Federal Register / Vol. 60, No. 88 / Monday, May 8, 1995 / Notices 22593

1 15 U.S.C. 78o–3. 2 17 CFR 200.30–3(a)(12).

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 NASD is herewith filing a

proposed rule change to Article III,

Section 21 of the Rules of Fair Practice.

Proposed new language is italicized.

Books and Records

Sec. 21.

* * * * *

Cold Call Requirements

(g) Each member shall make and

maintain a centralized do-not-call list of

persons who do not wish to receive

telephone solicitations from such

member or its associated persons.

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

NASD 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 NASD had

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

Pursuant to the Telephone Consumer

Protection Act (TCPA), which became

law in 1991, the Federal

Communications Commission (FCC)

developed rules, effective December 20,

1992, to protect the rights of telephone

consumers while allowing legitimate

telemarketing practices. In addition, the

Telemarketing and Consumer Fraud and

Abuse Prevention Act (‘‘Prevention

Act’’) became law in August, 1994, and

requires the Federal Trade Commission

(FTC) to adopt rules on abusive cold

calling within twelve (12) months.

Members who engage in telephone

solicitation to market their products and

services are subject to the requirements

of the rules of the FCC and FTC relating

to telemarketing practices and the rights

of telephone consumers and shall refer

to FCC rules for specific restrictions on

telephone solicitations. This includes,

but is not limited to, the requirements

to make and maintain a list of persons

who do not want to receive telephone

solicitations (a ‘‘do-not-call’’ list).

The Prevention Act also requires the

SEC to engage in its own additional

rulemaking, or, alternatively, to require

the SROs to promulgate telemarketing

rules consistent with the legislation. In

August of 1994, SEC Chairman Arthur

Levitt wrote to the NASD and NYSE

urging the SROs to adopt a rule similar

to the cold calling rule established by

the FCC. Since then, there have been

ongoing discussions between the SEC

and SROs on the structure of a rule or

rules to apply pursuant to the

Prevention Act. As a first step, the

NASD is proposing to adopt a rule to

implement that portion of the FCC rules

that requires the establishment and

maintenance of a do-not-call list. The

proposed rule would add new

Subsection (g) to Section 21 of Article

III of the Rules of Fair Practice to require

that each member who engages in

telephone solicitation to market its

products and services shall make and

maintain a centralized do-not-call list of

persons who do not wish to receive

telephone solicitations from such

member of its associated persons.

The NASD believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(6) of the

Act,1 which require that the Association

adopt and amend its rules to promote

just and equitable principles of trade,

and generally provide for the protection

of customers and the public interest in

that the proposed rule change

establishes minimum standards

designed to protect members’ customers

against abusive telemarketing practices.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD does not believe that the

proposed rule change will result in any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act, as amended.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received.

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 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 such 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, 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 in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to file number

SR–NASD–95–13 and should be

submitted by May 30, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.2

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–11190 Filed 5–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35661; File No. SR–NYSE–

95–05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

New York Stock Exchange, Inc.,

Relating to Near Neighbor Approach to

Measuring Specialist Performance

May 2, 1995.

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 February 28, 1995,

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
22594 Federal Register / Vol. 60, No. 88 / Monday, May 8, 1995 / Notices

1See letter from James Buck, NYSE, to Katherine

Simmons, SEC, dated March 7, 1995.

2See Division of Market Regulation, 088SEC, The

October 1987 Market Break (February 1988), at p.

xvii.

3See infra note 8.

4The Commission approved the capital

utilization measure of specialist performance on a

one-year pilot basis in Securities Exchange Act

Release No. 33369 (December 23, 1993), 58 FR

69431 (December 30, 1993). The Commission

approved a six-month extension to the pilot

program in Securities Exchange Act Release No.

35175 (December 29, 1994), 60 FR 2167 (January 6,

1995) (extending pilot through June 30, 1995).

5Continuity, the change in price from trade to

trade, is measured by the percentage of trades with

a change of 1⁄8 point or less from the previous trade.

6 Depth, the maximum price change over a 3,000-

share sequence of trades, is measured by the

percentage of depth sequences with a high/low

range of 1⁄8 point or less.

7Spread, the difference between the bid price and

the ask price, is measured by the percentage of

reported quotations with a spread of 1⁄4 point or

less.

8A capital utilization percentage is derived for

each specialist unit by dividing the average daily

dollar value of the unit’s stabilizing purchases and

sales by the average daily total dollar value of

shares traded in the unit’s stocks. Capital utilization

is measured two ways: (1) using stabilizing dealer

volume; and (2) using stabilizing plus reliquifying

dealer volume.

