40148 Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices

7Under the proposal, small agency market orders

for Enhanced SuperMax would be orders from 500

shares to 2099 shares (or a greater amount chosen

by the specialist). Notwithstanding the 500 share

minimum order size contained in the rule, the

smallest size order eligible for Enhanced SuperMax

must always be at least one share greater than the

largest size order in such security that is eligible for

SuperMax. In other words, if a specialist voluntarily

increases the maximum order size for SuperMax,

the minimum order size for Enhanced SuperMax

must be increased accordingly.

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

9See Securities Exchange Act Release No. 35753

(May 22, 1995), 60 FR 28007 (May 26, 1995) (File

No. SR–CHX–95–08).

10The Exchange has compared the proposed

changes to SuperMax with the existing SuperMax

algorithm and believes that the new algorithm will

provide price improvement to a greater number of

trades. using data for January 1998, the Exchange

determined that the proposed changes to the

algorithm would have resulted in over 32,000 trades

receiving price improvement (for a total savings of

$329,000 to customers), as opposed to the 5800

trades that received price improvement (for a total

savings of $126,000 to customers) under the

existing SuperMax program. This means that the

changes to SuperMax would have resulted in

customers receiving $203,000 additional dollars of

price improvement over the Exchange’s existing

SuperMax algorithm.

11 Dual Trading issues are issues traded on the

CHX, either through listing on the CHX or pursuant

to unlisted trading privileges, and are also listed on

either the New York Stock Exchange or the

American Stock Exchange.

12See Securities Exchange Act Release No.

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

(September 12, 1996).

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

14 17 CFR 200.30–3(a)(12).

1The Board initially filed this proposal on

December 22, 1997. However, an amendment was

filed to restore rule language that the initial

proposal deleted. The Board filed Amendment No.

1 on this date.

2 15 U.S.C. 78s(b)(1).

3 17 CFR 240.19b–4.

Currently, some specialists have only

turned on the Exchange Super Max

program without enabling the SuperMax

program.

Under the new simplified algorithm

for Enhanced SuperMax, small agency

market orders 7 would be eligible for

price improvement if the market for the

security is quoted with a spread of 3⁄16

of a point (rather than the 1⁄4 point

spread that is required under the

existing rule). In addition, the doubleup/double down concept currently in

place to determine whether an order is

stopped has been eliminated. The

simplified algorithm will now ‘‘stop’’ an

eligible order at the ITS BBO if an

execution at the ITS BBO would be at

least 1⁄8 point higher than (for a buy

order) or lower than (for a sell order) the

last primary market sale. (This stopping

algorithm is identical to the new

algorithm above for SuperMax.) Once

stopped, an order would receive 1⁄16

price improvement over the stopped

price if the next primary market sale

occurs before the end of the Time Out

Period and the sale is at least 1⁄8 of a

point lower than (for a buy order) or

higher than (for a sell order) the stopped

price. As is the case for SuperMax, all

other aspects of the existing algorithm,

including operating time, timing of

execution, applicability to odd-lots, and

out of range situations, remain the same.

III. Discussion

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. Specifically, the Commission

finds that the proposed rule change is

consistent with Section 6(b)(5) of the

Act 8 which requires that the rules of an

exchange be designed, among other

things, to promote just and equitable

principles of trade, to foster cooperation

and coordination with persons engaged

in regulating, clearing, settling,

processing information with respect to,

and facilitating transactions in

securities, to remove impediments and

to perfect the mechanism of a free and

open market and a national market

system, and, in general, to protect

investors and the public interest.

On May 22, 1995, the Commission

approved a proposed rule change of the

CHX that allows specialists on the

Exchange, through the Exchange’s MAX

system, to provide order execution

guarantees that are more favorable than

those required under CHX Rule 37(a),

Article XX.9 That approval order

contemplated that the CHX would file

with the Commission specific

modifications to the parameters of MAX

that are required to implement various

options available under this new rule.

