[Federal Register Volume 63, Number 130 (Wednesday, July 8, 1998)]
[Notices]
[Pages 36985-36987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18002]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40146; File No. SR-NYSE-98-10]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc., and Amendment No. 1 
Thereto, To Amend Exchange Rule 115 Regarding Disclosure of 
Specialists' Orders

June 30, 1998.
    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 March 17, 1998, the New York Stock Exchange, Inc. (the ``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. On June 23, 1998, the NYSE filed an amendment to the 
proposal.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Agnes M. Gautier, Vice President, Market 
Surveillance, NYSE, to Richard Strasser, Assistant Director, 
Division of Market Regulation, Commission, dated June 17, 1998 
(``Amendment No. 1''). In Amendment No. 1, the NYSE clarifies that 
percentage orders, under the proposed rule change, will be treated 
the same as other orders other than stop orders. The NYSE also notes 
that the proposed amendment to NYSE Rule 115, permitting a 
specialist to respond to an issuer's inquiry regarding buying and 
selling interest in its stock, is consistent with NYSE Rule 106, 
recent changes to the Exchange's Allocation Policy, and the duties 
of a specialist in that the proposal should promote a positive 
professional relationship between the specialist and the exchange-
listed company. Furthermore, the Exchange notes it believes that 
non-member, non-issuer market participants are not disadvantaged by 
communications between the issuer and the specialist because the 
same information is available through a member's market probe of the 
specialist. The Exchange represents that under the proposed rule 
change issuers will not have direct access to the floor of the 
Exchange.
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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 
115, Disclosure of Specialists' Orders Prohibited. The text of the 
proposed rule change is available at the Office of the Secretary, the 
NYSE, and at the Commission.

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
    Exchange Rule 115 prohibits disclosure of information in regard to 
orders on a specialist's book except in certain limited circumstances. 
This policy was first adopted as a rule in February 1934. Limited 
exceptions were adopted for disclosure when demonstrating methods of 
trading to visitors in 1938 and to implement the Intermarket Trading 
System in 1978. A third exception, approved in 1991, allows a 
specialist to provide

[[Page 36986]]

information about buying or selling interest in the market at or near 
the prevailing quote in response to a market probe of a member.\4\ The 
specialist must make this same information available, in a fair and 
impartial manner, to all members making a similar inquiry. The 
specialist must also be expressly authorized to release the names of 
buyers and sellers by the member who entered the order. The names of 
buyers and sellers refers to the names of members or member 
organizations entering orders or expressing interest with the 
specialist, and not the names of their customers.
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    \4\ Securities Exchange Act Release No. 29318 (June 17, 1991) 56 
FR 28937 (June 25, 1991).
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    The Exchange is proposing to amend Rule 115 to permit a specialist, 
acting solely in his or her capacity as a market maker (i.e., while on 
the Floor), and responding to a market probe by a member, to give any 
information concerning buying and selling interest or orders he or she 
holds on the book in a stock.\5\ This proposal deletes the limitation 
that such disclosed interest be ``at or near the prevailing quote.'' 
However, with respect to stop orders on the book for a stock,\6\ a 
specialist may disclose this information when the specialist judges 
that the member conducting the market probe has the intention to trade 
in the stock at a price at which such stop orders would be relevant. 
The additional restriction on the disclosure of stop orders will permit 
disclosure in legitimate circumstances, e.g., when a proposed trade 
would be effected at a price which would trigger stop orders.
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    \5\ The proposal includes not only orders on the specialist's 
book, but also any percentage orders held by the specialist. See 
Amendment No. 1, supra note 3.
    \6\ A stop order is an order to buy or sell at the market when a 
definite price is reached either above (on a buy) or below (on a 
sell) the price that prevailed when the order was given. A stop 
order becomes a market order after a transaction at the stop price 
occurs. A stop-limit order is a stop order that designates a price 
limit. A stop-limited order becomes a limit order when a transaction 
takes place at the stop price. See NYSE Rule 13.
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    The proposal would also permit the specialist to disclose the 
identity of any buyer or seller represented on his book without being 
required to have express authorization from the member who entered the 
order to disclose the names of buyers and sellers, i.e., the members or 
member organizations who are representing the buying and selling 
interest. Nevertheless, a member may request that the identity of a 
buyer or seller not be disclosed at any time, or in respect to a 
particular order left with a specialist.
    The rule will continue to require a specialist to make any 
information available in a fair and impartial manner.
    The Exchange believes that enabling specialists to provide 
information under amended Rule 115 will facilitate the bringing 
together of buyers and sellers in a more efficient manner. For example, 
information will be given to members acting in the capacity of agents 
for their customers, and thus, the benefits of having this information 
will inure to these customers by giving them a more complete picture of 
trading interest.
    An added exception to Rule 115 is proposed to permit specialists to 
disclose information about orders on the book in their stock to listed 
companies, except for information pertaining to stop orders in the 
stock. The Exchange believes this will provide the opportunity for 
specialists to respond to listed companies' requests to be kept 
apprised concerning the market for their stocks.
2. Statutory Basis
    The basis under the Act for this proposed rule change is section 
11(b),\7\ which prohibits a specialist from disclosing information on 
orders he or she holds ``which is not available to all members. * * *'' 
The Exchange believes that the change to NYSE Rule 115 is consistent 
with Section 11(b) \8\ because it provides a mechanism for the fair and 
impartial disclosure of information by the specialist in a manner that 
is neither anti-competitive nor discriminatory. The specialist must 
respond to market probes by members with the same information being 
disclosed to each such member. With respect to the disclosure of stop 
orders, the rule's requirement that the specialist have a reasonable 
belief that the inquiry is fostered by an intent to trade at a relevant 
price supports the aims of Section 6(b)(5) of the Act \9\ concerning 
the prevention of fraudulent or manipulative acts. Disclosure of 
certain information to issuers also supports the provisions of Section 
6(b)(5) \10\ with respect to creating a free and open market.
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    \7\ 15 U.S.C. 78k(b).
    \8\ Id.
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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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.

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 its 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 proposed rule 
change, as amended, is consistent with the Act. Specifically, the 
Commission requests comments on whether the proposed provisions 
regarding issuer access to the specialist's book is consistent with the 
Act, including Section 6(b)(5) of the Act.\11\ Persons making written 
submissions should file six copies therof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Copies of the submissions, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filled 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, 450 Fifth Street, 
N.W., Washington, D.C. 20549.
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    \11\ Id.
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    Copies of such filing will also be available for inspection and 
copying at the principal office of the NYSE. All submissions should 
refer to File No. SR-NYSE-98-10 and should be submitted by July 29, 
1998.


[[Page 36987]]


    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. 98-18002 Filed 7-7-98; 8:45 am]
BILLING CODE 8010-01-M