9The following stocks are excluded from the

current capital utilization measure and the near

neighbor analysis: foreign stocks, preferred stocks,

warrants, when issued stocks, IPOs (for the first 60

days), closed-end funds, stocks selling for $5 and

under, stocks with less than 2,000 shares average

daily trading volume, and stocks that have been

delisted for more than six months. The following

stocks are excluded from near neighbor analysis

and as discussed below are being proposed to be

excluded from the capital utilization measure in

this rule filing: stocks with two classes of shares,

merger/acquisition stocks if there was a significant

impact on the price or volume, and stocks which

have been delisted for more than half of the

examination period. See infra note 13.

10A stock will be considered ‘‘similar’’ to a target

stock if: (1) the median average daily price is within

30% of a target stock under $20, or within $6 of

a target stock between $20 and $60, or within 10%

of a target stock above $60; (2) the median daily

non-block volume (i.e., trades under 25,000 shares)

is within 30% of the target stock; (3) the median

daily high-low range equals the median high-low

range of the target stock +/¥ 7.5% of:

i. 30% of the price for a target stock under $20

ii. $6 for a target stock between $20 and $60,

iii. 10% of the price for a target stock above $60

and (4) the market value of the float is within 30%

of the target stock.

11 if there are more than 20 stocks with distances

of 1.000 or less, only the 20 stocks that are closest

to the target stock are used in the analysis.

12The weight of a near neighbor stock decreases

as its distance from the target stock increases. If a

stock’s distance from the target stock is less than

0.500, then its weight is 1.000. If a stock’s distance

from the target stock is greater than 0.500, then its

weight is less than 1.000.

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 proposed rule change, to be

implemented on a fifteen month pilot

basis,1 consists of adopting a new

approach to measuring specialist

performance that would compare

certain performance measures of a given

stock (price continuity, depth, quotation

spread and capital utilization) to those

of its ‘‘near neighbors,’’ i.e., stocks that

have certain similar characteristics.

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

In recent years, the Exchange has

sought to create objective measures of

market quality and specialist

performance. The Securities and

Exchange Commission has also

encouraged the Exchange ‘‘to develop

relative, objective standards of

performance for evaluating

specialists.’’2 The Exchange has

responded, in part, by implementing on

a pilot basis the capital utilization

measure of specialist performance,

which measures the dollar value of a

specialist’s proprietary trading 3 in

relation to the total dollar value of

shares traded in the specialist’s stocks.4

The Exchange has continued its

efforts to develop additional objective

measures of specialist performance over

the past several years, and has retained

consultants from the Massachusetts

Institute of Technology to assist in this

endeavor. Working with the consultants,

the Exchange has developed a new

approach to evaluating specialist

performance that compares the

performance in a stock over ‘‘rolling’’

three-month periods to the performance

of stocks with similar trading

characteristics (‘‘near neighbors’’). The

market quality measures are price

continuity,5 market depth,6 quotation

spread,7 and specialist capital

utilization.8

As with the capital utilization

measure, stocks would continue to be

separated into three broad stock

categories: (1) stocks in the top 200

stocks in the S&P 500 Stock Index and

other stocks that are as active; (2) the

remaining component stocks of the S&P

500 Index and stocks among the 500

most active stocks on the Exchange; and

(3) all other stocks. A number of

securities are excluded, as with the

capital utilization measure.9

Each month, each of the specialist

unit’s eligible stocks is classified as

belonging to one of the three broad

categories noted above. A determination

is then made for each individual stock

(the ‘‘target stock’’) as to which other

stocks are statistically similar to it (its

‘‘near neighbors’’), based on certain

market characteristics. The

characteristics that are used in this

determination are price, non-block

volume, daily high low range, and the

dollar value of the stock’s ‘‘float’’ (i.e.,

shares that are available for trading that

are not closely held).10 A statistical

formula is applied to each stock’s four

market characteristics to determine its

statistical ‘‘distance’’ from the target

stock. Stocks with distances of 1.000 or

less are considered to be ‘‘near

neighbors’’ of the target stock. Stocks

with distances greater than 1.000 are

considered to be too different to be

considered ‘‘near neighbors’’ of the

target stock.11

For all stocks with three or more near

neighbors, a single weighted 12 average

performance percentage combining the

results for all the near neighbors is

calculated for each market quality

measure. Then, using statistical

techniques involving standard

deviations, each target stocks’ actual

performance in the market quality

measures listed above is compared to

the combined performance of its near

neighbors.