The Commission believes, in light of

the industry’s move to trading in finer

increments last year, that CHX’s

modification to price improvement

algorithms will provide investors a

meaningful opportunity for price

improvement when securities trading in

1⁄16’s have a spread of 1⁄8 point or

greater. In addition, the Commission

finds that the new SuperMAX and

Enhanced SuperMAX rules provide

greater price improvement opportunities

for investors because the criteria for

when such opportunities are available

has been simplified.10 The Commission

believes that, because the opportunity

for price improvement is automatic and

without any specialist intervention,

SuperMAX and Enhanced SuperMAX

facilitate order interaction and enhance

customer orders consistent with Section

6(b)(5) of the Act. The Commission

notes that while SuperMAX and

Enhanced SuperMAX are voluntary

programs that specialists choose to

participate in for Dual Trading System

issues,11 providing a greater number of

investors an opportunity to achieve

price improvement is compatible with

the views on best execution expressed

in the Order Handling release.12

IV. Conclusion

For the foregoing reasons, the

Commission finds that the proposed

rule change, SR–CHX–98–09, is

consistent with the Act and the rules

and regulations thereunder applicable to

a national securities exchange. In

addition, in approving this rule, the

Commission notes that it has also

considered the proposed rule’s impact

on efficiency, competition, and capital

formation.

It is therefore ordered, pursuant to

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

proposed rule change be, and hereby is,

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19986 Filed 7–24–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40230; File No. SR–MSRB–

97–14]

Self-Regulatory Organizations;

Municipal Securities Rulemaking

Board; Order Granting Approval of

Proposed Rule Change Relating to

Rule G–32, on Disclosures in

Connection With New Issues

July 17, 1998.

I. Introduction

On March 12, 1998,1 the Municipal

Securities Rulemaking Board (‘‘Board’’

or ‘‘MSRB’’) submitted to the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’), pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 2 and Rule

19b–4 thereunder,3 a proposed rule

change to amend Rule G–32, on

disclosures in connection with new

issues. The proposed rule change

strengthens the provisions of the rule

relating to dissemination of official

statements among dealers and

incorporates a long-standing Board

interpretation relating to disclosures

required to be made to customers in

connection with negotiated sales of new

issue municipal securities. Notice of the
Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices 40149

4See Securities Exchange Act Rel. No. 39904

(April 22, 1998), 63 FR 23311.

5These obligations of the managing underwriter

will apply with respect to all purchasing dealers,

even where the managing underwriter does not sell

the securities to the purchasing dealer.

6Of course, this amendment would not relieve

dealers acting as financial advisors of their

obligations to comply with their contractual

arrangements entered into with issuers and with all

applicable state and federal statutes, regulations

and common law. Thus, in particular, in instances

where a dealer, acting as financial advisor, has a

contractual or other legal duty to assist an issuer in

complying with its contractual obligation to deliver

final official statements within the timeframe and

in the quantities set forth in Rule 15c2–12(b)(3)

under the Act, such obligation would not be

diminished by implementation of the amendment.

7See MSRB Reports, Vol. 3, No. 1 (Jan. 1983),

‘‘Rule G–32 + Frequently Asked Questions

Concerning Disclosures in Connection with New

Issues,’’ at 25–27. See also MSRB Reports, Vol. 6,

No. 4 (Sept. 1986), ‘‘Disclosure Requirements for

New Issue Securities: Rule G–32,’’ at 17–20 and

MSRB Reports, Vol. 16, No. 3 (Sept. 1996),

‘‘Disclosures in Connection with New Issues: Rule

G–32,’’ at 19–23.

8The Commission has considered the proposed

rule’s impact on efficiency, competition and capital

formation. Establishing a specific timeframe by

which selling dealers must provide the requisite

documentation enhances efficiency as the date for

compliance is quantifiable and can be specifically

determined. Also, requiring disclosure be made by

a specific date to all similarly-situated dealers,

eliminates any competitive advantage gained by

uneven distribution of the requisite information. 15

U.S.C. 78c(f).

9Section 15B(b)(2)(C) requires the Commission to

determine that the Board’s rules are designed to

prevent fraudulent and manipulative acts and

practices, to promote just and equitable principles

of trade, to foster cooperation and coordination

with persons engaged in regulating, clearing,

settling, processing information with respect to, and

facilitating transactions in municipal securities, to

remove impediments to and perfect the mechanism

of a free and open market in municipal securities,

and, in general, to protect investors and the public

interest.

10Specifically, the provisions of the proposed

rule change and of the Bond Market Association’s

Standard Agreement Among Underwriters would

effectively obligate the managing underwriter to

send the official statement to syndicate members

within one business day of receipt from the issuer.

See supra note 4, p. 23313, n.5.

proposed rule change appeared in the

Federal Register on April 28, 1998.4

This order approves the proposed rule

change.

