Federal Register / Vol. 62, No. 146 / Wednesday, July 30, 1997 / Notices 40881

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

2 17 CFR 240.19b–4.

3A MOC order is a market order to be executed

in its entirety at the closing price on the Exchange.

See NYSE Rule 13. The NYSE pilot program for

entry of MOC orders was permanently approved in

1996. See Securities Exchange Act Release No.

37894 (Oct. 30, 1996), 61 FR 56987 (Nov. 5, 1996).

4See Securities Exchange Act Release No. 33706

(Mar. 3, 1994), 59 FR 11093 (Mar. 9, 1994) (order

approving the original LOC pilot program).

5The term ‘‘expiration days’’ refers to both (1) the

trading day, usually the third Friday of the month,

when some stock index options, stock index futures

and options on stock index futures expire or settle

concurrently (‘‘Expiration Fridays’’) and (2) the

trading day on which end of calendar quarter index

options expire (‘‘QIX Expiration Days’’).

6See Securities Exchange Act Release No. 37969

(Nov. 20, 1996), 61 FR 60735 (Nov. 29, 1996).

7See Securities Exchange Act Release No. 37507

(July 31, 1996), 61 FR 40871 (Aug. 6, 1996).

8 15 U.S.C. 78f(b)(5).

9 15 U.S.C. 78f.

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

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. (17 CFR 200.30–3(a)(12)).

Jonathan G. Katz,

Secretary.

[FR Doc. 97–20047 Filed 7–29–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38865; File No. SR–NYSE–

97–19]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the New York Stock

Exchange, Inc., Relating to the Pilot for

Entry of Limit-at-the-Close Orders

July 23, 1997.

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 June 16,

1997, 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 selfregulatory organization. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

grant accelerated approval to the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change would

extend for one year a pilot to permit

limit-at-the-close (‘‘LOC’’) orders to be

entered in any stock at any time during

the trading day up to 3:40 p.m. on

expiration days, and 3:50 p.m. on nonexpiration days. The current pilot is

scheduled to expire July 31, 1997.

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

self-regulatory organization 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 III below.

The self-regulatory organization 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

A LOC order is one that is entered for

execution at the closing price, provided

that the closing price is at or within the

limit specified. Originally, LOC orders

could be entered only to offset

published imbalances of market-onclose (‘‘MOC’’) orders.3 LOC orders had

to be entered by 3:55 p.m. on both

expiration and non-expiration days, and

could not be cancelled, except for

legitimate errors.4

The Exchange recently implemented

an amended policy regarding LOC

orders to permit their entry at any time

during the trading day up to 3:40 p.m.

on expiration days,5 and 3:50 p.m. on

non-expiration days.6 Thereafter, as

with MOC orders, LOC orders could not

be cancelled (except for legitimate

errors), and could be entered only to

offset published imbalances. These new

procedures are part of the current pilot

for LOC orders which expires at the end

of July 1997.7

The Exchange is proposing to extend

the LOC pilot for an additional year,

until July 31, 1998, in order to study the

effects of the new order entry

procedures. The Exchange will make a

recommendation at that time as to

continuation of the pilot or a request for

permanent status of LOC orders.

2. Statutory Basis

The basis under the Act for the

proposed rule change is the requirement

under Section 6(b)(5)8 that an Exchange

have rules that are 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. The proposed rule

change perfects the mechanism of a free

and open market by providing investors

with the ability to use LOC orders as a

vehicle for managing risk at the close.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange represents that the

proposed rule change will impose no

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

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. 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 be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–NYSE–97–19 and should be

submitted by August 20, 1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6 9 and the rules

and regulations thereunder.

Specifically, the Commission finds that

the proposed rule change is consistent

with the Section 6(b)(5)10 requirements

that the rules of an exchange be

designed to promote just and equitable

principles of trade, to remove
40882 Federal Register / Vol. 62, No. 146 / Wednesday, July 30, 1997 / Notices

11 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).

12Telephone conversation between Agnes

Gautier, Vice President, Market Surveillance, NYSE

and David Sieradzki, Attorney, Division of Market

Regulation, SEC (July 16, 1997).

13 15 U.S.C. 78s(b)(2).

14 17 C.F.R. 200.30–3(a)(12).

