Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Notices 4005

22 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 self-regulatory organization

consents, the Commission will:

(A) By order approve the proposed

rule change, or

(B) institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposal is

consistent with the Act. Persons making

written submissions should file six

copies thereof the the Secretary,

Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

20549–0609. Copies of the submission,

all subsequent amendments, all written

statements with respect to the proposed

rule change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD.

All submissions should refer to File

No. SR–NASD–99–33 and schould be

submitted by February 15, 2000.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority. 22

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–1698 Filed 1–24–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42343; File No. SR–NYSE–

99–47]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc. To

Amend NYSE Rule 431 (‘‘Margin

Requirements’’)

January 14, 2000.

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 December

13, 1999, the New York Stock Exchange,

Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I, II and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NYSE proposes to amend NYSE

Rule 431, ‘‘Margin Requirements,’’ to

establish margin requirements for day

trading in customer accounts of member

organizations. The text of the proposal

is below. Deletions are in brackets, and

additions are in italics.

Rule 431—Margin Requirements

No change to 431(a) through (b)(3).

(b)(4) equity of at least $2,000 except that

cash need not be deposited in excess of the

cost of any security purchased (this equity

and cost of purchase provision shall not

apply to ‘‘when distributed’’ securities in a

cash account). The minimum equity

requirement for a ‘‘pattern day trader’’ is

$25,000 pursuant to paragraph (f)(8)(B)(iv)(1)

of this Rule.

Withdrawals of cash or securities may be

made from any account which has a debit

balance, ‘‘short’’ position or commitments,

provided it is in compliance with Regulation

T of the Board of Governors of the Federal

Reserve System and after such withdrawal

the equity in the account is at least the

greater of $2,000 ($25,000 in the case of

‘‘pattern day traders’’) or an amount

sufficient to meet the maintenance margin

requirements of this Rule.

No change to 431(c) through (f)(8)(A)(iii).

(f)(8)(B) Day Trading.

(i) The term ‘‘day trading’’ means the

purchasing and selling or the selling and

purchasing of the same security on the same

day in a margin account except for:

(a) a long security position held overnight

and sold the next day prior to any new

purchases of the same security, or

(b) a short security position held overnight

and purchased the next day prior to any new

sales of the same security.

(ii) [A ‘‘day trader’’ is any customer whose

trading shows a pattern of day trading.] The

term ‘‘pattern day trader’’ means any

customer who executes four (4) or more day

trades within five (5) business days. However,

if the number of day trades is 6% or less of

total trades for the five (5) business day

period, the customer will no longer be

considered a pattern day trader and the

special requirements under paragraph

(f)(8)(B)(iv) of this Rule will not apply.

(iii) The term ‘‘day trading buying power’’

means the equity in a customer’s account at

the close of business of the previous day, less

any maintenance margin requirement as

prescribed in paragraph (c) of this Rule,

multiplied by four, for equity securities.

Whenever day trading occurs in a

customer’s margin account the [margin to be

maintained] special maintenance margin

required for the day trades in equity

securities shall be [the margin on the ‘‘long’’

or ‘‘short’’ transaction, whichever occurred

first, as required pursuant to the other

provisions of this Rule. When day trading

occurs in the account of a ‘‘day trader’’ the

margin to be maintained shall be the margin

on the ‘‘long’’ or ‘‘short’’ transaction,

whichever occurred first, as required by

Regulation T of the Board of Governors of the

Federal Reserve System or as required

pursuant to the other provisions of this Rule,

whichever amount is greater.] 25% of the

cost of all the day trades made during the

day. For non-equity securities, the special

maintenance margin shall be as required

pursuant to the other provisions of this Rule.

Alternatively, when two or more day trades

occur on the same day in the same

customer’s account, the margin required may

be computed utilizing the highest (dollar

amount) open position during that day. To

utilize the highest open position computation

method, a record showing the ‘‘time and

tick’’ of each trade must be maintained to

document the sequence in which each day

trade was completed.

(iv) Special Requirements for Pattern Day

Traders

(1) Minimum Equity Requirement for

Pattern Day Traders—The minimum equity

required for the accounts of customers

deemed to be pattern day traders shall be

$25,000. This minimum equity must be

maintained in the customer’s account at all

times (see Supplementary Material .40 of this

Rule).

(2) Pattern day traders cannot trade in

excess of their day trading buying power as

defined in paragraph (f)(8)(B)(iii) above. In

the event a pattern day trader exceeds its day

trading buying power which creates a special

maintenance margin deficiency, the

following actions will be taken by the

member organization.

(a) The account will be margined based on

the cost of all the day trades made during the

day, and

(b) The customer’s day trading buying

power will be limited to the equity in the

customer’s account at the close of business

of the previous day, less the maintenance

margin required in paragraph (c) of this Rule,

multiplied by two, for equity securities.

