[Federal Register Volume 62, Number 33 (Wednesday, February 19, 1997)]
[Notices]
[Pages 7488-7489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4050]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38267; File No. SR-NYSE-96-33]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to the Execution 
of Odd-Lot Orders

February 11, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 25, 1996, 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 and II 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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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 an amendment to Exchange Rule 
124 with respect to the manner in which odd-lot market orders are 
priced for execution when quotation information in a stock is not 
available.

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
    Currently, odd-lot market orders are executed in the odd-lot system 
against the specialist in that stock at a price based on the ``best 
pricing quote.'' This is either the NYSE quote or the best quote from 
another ITS market center. (A buy odd-lot market order is executed at 
the offer price, and a sell odd-lot market order is executed at the bid 
price.) However, in situations where the quote for a stock does not 
qualify as a valid quote, either because it is designated as a non-firm 
quote, or it fails a system validation check because it exceeds certain 
parameters, the current procedure prices odd-lot executions using the 
last sale price in the round lot market.\2\ The Exchange believes, 
however, that this may not reflect the current market for the stock, 
since the quote condition (i.e. either non-firm or a gapped quote) 
suggests strongly that the market is likely to move away from that last 
price. In these situations, the Exchange believes the current procedure 
may disadvantage customers or the specialist.
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    \2\ See NYSE Rule 124.60 (detailing the circumstances when the 
ITS best bid or offer will not be utilized).
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    The NYSE proposes that, when odd-lot market orders are entered in a 
situation where a quote is not available, designated non-firm, or where 
the spread in a quote or the difference between the quote and the last 
round lot sale exceeds odd-lot system validation guidelines,\3\ that 
the next sale or next valid quote on the NYSE be used to price odd-lot 
market orders, rather than the last sale price. If the next quote is 
not firm, the next sale would be used to execute quote priced market 
orders. The Exchange believes this would provide more appropriate 
pricing of odd-lot orders as it would reflect actual round-lot market 
prices at the time the odd-lot orders are executed. The Exchange 
further believes investors and specialists would benefit from this 
increased pricing accuracy.
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    \3\ These uncodified guidelines currently provide for the 
following valid spread ranges:
    Common stock: for prices less than or equal to $50, the valid 
spread is 1 point; for prices between $50 \1/64\ and $100, the valid 
spread is 1\3/4\ points; for prices greater than $100, the valid 
spread is 2\1/2\ points.
    Preferred stock: for prices less than or equal to $50, the valid 
spread is 2 points; for prices between 50 \1/64\ and 100, the valid 
spread is 2\1/4\ points; for prices greater than $100, the valid 
spread is 2\1/2\ points.
    Spread between quote and last sale must not exceed: prices less 
than or equal to $10, the valid spread is 3/8 point; prices between 
10\1/8\ and $25, the valid spread is \1/2\ point; prices between 
25\1/8\ and $40, the valid spread is \5/8\ point; prices greater 
than $40, the valid spread is 2\1/2\ points.
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2. Statutory Basis
    The Exchange believes the proposed rule change is designed to 
provide more efficient executions of standard off-lot market orders. In 
addition, the Exchange

[[Page 7489]]

believes implementation of the proposed pricing procedures is 
consistent with the provisions of Section 6(b) (5) of the Act which, 
among other things, requires that an exchange have rules that are 
designed to remove impediments to and perfect the mechanism of a free 
and open market, and, in general, to protect investors and the public 
interest.\4\
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    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
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.

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. 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. Also, copies of such filing will be available 
for inspection and copying at the principal office of the NYSE. All 
submissions should refer to File No. SR-NYSE-96-33 and should be 
submitted by March 12, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 C.F.R. 200.30-3(a) (12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4050 Filed 2-18-97; 8:45 am]
BILLING CODE 8010-01-M