45900 Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices

1The pilot program subsequently was extended

in Securities Exchange Act Release Nos. 37151

(April 29, 1996), 61 FR 20302 (May 6, 1996) (File

No. SR–NYSE–96–10) (extension of pilot until

October 24, 1996); 37812 (October 12, 1996), 61 FR

54477 (October 18, 1996) (File No. SR–NYSE–96–

28) (extension of pilot until April 24, 1997); and

38551 (April 28, 1997), 62 FR 25011 (May 7, 1997)

(File No. SR–NYSE–97–13) (extension of pilot until

July 24, 1997).

2The Commission notes that the NYSE’s use of

the term ‘‘price improvement’’ in this notice differs

from the Commission’s recent use of the term. See

infra Section V.

3NYSE PRIME is a service mark of the New York

Stock Exchange, Inc.

4The Commission notes that this figure has not

been netted to reflect price disimprovement, and

should not be used for best execution evaluations.

See infra Section V.

5See Securities Exchange Act Release No. 27981

(May 2, 1990), 55 FR 19407 (May 9, 1990) (File No.

SR–NYSE–90–06). The BPQ is the highest bid and

lowest offer, respectively, disseminated by the

Exchange or another market center participating in

the Intermarket Trading System (‘‘ITS’’) at the time

the order is received by the Exchange. In order to

protect against the inclusion of incorrect or stale

quotations in the BPQ, however, the Exchange

includes quotations in a stock from other markets

only if: (1) The stock is included in ITS in that other

market; (2) the quotation size is for more than 100

shares; (3) the bid or offer is not more than onequarter point away from the NYSE’s bid or offer; (4)

the quotation conforms to NYSE Rule 62 governing

minimum variations; (5) the quotation does not

create a locked or crossed market; (6) the market

disseminating the quotation is not experiencing

operational or system problems with respect to the

dissemination of quotation information; and, (7) the

quotation is ‘‘firm’’ pursuant to Rule 11Ac1–1

under the Act, 17 CFR 240.11Ac1–1, and the

market’s rules.

6The Commission notes that member

organizations electing to receive NYSE PRIME

information are required to enter into an agreement

with the Exchange regarding the use of NYSE

PRIME information and the NYSE PRIME service

mark. Among other things, the agreement provides

that in any publication or use of NYSE PRIME

information (unless the Exchange otherwise agrees),

the member organization must employ the NYSE

PRIME service mark.

7Also excluded from the NYSE PRIME feature are

booth entered or booth routed orders, booked

orders, combination orders (e.g., switch orders) and

orders diverted to sidecar.

1 15 U.S.C. 78f(b)(5).

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38963, File No. SR–NYSE–

97–24]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the New

York Stock Exchange, Inc. Relating to

Permanent Adoption of a Program to

Display Price Improvement on the

Execution Report Sent to the Entering

Firm

August 22, 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 July 23, 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 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 proposed rule change makes

permanent the program initially filed as

a pilot in Securities Exchange Act

Release Nos. 36421 (October 26, 1995),

60 FR 55625 (November 1, 1995) (File

No. SR–NYSE–95–35) and 36489

(November 16, 1995), 60 FR 58123

(November 24, 1995) (File No. SR–

NYSE–95–37).1 This is a program to

calculate and display, on the execution

reports sent to member firms, the dollar

amounts realized as savings to their

customers as a result of price

improvement in the execution of their

orders on the Exchange.2

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 IV 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

The purpose of this proposed rule

change is to make permanent a pilot

program for calculating and displaying,

on execution reports sent to member

firms entering orders, the dollar value

saved by their customers as a result of

price improvement of orders executed

on the Exchange. This program does not

in any way affect the actual execution

of orders. The Exchange refers to this

calculated dollar savings as the ‘‘NYSE

PRIME SM.3

Data from the operation of the pilot

for the first six months of 1997 show

price improvement on 23.4% of the

execution reports for eligible postopening market orders entered on the

Exchange.4

The Exchange is revising NYSE

PRIME to calculate whether there has

been price improvement by comparing

the execution price to the quotation at

the time the order entered the system

and at the time the order is reported

following the execution. The Exchange

will indicate that there is price

improvement only if the execution is

superior to the quotation in both

calculations. The amount of any price

improvement reported will be the lesser

of the two calculations. The Exchange

has committed to having this ‘‘double

check’’ on line by the fourth quarter of

1997.

NYSE PRIME currently utilizes the

Best Pricing Quote (‘‘BPQ’’), which has

been used in the calculation of odd lot

pricing, to determine price

improvement.5 The Exchange is

developing a capacity to utilize the

national best bid or offer (‘‘NBBO’’) for

calculating NYSE PRIME. The Exchange

has committed to begin using the NBBO

in the first half of 1998.

