[Federal Register Volume 62, Number 190 (Wednesday, October 1, 1997)]
[Notices]
[Pages 51497-51499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25991]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39129; File No. SR-NYSE-97-16]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating to Amendments to NYSE Rule 79A

September 25, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on August 28, 1997, 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 and II 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 and is 
approving the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of amendments to Exchange rule 
79A to conform with requirements for display of customer limit orders 
as contained in Rule 11Ac1-4 under the Exchange Act. The text of the 
proposed rule change is as follows. (Additions are italicized; 
deletions are bracketed.)
* * * * *

NYSE Rule 79A

Miscellaneous Requirements on Stock and Bond Market Procedures

    .10  Request to make better bid or offer. When any [member] Floor 
broker does not bid or offer at the limit of an order which is better 
than the currently quoted price in the security and is requested by his 
principal to bid or offer at such limit, he shall do so.
    .15  With respect to limit orders received by specialists, each 
specialist shall publish immediately (i.e., as soon as practicable, 
which under normal market conditions means no later than 30 seconds 
from time of receipt) a bid or offer that reflects:
    (i) the price and full size of each customer limit order that is at 
a price that would improve the specialist's bid or offer in such 
security; and
    (ii) the full size of each limit order that
    (A) is priced equal to the specialist's bid or offer for such 
security;
    (B) is priced equal to the national best bid or offer; and
    (C) represents more than a de minimis change (i.e., more than 10 
percent) in relation to the size associated with the Exchange's bid or 
offer.
    The requirements with respect to specialists' display of limit 
orders shall not apply to any customer limit order that is:
    (1) executed upon receipt of the order;
    (2) placed by a customer who expressly requests, either at the time 
the order is placed or prior thereto pursuant to an individually 
negotiated agreement with respect to such customer's orders, that the 
order not be displayed;
    (3) an odd-lot order;
    (4) delivered immediately upon receipt to an exchange or 
association-sponsored system or an electronic communications network 
that complies with the requirements of Securities and Exchange 
Commission Rule 11Ac1-1 (c)(5)(ii) under the Securities Exchange Act 
with respect to that order;
    (5) delivered immediately upon receipt to another exchange member 
or over-the-counter market maker that complies with the requirements of 
Securities and Exchange Commission Rule 11Ac1-4 under the Securities 
Exchange Act with respect to that order;
    (6) an ``all or none'' order;
    (7) a limit order to buy at a price significantly above the current 
offer or a limit order to sell at a price significantly below the 
current bid that is handled in compliance with Exchange procedures 
regarding such orders, (``too marketable limit orders''); or
    (8) an order that is handled in compliance with Exchange procedures 
regarding block crosses at significant premiums or discounts from the 
last sale.
* * * * *

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the

[[Page 51498]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item III below and is set forth in Sections A, 
B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has recently adopted requirements (the ``Order 
Execution Rules'') for specialists to display immediately the price and 
full size of customer limit orders that would improve the bid or offer 
in a security.\3\ The term ``immediately'' means as soon as 
practicable, which under normal market conditions requires display no 
later than 30 seconds after receiving such orders. The proposed 
amendments to NYSE Rule 79A would make the rule consistent with the 
order execution requirements of Rule 11Ac1-4 under the Exchange Act, as 
well as incorporate certain Commission interpretations of the Rule.\4\
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    \3\ See Securities Exchange Act Release No. 37619A (September 6, 
1996), 61 FR 48290 (September 12, 1996).
    \4\ See letter from Richard Lindsey, Director, Division of 
Market Regulation, SEC to James E. Buck, Senior Vice President and 
Secretary, NYSE, dated January 17, 1997. The letter provided no-
action relief for a specialist that does not display a limit order 
while complying with Exchange procedures for ``too marketable'' 
limit orders or for block crosses at significant premiums or 
discounts from the last sale.
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    Rule 79A.10 would be amended to apply only to Floor brokers rather 
than to all members. This would require brokers to represent an order 
at its limit when requested to do so by the customer, while continuing 
to allow brokers to use brokerage judgment in representing an order for 
a customer. A new section would be added to Rule 79A which would apply 
only to specialists. Rule 79A.15 would provide that, upon receipt of a 
customer limit order, a specialist must ``immediately'' (i.e., as soon 
as practicable, which under normal market conditions means within 30 
seconds from time to receipt) publish a bid or offer that reflects:
    (i) The price and full size of the order, if it is at a price that 
would improve the bid or offer in the subject security;\5\ and
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    \5\ In an August 28, 1997, letter from James E. Buck, Senior 
Vice President and Secretary, NYSE, to Kathy England, Assistant 
Director, Market Regulation, the Exchange stated that Rule 79A.10 
refers to ``the limit of an order which is better than the currently 
quoted price'' since the procedures for representing an order whose 
limit is equal to the currently quoted price are covered by Exchange 
Rules 70 and 123A.42. These rules provide that when a bid or offer 
is clearly established, no bid or offer at an inferior price shall 
be made, and require a broker to use due diligence to execute a 
limit order at its limit price, or at a better price, if available 
under Exchange procedures. (Emphasis in original.)
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    (ii) The full size of the order, if it is priced at the same price 
as the current bid or offer in the subject security, and the current 
bid or offer is equal to the national best bid or offer. The specialist 
would not, however, be required to add size to the prevailing bid or 
offer if the size of the customer's limit order represents a de minimis 
increase (i.e., 10% or less) over the size of the prevailing bid or 
offer.
    Requrements for specialists to display customer limit orders would 
not apply to the following:\6\
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    \6\ The Exchange is not including the exception for block orders 
contained in Rule 11Ac1-4(c)(4).
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    (i) An order that is executed upon receipt;
    (ii) An order placed by a customer who has requested (either on an 
order-by-order basis or respectively) that the order not be displayed;
    (iii) An odd-lot order;
    (iv) An order that is immediately delivered to an exchange or 
association-sponsored system, or electronic communications network 
(``ECN'') that complies with the ECN display alternative of the Quote 
Rule (Rule 11Ac1-1(c)(5)(ii);
    (v) An order that is immediately delivered to another exchange 
member or OTC market maker that complies with the Limit Order Display 
Rule (Rule 11Ac1-4);
    (vi) an ``all or none'' order;
    (vii) a ``too-marketable'' limit order \7\; or,
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    \7\  A ``too-marketable'' limit order is an order to buy at a 
price much higher than the offer, or an order to sell at a price 
much lower than the bid. When such an order is received, the 
specialist may execute the order at the market or may seek price 
confirmation. (See memorandum from Market Surveillance Division, 
NYSE, to Specialists dated April 15, 1996.)
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    (viii) an order that is handled in compliance with Exchange 
procedures regarding block crosses at significant premiums or discounts 
from the last sale.\8\
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    \8\ Issued as NYSE Information Memo 94-32 (August 9, 1994). See 
Securities Exchange Act Release No. 34303 (July 1, 1994) and File 
No. SR-NYSE-93-48.
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2. Statutory Basis
    The basis under the Exchange Act for the proposed rule change is 
the requirement under Section 6(b)(5) of the Exchange Act 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 Exchange believes that this rule 
change will accomplish these ends by facilitating increased 
transparency in the market, thus providing the public with better 
information on which to base investment decisions.

