[Federal Register Volume 65, Number 92 (Thursday, May 11, 2000)]
[Notices]
[Pages 30464-30465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11803]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42757; File No. SR-NYSE-99-44]


Self-Regulatory Organizations; New York Stock Exchange, Inc; 
Order Approving Proposed Rule Change Relating to NYSE Rule 103A

May 4, 2000.

I. Introduction

    On November 3, 1999, the New York Stock Exchange, Inc (``NYSE'' or 
``Exchange'') submitted to 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 relating to NYSE Rule 103A. The 
proposed rule change was published for comment in the Federal Register 
on March 14, 2000.\3\ The Commission did not receive any comment 
letters with respect to the proposal. This order approves the 
Exchange's proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-42501 (March 7, 
2000), 65 FR 13801.
---------------------------------------------------------------------------

II. Description of the Proposal

1. Purpose

    The Exchange proposed to amend Rule 103A (Special Stock 
Reallocation) to codify the Market Performance Committee's (``MPC'') 
authority with respect to allocation freezes, stock assignments and 
reassignments, specialist unit organizational changes, and Floor member 
qualification and continuing education requirements.
a. Allocation Freezes
    Currently, Rule 103A provides the MPC the authority to establish 
and administer measures of specialist performance, conduct performance 
improvement actions when a specialist unit does not meet the 
performance standards in Rule 103A, and reallocate stocks if a unit 
does not achieve its specified goals when subject to a performance 
improvement action. The Exchange represented that these standards help 
to establish and maintain acceptable levels of specialist performance, 
thereby enhancing the competitiveness of the Exchange's specialist 
system. The purpose of a performance improvement action is to provide 
assistance and guidance to specialist units to enable them to enhance 
their performance. When a performance improvement action is initiated, 
a specialist unit is required to submit a performance improvement plan 
addressing how it intends to improve performance to the MPC. Based on 
the MPC's review of the performance improvement plan, the MPC has the 
authority to preclude a specialist unit, that is subject to a 
performance improvement action, from applying to be allocated any 
newly-listing company (an ``allocation freeze'') if the MPC believes 
such action is appropriate.
    The Exchange proposed to amend Rule 103A to allow the MPC to 
exercise its discretion in imposing allocation freezes. In certain 
instances, the Committee will determine that a unit's performance is 
not as strong as other units' performance, although the unit's 
performance fully meets the Rule 103A performance standards. For 
example, this may occur when a specialist unit's scores on the 
quarterly Specialist Performance Evaluation Questionnaire are above 
Rule 103A perfomace standards, however, the unit may have lower scores 
than other units over a period of several quarters, resulting in 
persistent lower rankings in the bottom quartile. In these instances, 
the Exchange believes the MPC should be able to use its professional 
judgment to provide incentives to specialist units to encourage them to 
enhance their performance. Therefore, the Exchange proposes to add to 
Rule 103A authority for the Committee to initiate an allocation freeze 
for a unit, without initiating a formal performance improvement action. 
The Commission expects the NYSE's MPC to exercise its discretion 
consistent with the purpose of the Act.
b. Receipt of New Listings During an Allocation Freeze
    Under the Exchange's Allocation Policy and Procedures (the 
``Allocation Policy'') the are circumstances when a newly-listing 
company may choose its specialist unit. For example, a newly-listing 
company that is related to an already listed company many choose to 
stay with the current specialist for the listed company or choose to go 
through the Allocation Committee.\4\ The newly-listing company may 
choose to stay with the current specialist for the related listed 
company even if such unit it is under an allocation freeze imposed by 
the MPC as long as the unit is not subject to a performance improvement 
action.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 42487 (March 2, 
2000), 65 FR 13801 (March 9, 2000).
---------------------------------------------------------------------------

    Similarly, under the Allocation Policy, the newly-listing company 
may choose its specialist from among a group of specialist units chosen 
by the Allocation Committee. The Allocation Committee has the ability 
to exclude or include the current specialist for the related company in 
such a group. If the specialist unit was under an allocation freeze 
imposed by the MPC, it would not be precluded from being placed in the 
group or chosen by the newly-listing company as long as the allocation 
freeze was not the result of a performance improvement action.
c. Floor Member Qualification and Continuing Education
    The Exchange also proposes to amend Rule 103A to make mandatory (i) 
participation by proposed Floor members in an Exchange-sponsored

