Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Notices 157

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, Exchange Rule 92 provides

that members may not trade for their

own accounts at a price at which they

hold executable customer orders. The

rule does not contain any exceptions for

any type of proprietary transactions,

including transactions where a member

firm trades for its own account along

with a customer’s block-size order when

liquidating a proprietary block

facilitation position, even if the

customer has given permission for the

firm to trade along with the order.

The ability to liquidate a block

facilitation position in such

circumstances, however, is generally

perceived by positioning firms and their

institutional customers as a reasonable

aspect of the block facilitation business,

provided there is disclosure to

customers and customer consent. The

inability to liquidate such positions in

these circumstances may impede the

block facilitation business, as firms may

be reluctant to assume block facilitation

positions if they cannot liquidate them,

subject to appropriate safeguards, while

representing customer orders.

The Exchange is proposing to amend

Rule 92 to permit member organizations

to trade along with a customer, when

liquidating a block facilitation position,

subject to the following conditions:

• The customer is not an individual

investor;

• The customer’s order is for 10,000

shares or more;

• The customer has given express

permission for the member organization

to trade along with the order, including

an understanding of the relative price

and size of allocated execution reports;

• The member organization is

liquidating a position acquired in the

course of facilitating a block transaction;

and

• The member organization’s orders

are for an account used to record

transactions whereby the member

organization acquires positions in the

course of facilitating customer orders of

10,000 shares or more (a ‘‘proprietary

facilitation account’’).

The Exchange intends to inform

members and member organizations

that, although the amended rule does

not outline a specific method of record

keeping evidencing that a customer has

given permission to trade along, the

burden of proof to demonstrate that

customer consent was obtained will fall

on the member or member organization.

Paragraph (a) of the proposed rule

change extends the provisions of Rule

92 to trades by an Exchange member or

member organization on ‘‘any other

market center.’’ This provision means

that, for Exchange members, the broad

concepts of agency law and fiduciary

duty codified in paragraph (a) of Rule 92

are intended to apply to all agency

representation, irrespective of market

center. The limited exception provided

in paragraph (b), however, is intended

to apply only to transactions by

members on the Exchange. Other market

centers may choose to adopt, or not

adopt, a comparable exception.

The supplementary material in

section .10 of the proposed rule change

imputes knowledge of customer orders

to members or employees engaged in

proprietary trading for a member or

member organization, unless that

organization has a functional separation

of the area doing the proprietary trading

from other areas of the organization

(e.g., as between a broker dealer

operating with an exemption from

certain specialist rules pursuant to

Exchange Rule 98 and an affiliated

specialist unit).

2. Statutory Basis

The basis under the Act for the

proposed rule change is the requirement

under Section 6(b)(5) 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 proposed rule

change will enable member

organizations to add depth and liquidity

to the Exchange’s market, while

continuing to provide customer

protection through the requirement of

customer approval for trading along

situations.

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 publication of

this notice in the Federal Register or

within such other 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, NW.,

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 at

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC 20549. 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–94–

34 and should be submitted by January

24, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94–32252 Filed 12–30–94; 8:45 am]

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