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 Exchange 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. 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, DC 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 in the 
Commission's Public Reference Room in 450 Fifth Street, N.W., 
Washington, DC 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 number SR-NYSE-97-16 and should be submitted by [insert 
date 21 days from date of publication].

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Exchange Act and the rules and regulations 
thereunder applicable to an exchange and with Section 11A of the 
Exchange Act. The proposal will make the NYSE's limit order display 
rule consistent with the Commission's Limit Order Display Rule 
(``Display Rule''),\9\ thereby furthering the investor protection and 
market

[[Page 51499]]

transparency objectives of the Order handling Rules.\10\ In adopting 
the Order Handling Rules, the Commission increased investor protection 
by ensuring that customer limit orders were immediately displayed in 
the markets and by providing investors information about and access to 
superior prices that specialists and market makers displayed in ECNs. 
Although the Order handling Rules supersede existing NYSE rules, the 
proposed rule change will help provide consistency among Commission and 
NYSE rules.\11\ Consequently, the proposed changes submitted by the 
NYSE will help remove impediments to the operation of a free and open 
market and a national market system, enhance the protection of 
investors and the public interest, and produce fair and informative 
quotations.
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    \9\ 17 CFR 240.11Ac1-4.
    \10\ The Display Rule, which requires the display of customer 
limit orders priced better than a market maker or specialist's 
quote, and adopted amendments to the Quote Rule to enhance the 
quality of published quotations for securities, and competition and 
pricing efficiency in U.S. securities markets. These rules 
(collectively, ``Order Handling Rules'') were designed to address 
growing concerns about the handling of customer orders for 
securities. See Securities Exchange Act Release No. 37619A 
(September 6, 1996), 61 FR 48290 (September 12, 1996) (``Adopting 
Release''). See also Securities Exchange Act Release Nos. 38110 
(January 2, 1997), 62 FR 1279 (January 9, 1997) (order revising the 
effective date of the Order Execution Rules to January 13, 1997); 
and 38139 (January 8, 1997) (order revising the effective date of 
the Order Execution Rules until January 20, 1997).
    \11\ The NYSE proposal requires that specialists publish certain 
bids or offers ``immediately (i.e., as soon as practicable, which 
under normal market conditions means no later than 30 seconds from 
time of receipt).'' The Commission notes that some industry 
participants have developed automated systems to ensure that 
customer limit orders are displayed no later than 30 seconds from 
receipt. Users of such systems, however, should use caution when 
relying on these systems for compliance. While ``default'' systems 
that ensure display no later than 30 seconds after receipt in 
situations where a market maker or specialist cannot otherwise 
attend to an order are not inappropriate, market makers or 
specialists that routinely allow such a system to display customer 
limit orders at the 30th second after receipt would not be deemed to 
be in compliance with the Display Rule. The Display Rule requires 
immediate display. See Letter from Richard Lindsey, Director, 
Division of Market Regulation, SEC to James F. Duffy, Executive Vice 
President and General Counsel, American Stock Exchange, dated April 
1, 1997.
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    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 in order to ensure 
consistency between NYSE rules and the Order Handling Rules.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act, that the proposed rule change (SR-NYSE-97-16) be, and 
hereby is, approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25991 Filed 9-30-97; 8:45 am]
BILLING CODE 8010-01-M