NYSE PRIME is available to all

member organizations 6 for intra-day

market orders entered via the

Exchange’s SuperDOT system that are

not tick sensitive and are entered from

off the Floor.7

The Exchange believes that the NYSE

PRIME enhances the information made

available to investors and improves

their understanding of the auction

market.

2. Statutory Basis

The basis under the Act for this

proposed rule change is the requirement

under Section 6(b)(5) 1 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 a national market system and, in

general, to protect investors and the

pubic interest. This proposed rule

change is designed to perfect the

mechanism of a free and open market in

that it enhances the information

provided to investors by displaying to

them the dollar value of the price

improvement their orders may have

received when executed on the NYSE.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.
Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices 45901

9 15 U.S.C. 78s(b)(3)(A).

10 17 CFR 240.19b–4.

11See Securities Exchange Act Release No.

37619A (September 6, 1996), 61 FR 48290

(September 12, 1996) (File No. S7–30–95) (‘‘Order

Handing Rules Adopting Release’’); SEC, Report on

the Practice of Preferencing (‘‘Preferencing Study’’)

(April 11, 1997) at Part V.D.

12Order Handling Rules Adopting Release at

n.357.

13Compare Preferencing Study Tables V–8A to C

with Tables V–9A to C. Of course, the Preferencing

Study analyzed price improvement and

disimprovement in the aggregate. In evaluating

execution quality across markets, it is important

that broker-dealers consider that execution quality

may vary for different types of orders and securities.

See Preferencing Study at nn. 313 and 314. 1 15 U.S.C. 78s(b)(1) (1988).

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

Because the foregoing proposed rule

change: (1) Does not significantly affect

the protection of investors or the public

interest; (2) does not impose any

significant burden on competition: and

(3) does not have the effect of limiting

access to or availability of any Exchange

order entry or trading system, the NYSE

PRIME program has become effective

pursuant to Section 19(b)(3)(A) of the

Act 9 and Rule 19b–4(e)(5) thereunder.10

At any time within 60 days of the filing

of such rule change, the Commission

may summarily abrogate such rule

change if it appears to the Commission

that such action is necessary or

appropriate in the public interest, for

the protection of investors, or otherwise

in furtherance of the purposes of the

Act.

IV. 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

Section, 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–97–

24 and should be submitted by

September 19, 1997.

V. Commission Statement

As a general matter, price

improvement occurs when a customer

order is executed at a price that is

superior to the best contra-side bid or

ask quote prevailing among the markets

and market centers trading the security

at the time the order was received and

executed. Moreover, the Commission

has noted that it also is possible for a

customer order to receive negative price

‘‘improvement,’’ or price

disimprovement, instead of price

improvement.11 Price disimprovement

occurs when an order is executed at a

price that is inferior to the best contraside bid or ask quote prevailing among

the markets and market makers trading

the security at the time the order was

received and executed.

The Commission previously has noted

the importance of the opportunity for

price improvement as a factor in best

execution, particularly with regard to

broker-dealers routing orders for

automatic execution. In the Order

Handling Rules Adopting Release, the

Commission stated that where material

differences exist between the price

improvement opportunities offered by

markets or market makers, these

differences must be taken into account

by the broker-dealer. The Commission

made clear that in evaluating price

improvement opportunities, a brokerdealer must consider, among other

things, both the amount of price

improvement and price disimprovement

present in each market.12 More recently,

the Commission’s Preferencing Study

analyzed the amount of price

improvement and disimprovement on

the NYSE and the regional exchanges.

The Preferencing Study found that a

significant amount of price

disimprovement occurred on each

exchange.13

Therefore, a program such as NYSE

Prime, which only provides price

improvement numbers, should not be

used as the basis for best execution

evaluations. NYSE Prime provides some

information to firms on a transaction by

transaction basis. To be useful for best

execution evaluations, however, any

price improvement information

disseminated also should reflect the

amount of price disimprovement that

occurs on that market. Accordingly, a

market providing price improvement

statistics on an aggregate basis should

indicate the amount of price

disimprovement as well as the amount

of price improvement.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23003 Filed 8–28–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38954; File No. SR–OCC–

97–08]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing of Proposed Rule Change To

Create a New Office of Management

Vice Chairman and To Change the Title

of Vice Chairman to Member Vice

Chairman

August 21, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

May 9, 1997, The Options Clearing

Corporation (‘‘OCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) and on May 12, 1997,

amended the proposed rule change as

described in Items I, II, and III below,

which Items have been prepared

primarily by OCC. The Commission is

publishing this notice to solicit

comments from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to amend OCC’s by-laws to

create a new office of Management Vice

Chairman and to change the title of Vice

Chairman to Member Vice Chairman.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

OCC 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. OCC has prepared

summaries, set forth in sections (A), (B),