[[Page 30465]]

education program before such individuals would be permitted to act as 
members on the Floor; and (ii) participation by all Floor members in an 
Exchange-sponsored educational program, conducted semi-annually, and at 
such other times as may be appropriate in connection with any 
particular matter or matters. Rule 103A would also make it mandatory 
for Floor members to participate in any testing programs the Exchange 
may introduce from time to time in connection with the mandatory 
education program.
d. Stock Assignments and Reassignments and Organizational Changes of 
Specialist Units
    The Exchange proposes to amend rule 103A to codify the Committee's 
authority with respect to approving stock assignments and 
reassignments, assignments in special stock situations, and 
organizational changes to specialist units. Such situations typically 
involve (i) changes in a specialist unit's organizational structure 
effecting control of the specialist unit, such as split-ups and 
mergers; (ii) withdrawal of individual specialists from one specialist 
unit, where the specialists propose to register with another unit and 
transfer certain securities to such other unit; and (iii) assignments 
of newly-listed securities to a specialist unit already registered in a 
security with a trading relationship to the newly-listed securities 
(e.g., a corporate restructuring of a listed company; stocks involved 
in mergers of listed companies; and immediate relisting of a listed 
company that delisted for technical reasons). In all of these 
situations, the MPC will review the proposal, and approve the matter if 
the Committee believes that market quality in the securities subject to 
the proposal will not be eroded.

III. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of Section 6 of the Act \5\ and the 
rules and regulations thereunder applicable to a national security 
exchange.\6\ In particular, the Commission finds the proposed rule 
change is consistent with Section 6(b)(5) of the Act \7\ which 
requires, among other things, that the rules of an exchange be designed 
to prevent fraudulent and manipulative acts and practices, to remote 
impediments to and perfect the mechanism of a free and open market, and 
to protect investors and the public interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f.
    \6\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specialists play a crucial role in providing stability, continuity, 
and liquidity to the trading of securities. Specialists are obligated 
by the NYSE and the Act and rules thereunder, \8\ to maintain fair and 
orderly markets in designated securities. The Commission supports 
effective NYSE oversight of the specialist's activities and 
performance, including comparing a specialist's score on the quarterly 
Specialist Evaluation Questionnaire with other specialist's scores in 
an effort to provide an incentive to increase specialist performance. 
The Commission believes that giving the MPC the discretion to impose an 
allocation freeze should provide the Exchange with the means to 
identify and correct poor specialist performance and to ascertain 
whether specialists are maintaining fair and orderly markets in their 
assigned securities.
---------------------------------------------------------------------------

    \8\ See 17 CFR 240.11b-1; NYSE Rule 104.
---------------------------------------------------------------------------

    Furthermore, the proposed floor member qualification and continuing 
education requirements are a result of NYSE's undertakings.\9\ The NYSE 
pledged to design and implement a mandatory, regular education program 
for Floor members that would address Floor members' obligations and 
prohibitions under the federal securities laws and NYSE rules.\10\ The 
Commission believes that NYSE's proposal to require Floor members to 
participate in an education program prior to being permitted to act as 
members is appropriate and consistent with this undertaking. Also, the 
semi-annual, or more frequent as the NYSE deems appropriate, 
educational programs for all Floor members satisfies the NYSE's 
undertaking to provide regular, mandatory education programs. The 
Exchange also proposed mandatory testing programs that should ensure 
that Floor members are aware of Floor members' obligations and 
prohibitions under the federal securities laws and NYSE rules.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 41574, 70 S.E.C. 
Docket 106 (June 29, 1999).
    \10\ See id at 9.
---------------------------------------------------------------------------

    As a result, because the proposed amendment of NYSE Rule 103A 
promotes increased specialist performance and creates mandatory and 
regular training for all floor members, the Commission believes that 
NYSE's proposed amendment to Rule 103A is consistent with the 
provisions of the Act discussed above.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-99-42), including 
amendments Nos. 1 and 2, is approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    By the Commission, for the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-11803 Filed 5-10-00; 8:45 am]
BILLING CODE 8010-01-M