II. Description of the Proposal

Rule G–32, on disclosures in

connection with new issues, provides

that no broker, dealer or municipal

securities dealer (‘‘dealer’’) shall sell

any new issue municipal securities to a

customer unless that dealer delivers to

the customer, no later than the

settlement of the transaction, a copy of

the official statement in final form, if

one is being prepared. In connection

with a negotiated sale of new issue

municipal securities, dealers are also

required to deliver to their customers,

by no later than settlement with the

customer, information regarding, among

other things, the initial offering price for

each maturity in the new issue (termed

the ‘‘Offering Price Disclosure

Provision’’). Managing underwriters and

other dealers that sell new issue

municipal securities to purchasing

dealers are required to furnish copies of

the official statement to such purchasing

dealers upon request, and dealers acting

as financial advisors are also required to

ensure that official statements are made

available to the underwriters in a timely

manner (termed the ‘‘Dealer

Dissemination Provisions’’).

The Dealer Dissemination Provisions

All dealers that sell new issue

municipal securities to customers, not

just dealers that participate in the

underwriting of the new issue, are

required to deliver official statements to

their customers by no later than

settlement of their transactions. The

Dealer Dissemination Provisions clarify

that the onus is on the selling dealer to

make official statements for new issues

available to all dealers so that they may

fulfill their customer delivery obligation

under the rule. Dealers that are not part

of the underwriting group have

indicated from time to time that they

have had some difficulty in obtaining

official statements from the managing

underwriter or other selling dealers on

a timely basis. Thus, the amended

Dealer Dissemination Provisions of Rule

G–32 provide a specific timeframe and

method for delivery of official

statements to purchasing dealers.

The rule language outlining the

managing underwriter’s primary

dissemination responsibilities has been

modified for clarity. The amended rule

language adds a requirement that the

official statement be sent by the

managing underwriter to the purchasing

dealer no later than the business day

after the request or, if the official

statement has not been received from

the issuer or its agent, the business day

after receipt. The managing

underwriters would be required to send

official statements by first class mail or

other equally prompt means unless the

purchasing dealer arranges some other

method of delivery at its own expense.5

The amendments also add a

requirement that the selling dealer send

the official statement to the purchasing

dealer within the same timeframe and

by the same means as would be required

of the managing underwriter.

The proposed rule change retains the

existing requirement under Rule G–32

that a dealer acting as financial advisor

that prepares an official statement on

behalf of an issuer must make that

official statement available to the

managing or sole underwriter, but

would change the timing for such

availability from ‘‘promptly after the

award is made,’’ as provided in the

current rule, to ‘‘promptly after the

issuer approves distribution’’ of the

official statement in final form. The

amendment ensures that, once the

official statement is completed and

approved by the issuer for distribution,

dealers acting as financial advisors will

be obligated to commence the

dissemination process promptly.6

Issuers using the services of non-dealer

financial advisors are urged to hold

these financial advisors to the same

standards for prompt delivery of official

statements to the underwriters, as those

of regulated financial advisors.

The Offering Price Disclosure Provision

Since January 1983,7 the Board has

interpreted the Offering Price Disclosure

Provision to require that the initial

offering price of all maturities of a new

issue of municipal securities in a

negotiated offering must be disclosed to

customers, even for maturities that are

not reoffered. The amendment to the

Offering Price Disclosure Provision of

Rule G–32 incorporates into the rule

language this long-standing Board

interpretation. The application of the

Offering Price Disclosure Provision to

maturities that are not reoffered allows

customers to determine whether the

price they paid for a new issue

municipal security is substantially

different from the price being paid by

presale purchasers.

III. Discussion

The Commission believes the

proposed rule change is consistent with

the Act and the rules and regulations

promulgated thereunder.8 Specifically,

the Commission believes that approval

of the proposed rule change is

consistent with Section 15B(b)(2)(C) 9 of

the Act. This proposed rule change

should help dealers comply with their

obligation to deliver official statements

to their customers by settlement and

should more effectively ensure rapid

dissemination of official statements to

customers and to the marketplace

generally, than has been occurring

under the past version of the rule.10

Incorporating a specific timeframe in

the Dealer Dissemination Provisions

injects accountability in the disclosure

process. Compliance will be based on

objective factors, not a dealer’s

interpretation of a vague standard.

Furthermore, although the proposed

amendment removes specific references

in the existing rule to underwriters that
40150 Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices

11 15 U.S.C. 78s(b)(2).

12 17 CFR 200.30–3(a)(12).

1Article IV, Section 13.

2Exchange Rule 635.

3Exchange Rules 600 and 613.