4006 Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Notices

3 ‘‘Pattern day trading’’ status is determined on a

rolling five business day basis. Telephone

conversation among Donald van Weezel, Managing

Director, Regulatory Affairs, NYSE; Albert Lucks,

Director, Credit Regulation, NYSE; and Nancy

Sanow, Senior Special Counsel, Division of Market

Regulation; Thomas McGowan, Assistant Director,

Division of Market Regulation; Joseph Morra,

Attorney; and Melinda Diller, Attorney,

Commission, January 7, 2000.

(3) Pattern day traders who fail to meet

their special maintenance margin calls as

required within five business days from the

date the margin deficiency occurs will be

permitted to execute transactions only a cash

available basis for 90 days or until the

special maintenance margin call is met.

(4) Pattern day traders are restricted from

utilizing the guaranteed account provision

pursuant to paragraph (f)(4) of this Rule for

meeting the requirements of paragraph

(f)(8)(B).

(5) Funds, deposited into a day trader’s

account to meet the minimum equity or

maintenance margin requirements of this

Rule 431(f)(8)(B) cannot be withdrawn for a

minimum of two business days following the

close of business on the day of deposit.

(f)(8)(C) When the equity in a customer’s

account, after giving consideration to the

other provisions of this Rule, is not sufficient

to meet the requirements of paragraph

(f)(8)(A) or (B) additional cash or securities

must be received into the account to meet

any deficiency within [seven] five business

days of the trade date.

In addition, on the sixth business day only,

member organizations are required to deduct

from net Capital the amount of unmet

maintenance margin calls pursuant to SEA

Rule 15c3–1.

* * * * *

Supplementary Material

.10–.20 No change.

.30 In the event that the organization at

which a customer seeks to open an account

knows or has a reasonable basis to believe

that the customer will engage in pattern day

trading, then the minimum equity required

under paragraph (f)(8)(B)(iv)(1) above

($25,000) must be deposited in the account

prior to commencement of day trading.

.40 When a customer engages in pattern

day trading, the minimum equity required

under paragraph (f)(8)(B)(iv)(1) above

($25,000) must be deposited in the account

before such customer may continue day

trading.

.50 For purposes of paragraph

(f)(8)(B)(iv)(2)(a) above, ‘‘time and tick’’ (i.e.,

calculating margin utilizing each trade in the

sequence that it is executed, using the

highest open position during the day) may

not be used for a pattern day trader who

exceeds their day trading buying power.

.60 For purposes of paragraph

(f)(8)(B)(iii) and (iv)(2)(b), the day trading

buying power for non-equity securities may

be computed using the applicable special

maintenance margin requirements pursuant

to other provisions of this Rule.

* * * * *

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 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 NYSE 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 Exchange proposes to amend

NYSE Rule 431 to implement specific

requirements for day trading in

customer accounts of member

organizations. The primary purpose of

the proposal is to require that minimum

levels of equity and margin be deposited

and maintained in day trading accounts

sufficient to support the risks associated

with day trading activities.

NYSE Rule 431 prescribes the

minimum margin amount required to be

maintained in customer accounts of

member organizations. As a result of

recent amendments to federal margin

regulations and a rapidly changing

industry environment, the Exchange

established, in April 1996, a Rule 431

Committee (the ‘‘Committee’’) to review

margin requirements and make

recommendations for change. The

Committee established subcommittees

to review specific provisions of NYSE

Rule 431. A special subcommittee was

formed recently to address the risks

associated with day trading in customer

accounts. The Exchange’s Board of

Directors has approved a number of

proposed amendments resulting from

Committee recommendations.

This proposal amends NYSE Rule 431

to establish special maintenance margin

requirements for customers that engage

in day trading, and specific minimum

equity requirements and buying power

limitations for customers that

demonstrate a pattern of day trading.

According to the Exchange, the recent

growth and advances in technology

have contributed to a dramatic increase

in day trading by customers and in the

establishment of broker-dealers whose

primary business is to provide

customers with direct links to the

securities markets by allowing them to

trade their own portfolios on-line. In

this environment, day traders attempt to

make profits on intra-day price

movements of stock in the securities

markets.

The proposed amendments to NYSE

Rule 431(f)(8)(B) define ‘‘day trading’’ as

‘‘the purchase and sale of the same

security in the same day in a margin

account.’’ An exception to the definition

is provided when: (1) a long security

position is carried in the account

overnight, and sold the next day prior

to any new purchases of that security;

or (2) a short security position is carried

overnight and purchased the next day

prior to any new sales of that security,

(i.e., closing transactions to wrap-up the

prior day’s activities prior to any new

purchases or sales of the same security).

While such transactions would not fall

within the definition of day trading, any

further commitments with respect to

that security (i.e., any subsequent

purchase or sale) would be deemed day

trading.

