10577 (‘‘Concept

Release’’). 4Securities Exchange Act Release No. 42723

(April 26, 2000).

interests of specialist units, who have

developed a relationship and a history

of market-making performance with a

listed company, and the interests of

listed companies in choosing the most

appropriate unit to be their specialist.

The Commission also believes that this

proposal provides the current

specialist(s) with a reasonable

opportunity to present their case to the

merged company’s new management

without, of course, any guarantee of

receiving the allocation. Accordingly,

the Commission believes that the

proposed changes would assist in

providing the opportunity for input and

choice on the part of the listing

company, and as such, are appropriate

and consistent with the Act.

H. Listed/Unlisted Company Mergers

The Exchange’s proposal under

Options 1 and 2 to preclude a company

resulting from a merger between a listed

company and an unlisted company from

excluding from consideration by the

Allocation Committee the specialist unit

that trades the listed company is

appropriate because it ensures that all

specialist units would be allowed to

compete to the allocation on an equal

basis.

I. Issuance of Tracking Stock

The Commission notes that the

Exchange is conforming its treatment of

target stocks to its treatment of spin-offs

and the listing of related companies. In

this situation, the Commission believes

that this is appropriate since target

stocks may have a similar relationship

with the parent’s specialist. If the patent

company is unsatisfied with the

specialist’s performance to date, the

Commission believes it is unnecessary

to include this unit in the pool if the

company so requests. In the same vein,

if the parent company is satisfied with

the specialist’s performance but wishes

to avail itself of the opportunity to

interview other units, the company

should have the option of including

such specialist in the interview pool

along with other specialists selected by

the Allocation Committee. Finally, it is

important to bear in mind that senior

management of the subject companies is

often the same as that of the parent (or

there is substantial overlap), and,

therefore, the choice of a specialist

would be influenced by an assessment

of the current relationship and marketmaking performance.

J. Allocation Sunset Policy

With respect to the Exchange’s threemonth allocation sunset policy, the

Commission believes that in a situation

where the selected specialist unit

merges or is involved in a combination

within the three-month period, the

proposal to permit the listing company

to choose whether to stay with the

merged specialist unit or be referred to

allocation, is appropriate. In this regard,

the Commission recognizes that the

listing company should have an ability

to reconsider its choice given the

changed circumstances.

K. Listing Company Attendees at

Specialist Interviews

Finally, with respect to the current

Policy, whereby a senior official of the

listing company of the rank of Corporate

Secretary or above must be present at

interviews with specialist units under

Option 2, the Commission believes that

the proposal to accommodate the listing

of a structured product company by

clarifying that any officer designated as

senior by the company may be allowed

to satisfy the requirement is appropriate,

as the corporate makeup of such a

company does not always exist in a

manner contemplated by the current

Policy.

In summary, the Commission believes

that the Exchange’s Policy can serve as

an effective incentive for specialist units

to maintain high levels of performance

and market quality to be considered for,

and ultimately awarded, additional

listings. This in turn may benefit the

execution of public orders and promote

competition among specialist units.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,14 that the

proposed rule change (SR–NYSE–99–

34), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11609 Filed 5–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42758; File No. SR–NYSE–

99–48]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Approving Proposed Change To

Rescind Exchange Rule 390

On December 10, 1999, the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Exchange Act’’) 1 and Rule

19b–4 thereunder,2 a proposed rule

change to rescind Exchange rule 390.

The proposed rule change was

published for comment in the Federal

Register on February 28, 2000.3 The

release publishing notice of the

proposed rule change also included a

Commission request for comment on

issues relating to market fragmentation.

The comment period relating to the

rescission of Exchange rule 390 expired

on March 20, 2000. The Commission

has received twelve comments letters

explicitly addressing whether Rule 390

should be rescinded. These comments

are summarized in section II below. The

comment period on issues related to

market fragmentation has been extended

for two weeks and now expires on May

12, 2000.4

Off-board trading restrictions such as

Rule 390 have long been questioned as

attempts by exchanges with dominant

market shares to prohibit competition

from other market centers. On their face,

such restrictions run contrary to the

Exchange Act’s objectives to assure fair

competition among market centers and

to eliminate unnecessary burdens on

competition. The NYSE has defended

Rule 390 on the basis that it was

intended to address market

fragmentation by promoting interaction

of investor orders without the

participation of a dealer, which also is

a principal objective of the Exchange

Act. Even granting the importance of

this objective, however, Rule 390 is

overbroad as a tool to address market

fragmentation—it applies in many

situations that do nothing to promote

investor order interaction. In the afterhours context, for example, it creates an

artificial incentive for trades to be

routed to foreign markets. Rule 390 also

effectively restricts the competitive

opportunities of electronic

communications networks (‘‘ECNs’’),

which use innovative technology to

operate agency markets that offer

investors a high degree of order

interaction. To avoid the

anticompetitive effect of the Rule, some

ECONs even have indicated that they

would accept the very substantial

regulatory responsibilities associated

with registering as a national securities

exchange, thereby foregoing the

streamlined requirements available