4 ‘‘Any controversy between parties who are

members, allied members or member organizations

and any controversy between a member, allied

member or member organization and any other

person arising out of the business of such member,

allied member or member organization, or the

dissolution of a member organization, shall at the

instance of any such party, be submitted for

arbitration in accordance with the provisions of this

Constitution and such rules as the Board may from

time to time adopt.’’ (Article XI, Sec. 1).

‘‘Any dispute, claim or controversy between a

customer or non-member and a member, allied

member, member organization and/or associated

person arising in connection with the business of

such member, allied member, member organization

and/or associated person in connection with his

activities as an associated person shall be arbitrated

under the Constitution and Rules of the New York

Stock Exchange, Inc. as provided by any duly

executed and enforceable written agreement or

upon the demand of the customer or non-member.’’

Exchange Rule 600.

5See Exchange Rule 621.

6Spear, Leeds & Kellogg v. Central Life Assurance

Co., 85 F.3d 21 (2d Cir. 1996).

prepare official statements on behalf of

issuers, the Commission is of the

opinion that an underwriter that

prepares an official statement on behalf

of an issuer would be deemed to have

received the official statement from the

issuer immediately upon the issuer

approving the distribution of the

completed official statement in final

form.

In codifying its long-standing position

in the Offering Price Disclosure

Provision, the Board not only improves

the information available to customers

to determine the cost of their

investments, but also improves the

historical data analysts use to compare

similarly priced and structured deals in

various municipalities. The Commission

believes disclosure of accurate pricing

data should help facilitate competitive

pricing in the municipal securities

markets.

IV. Conclusion

For the above reason, the Commission

believes that the proposed rule change

is consistent with the provisions of the

Act, and in particular with Section

15B(b)(2)(C).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (SR–MSRB–97–

14), is hereby approved/

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19985 Filed 7–24–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40229; File No. SR–NYSE–

98–20]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.

Relating to an Interpretation of Article

IV, Section 14 of the Exchange

Constitution

July 17, 1998.

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 10, 1998, 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 Exchange proposes to interpret

Article IV, Section 14 of the Exchange

Constitution to provide that decisions of

the Director of Arbitration regarding

jurisdiction and hearing situs are not

subject to review by the Exchange’s

Board of Directors.

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 its

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 the proposed

resolution is to interpret Article IV,

Section 14 of the Exchange Constitution

so that decisions of the Director of

Arbitration on issues of jurisdiction and

hearings situs are not subject to review

by the Exchange’s Board at the request

of a member, member organization,

allied member or approved person. This

section of the Exchange Constitution

provides that where the Board has

delegated its powers to an officer or

employee, ‘‘a member, member

organization, allied member of approved

person affected by a decision of any

officer or employee * * * may require

a review by the Board of such decision.’’

No explicit exception is made for

actions taken by the Director of

Arbitration. Moreover, this provision is

not applicable to persons other than

members, member organizations, or

allied members of approved persons

affected by a decision of the Director of

Arbitration. However, Exchange Rule

621 and applicable law provide for the

review of the Director’s decisions by

arbitrators or the courts. In addition, the

Board has the authority to interpret the

Constitution.1

The Director of Arbitration is

‘‘charged with the duty of performing all

ministerial duties in connection with

matters submitted for arbitration.’’ 2

These duties include making the initial

decisions regarding jurisdiction and

hearing situs.3 Exchange Rule 613 deals

with the situs of a hearing and provides

that ‘‘[t]he time and place for the initial

hearing shall be determined by the

Director of Arbitration and each hearing

thereafter by the arbitrators.’’

Article XI, Section 1 of the Exchange

Constitution and Exchange Rule 600

establish the jurisdiction of the

Exchange’s arbitration forum.4 When a

claim is submitted for arbitration at the

Exchange, the Director of Arbitration, as

part of the ‘‘ministerial duties in

connection with matters submitted for

arbitration,’’ determines whether the

claim submitted falls within the

parameters of the Exchange’s

jurisdiction.

The arbitrators are empowered to

interpret and determine the

applicability of all provisions of the

Arbitration Rules 5 and thereby the

Exchange believes they can overturn

decisions of the Director of Arbitration

regarding situs of he first hearing.

Decisions of the Director Arbitration

regarding jurisdiction are subject to

review by the courts.6

The NYSE notes that in the past,

members have requested, and the Board

has granted, review of the Director of

Arbitration’s decisions on jurisdiction

and hearing situs.

The Exchange notes that interlocutory

procedural decisions are rarely

appealable in judicial and arbitral