1 17 CFR 240.19b–4.

impediments to, and perfect the

mechanism of a free and open market

and, in general, to protect investors and

the public interest.11

This pilot program is part of an effort

by the Exchange to institute safeguards

to minimize excess market volatility

that may arise from the liquidation of

stock positions related to trading

strategies involving index derivative

products. For instance, since 1986, the

NYSE has utilized auxiliary closing

procedures on expiration days. These

procedures allow NYSE specialists to

obtain an indication of the buying and

selling interest in MOC orders at

expiration and, if there is a substantial

imbalance on one side of the market, to

provide the investing public with timely

and reliable notice thereof and with an

opportunity to make appropriate

investment decisions in response.

The NYSE auxiliary closing

procedures have worked relatively well

and may have resulted in more orderly

markets on expiration days.

Nevertheless, both the Commission and

the NYSE remain concerned about the

potential for excess market volatility,

particularly at the close on expiration

days. Although, to date, the NYSE has

been able to attract sufficient contra-side

interest to effectuate an orderly closing,

adverse market conditions could

converge on an expiration day to create

a situation in which member firms and

their customers would be unwilling to

acquire significant positions.

The Commission continues to believe

preliminarily that LOC orders should

provide the NYSE with an additional

means of attracting contra-side interest

to help alleviate MOC order imbalances

both on expiration and non-expiration

days. As a practical matter, the

Commission believes that LOC orders

will appeal to certain market

participants who otherwise might be

reluctant to commit capital at the close.

Specifically, unlike a MOC order, which

results in significant exposure to

adverse price movements, a LOC order

will allow each investor to determine

the maximum/minimum price at which

he or she is willing to buy/sell. To the

extent that such risk management

benefits encourage NYSE member firms

and their customers to enter orders to

offset MOC order imbalances of 50,000

shares or more, thereby adding liquidity

to the market, the Commission agrees

with the NYSE that LOC orders could

become a useful investment vehicle for

curbing excess price volatility at the

close.

The Commission also finds that the

NYSE has established appropriate

procedures for the balancing of LOC

orders and that the NYSE’s existing

surveillance should be adequate to

monitor compliance with those

procedures. Because LOC orders will be

required to yield priority to

conventional limit orders at the same

price, the Commission is satisfied that

public customer orders on the

specialist’s book will not be

disadvantaged by this proposal. In the

Commission’s opinion, the prohibition

on cancelling LOC orders is consistent

with the Exchange’s auxiliary closing

procedures and, like those procedures,

should allow specialists to make a

timely and reliable assessment of order

flow and its potential impact on the

closing price.

The Commission notes that the LOC

order pilot program has been ongoing

since 1994 and the NYSE has submitted

detailed reports describing its

experience with the pilot program. The

Exchange represents that LOC orders

have not been widely used and that the

Exchange requires an additional year to

educate members about LOC orders and

to observe the use of LOC orders on the

Exchange.12 The Commission expects

the Exchange to seek permanent

approval of the procedures or to

determine to discontinue the program,

after the Exchange analyzes the data for

the report due on May 31, 1998. If the

Exchange decides to seek permanent

approval of the pilot procedures, any

such request should also be submitted

to the Commission by May 31, 1998, as

a proposed rule change pursuant to

Section 19(b) of the Act.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register because there

are no changes being made to the

current provisions, which originally

were subject to the full notice and

comment procedures. In addition,

accelerated approval would enable the

Exchange to continue the program on an

uninterrupted basis.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–NYSE–97–

19) is approved, and accordingly, that

the LOC pilot program is extended until

July 31, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Jonathan G. Katz,

Secretary.

[FR Doc. 97–20050 Filed 7–29–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38864; File No. SR–Phlx–

97–32]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Respecting the Public Order Exposure

System for PACE Orders

July 23, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on June 30, 1997, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ 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 self-regulatory

organization. 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 Exchange, pursuant to Rule 19b–

4 under the Act,1 proposes to amend

Supplementary Material .05 of Rule 229,

to reflect a 30 second order exposure

time period, or ‘‘widow,’’ in lieu of 15

seconds, and to title Supplementary

Material .05 as the ‘‘Public Order

Exposure System’’ or ‘‘POES,’’ as it is

known at the Exchange. The operation

of the Philadelphia Stock Exchange

Automatic Communications and

Execution (‘‘PACE’’) System is governed

by Phlx Rule 229 (‘‘PACE Rule’’). PACE

is the Exchange’s automatic order

routing and execution system for

securities on the equity trading floor.

Currently, Supplementary Material .05

to the PACE Rule provides that market

orders are stopped for 15 seconds to

provide an opportunity for price

improvement, except where the market