When a comparison with its near

neighbors is made, the target stock is

then placed into one of the three groups:

a stock whose performance is

statistically significantly poorer than the

mean performance of the near neighbor

stocks is classified in the ‘‘Below Mean’’

group; a stock whose performance is

statistically similar to the mean

performance is classified in the ‘‘Mean’’

group; and a stock whose performance

is statistically significantly better than

the mean is classified in the ‘‘Above

Mean’’ group. Stocks that have fewer

than three near neighbors are

automatically classified in the ‘‘Mean’’

group. An additional analysis is

performed on the stocks in the ‘‘Mean’’

group to highlight those stocks that have

relatively high performance even though

that performance is statistically similar
Federal Register / Vol. 60, No. 88 / Monday, May 8, 1995 / Notices 22595

13The rule filing and Amendment No. 1, see

supra note 1, propose to exclude stocks which have

been delisted for more than six months based upon

the current rolling twelve month performance

review period. However, because the Exchange is

proposing to change the review period to a rolling

three month period, the Exchange will amend the

filing to provide that stocks which have been

delisted for more that half the review period will

be excluded. Conversation between Don Siemer,

NYSE, and Katherine Simmons, SEC, May 1, 1995.

to the calculated average of their near

neighbors. A ‘‘Mean’’ group stock will

be considered to have ‘‘relatively high

performance’’ if its performance

percentage is in the top quartile of all

stocks in its stock category (i.e., top 200,

next 300, or other).

Each specialist unit would receive

three reports each month containing the

results of the near neighbor analyses for

the three most recent months combined.

These would include: (1) A Stock Detail

Report for each stock that provides

market data and performance

information about the stock and each of

the other stocks that were identified as

its ‘‘near neighbors,’’ (2) a Stock

Summary Report that lists each stock

and provides data on the performance of

the target stock and the average

performance of its near neighbors, as

well as whether the target stock’s

performance is ‘‘Below Mean,’’ ‘‘Mean,’’

or ‘‘Above Mean,’’ for each performance

measure, and (3) a Specialist Unit

Summary Report that shows, for each

performance measure and within each

stock category, the number of stocks that

are in each group classification, and the

percentage of the unit’s total stocks that

are in each group classification. The

Unit Summary Report also shows the

percentage of the unit’s ‘‘Mean’’ group

stocks that had high performance

percentages.

The Allocation Committee would

receive only the summary data

appearing on the Specialist Unit

Summary Report, which will be

updated each month (covering the three

most recent months) upon the

distribution of the reports to the

specialist units. The Allocation

Committee would not receive

performance data for individual stocks.

The Allocation Committee would also

receive a list of each unit’s stocks that

had fewer than three near neighbors and

were automatically classified in the

‘‘Mean’’ group. Included with each

stock will be its percentage of the unit’s

total dollar value of shares traded.

The Exchange is proposing that this

new approach to measuring specialist

performance be implemented on a

fifteen month pilot basis. During the

pilot period, the Exchange will continue

to study the near neighbor methodology

with a view toward recommending such

enhancements or modifications as may

be appropriate as experience is gained

with this approach to evaluating

specialist performance.

The Exchange is also proposing the

following modifications to the specialist

capital utilization performance measure

to ensure commonality between it and

near neighbor: (1) Exclusion of stocks

with two classes of shares (e.g., Class A

& Class B), ‘‘merger/acquisition’’ stocks

if there was a significant impact on the

price or volume, and stocks that have

been delisted for more than half of the

examination period; 13 and (2) reduction

of the performance review period from

a ‘‘rolling’’ 12 months to a rolling three

months. With respect to the new

exclusion for stocks with two classes of

shares and stocks subject to merger and

acquisition activity that significantly

impacts the price or volume of the

subject security, the Exchange believes

the stocks’ trading patterns to be such

that they cannot reasonably be

compared to other stocks that do not

trade in the same manner. The

performance review period is proposed

to be reduced to a rolling three month

period in order to give more prompt

feedback of performance changes.

2. Statutory Basis

The basis under Act for this proposed

rule change is the requirement under

Section 6(b)(5) of the 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 a national market

system and, in general, to protect

investors and the public interest. The

Exchange believes that the proposed

rule change is consistent with these

requirements in that developing

objective measures of specialist

performance using a near neighbor

approach would help perfect the

mechanism of a free and open market.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate 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, 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. 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–95–

05 and should be submitted by May 30,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–11230 Filed 5–5–95; 8:45 am]

BILLING CODE 8010–01–M