A customer will be deemed as a

‘‘pattern day trader’’ if there are four or

more day trades within five business

days in an account, provided that the

number of day trades is more than 6%

of total trades in the account for the five

day period.3 The 6% criteria is

proposed so that customers who engage

in a large number of transactions overall

are not inappropriately deemed a

pattern day trader solely because they

exceeded the ‘‘more-than-four-trade’’

standard. For example, a customer who

transacts four day trades within five

business days and who also has a total

of 100 transactions in that time period

would not be deemed a pattern day

trader, because less than 6% of the total

trades were day trades.

The proposal also defines ‘‘day

trading buying power’’ to provide a

maximum level of day trading allowed

by ‘‘pattern day traders’’ without

restrictions. For equity securities,

buying power is the equity in the

account at the close of the business day,

less any maintenance margin,

multiplied by four. For non-equity

securities, buying power shall be

computed using applicable special

maintenance margin requirements

pursuant to other provisions of the Rule.

The proposed amendments require

day traders to maintain special

maintenance margin commensurate

with their levels of day trading activity.

For day trades in equity securities, the

required special maintenance margin is

25% of the cost of all day trades during

the day. For non-equity securities,

margin required is the same as

maintenance margin required pursuant

to other provisions of NYSE Rule 431.

However, when two or more day trades

occur on the same day in the customer’s

account, the required margin may be

based on the highest open position

Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Notices 4007

4 15 U.S.C. 78f(b)(5).

5 15 U.S.C. 78g.

6 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

during that day. This computation

requires maintenance of ‘‘time and tick’’

records to document the sequence in

which each day trade was completed.

Further, under the amended Rule, the

time frame for meeting day trading

special maintenance margin calls will

be reduced from seven business days to

five business days. If the special

maintenance margin call is not met

within five business days from the date

the special margin deficiency occurred,

pattern day traders will be restricted to

day trading on a cash available basis

only for 90 days, or until the special call

for additional funds is met. Member

organizations will incur a one time

capital charge for the amount of any

unmet deficiency on the sixth business

day.

Currently, NYSE Rule 431 requires

$2,000 minimum equity for a customer

to open a margin account. The Exchange

is proposing to require that a pattern

day trader’s account maintain a

minimum equity of $25,000 at all times.

In the event that a pattern day trader’s

account falls below the required

minimum equity, no further day trades

will be permitted until the requisite

equity level is maintained. In addition,

member organizations that have

advance knowledge or reason to believe

that a new account will pattern day

trade must require the customer to

deposit $25,000 minimum equity into

the account prior to the commencement

of day trading activity.

The proposal will also restrict pattern

day traders from trading in excess of

their day trading buying power. If the

day trading buying power is exceeded,

and this results in a special

maintenance margin deficiency, the

following actions must be taken by

member organizations: (i) the account

will be margined based on the total cost

of all day trade purchases for that day;

and (ii) the customer’s day trading

buying power will be reduced by the

maintenance margin amount required.

To provide greater financial stability

to such accounts, the proposal requires

that a day trading customer deposit into

the day trading account a sufficient

amount of money to meet minimum

equity and maintenance margin

requirements. Such deposits will not be

allowed to be withdrawn for at least two

business days.

In addition, pattern day traders will

be prohibited from utilizing ‘‘cross

guarantees’’ otherwise permitted in

margin accounts. These prohibitions are

intended to address instances where

margin calls in day trading accounts are

met by cross-guarantees within different

customer accounts at the same brokerdealer. The net effect of these

prohibitions is to require that each

pattern day trading account meets its

requirements independently by utilizing

funds actually on deposit in the

account.

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with the

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

Act,4 which requires that the rules of the

Exchange be designed to promote just

and equitable principles of trade and to

protect the investing public.

The Exchange believes that the

proposed rule change is also consistent

with Section 7(a) of the Act 5 and with

the rules and regulations of the Board of

Governors of the Federal Reserve

System, because it prevents the

excessive use of credit for the purchase

or carrying of securities.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change will not impose

any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding, or

(ii) as to which the Exchange consents,

the Commission will:

A. by order approve the proposed rule

change, or

B. institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549–0609. Copies of

the submissions, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any persons, 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 at

the Commission’s Public Reference

Room, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the Exchange. All submissions

should refer to File No. SR–NYSE–99–

47 and should be submitted by February

15, 2000.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–1699 Filed 1–24–00 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42350; International Series

Release No. 1211; File No. SR–NYSE–00–

01]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.

Relating to Continuing Annual Listing

Fees for Canadian Companies

January 19, 2000.

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 January 4,

2000, the New York Stock Exchange,

Inc. (‘‘NYSE’’ or Exchange’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I, II and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.