8436 Federal Register / Vol. 60, No. 30 / Tuesday, February 14, 1995 / Notices

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

2 17 CFR 240.19b–4.

3NASD Manual, Code of Arbitration Procedure,

Part I, Sec. 3 (CCH) ¶ 3703.

4 15 U.S. C. Section 70o–3.

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

2 17 CFR 240.19b–4.

3NASD Manual, of Fair Practice, Article III,

Section 46, (CCH) ¶ 2200F.

4Securities Exchange Act Release No. 35169

(December 28, 1994).

5 60 FR 2169 (January 6, 1995).

6The ‘‘ex-date’’ represents the day on which the

underlying security is traded without a specific

dividend or distribution. NASD Manual, Uniform

Practice Code, Section 3(e), (CCH) ¶ 3503.

7NYSE Guide, Handling of Orders and Reports,

Rule 118, (CCH) ¶ 2118.

[Release No. 34–35340; File No. SR–NASD–

94–77]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Granting the

Director of Arbitration the Authority to

Delegate Duties Under the Code of

Arbitration Procedure

February 8, 1995.

On December 20, 1994, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC ’’ or ‘‘Commission’’)

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’),1 and

Rule 19b–4 thereunder.2 The proposed

rule change amends Section 3 of the

Code of Arbitration Procedure

(‘‘Code’’) 3 to expressly provide that the

Director of Arbitration (‘‘Director’’) may

delegate decisionmaking authority as

appropriate.

Notice of the proposed rule change,

together with the substance of the

proposal, was provided by issuance of a

Commission release (Securities

Exchange Act Release No. 35168,

December 29, 1994) and by publication

in the Federal Register (60 FR 1822,

January 5, 1995). No comment letters

were received. This order approves the

proposed rule change.

The current provisions of Section 3 of

the Code provide for the NASD Board of

Governors to appoint a Director to

perform all administrative duties and

functions in connection with matters

submitted for arbitration pursuant to the

Code. The Director has found it

necessary to delegate certain duties and

functions of the Director to other senior

management employees of the NASD’s

Arbitration Department (‘‘Department’’),

especially as a result of the significant

growth in the Department’s staff and

workload. The NASD believes that the

authority of the Director to manage the

functions of the NASD’s Arbitration

Department inherently includes the

power to delegate duties and functions

as appropriate. Nevertheless, the rule

change amends Section 3 of the Code to

expressly permit the Director to delegate

duties and functions of the Director as

appropriate.

The rule change provides that the

Director may delegate duties and

functions of the Director as appropriate.

Further, in the event that the Director is

incapacitated, resigns, is removed or is

permanently or indefinitely disabled

from the performance of the duties and

functions of the Director, the rule

change permits the NASD President or

an NASD Executive Vice President to

appoint an interim Director to perform

the functions and responsibilities of the

Director.

The Commission finds that the

proposed rule change is consistent with

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

the Act 4 because the rule change will

protect investors and the public interest

by avoiding uncertainty and possible

litigation about the authority of a

Department staff member to act under

the Code by permitting the Director to

delegate duties and functions vested by

the Code with the Director. The

Commission further believes that by

permitting certain other NASD officers

to appoint an interim Director if

circumstances render the Director

unable to discharge the duties vested

with the Director, the proposal will help

protect investors and is in the public

interest.

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act, that file No.

SR–NASD–94–77 be, and hereby is,

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–3570 Filed 2–13–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35339; File No. SR–NASD

94–71]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving

Proposed Rule Change Relating to the

Application of ‘‘Do Not Reduce’’ and

‘‘Do Not Increase’’ Instructions With

Respect to the Repricing of Open

Orders

February 7, 1995.

On December 7, 1994, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

a proposed rule change to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder.2 The rule change amends

Article III, Section 46 of the Rules of

Fair Practice,3 which governs

adjustment of open orders, relating to

the applicability of this section to orders

marked ‘‘do not reduce’’ (‘‘DNR’’) and

‘‘do not increase (‘‘DNI’’). The

provisions of Section 46 deal with the

adjustment of open orders in the event

of a payment or distribution. As

amended, the rule will neither apply to

orders marked DNR where the dividend

is payable in cash, nor to orders marked

DNI where the dividend is payable in

stock, provided that the price of such

DNI orders shall be adjusted as required

by the rule.

Notice of the proposed rule change,

together with its terms of substance was

provided by issuance of a Commission

release 4 and by publication in the

Federal Register.5 No comments were

received in response to the notice. This

order approves the proposed rule

change.

Article III, Section 46 of the Rules of

Fair Practice, which became effective

September 15, 1994, requires a member

to adjust the price and size of an open

order in proportion to the dividend or

other distribution on the day the

security is quoted ‘‘ex’’,6 before the

member may permit the order to be

executed. The amendment has been

proposed in response to an

inconsistency in the definition of the

terms DNR and DNI between the

NASD’s Section 46 and New York Stock

Exchange (‘‘NYSE’’) Rule 118,7 on

which Section 46 was patterned.

Because Section 46 was intended to

operate in the same manner as NYSE

Rule 118, the NASD filed the proposed

rule change to amend the definitions of

DNR and DNI to conform to the

definitions in Rule 118.

Under NYSE Rule 118, a DNR

instruction applies only with respect to

cash dividends. An order with a DNR

instruction will not be reduced in price

in the event of a cash dividend. Such an

order will, however, be reduced in price

and increased in size in the event of a

stock dividend or split. In addition,

under NYSE Rule 118, a DNI instruction

applies only with respect to order size

adjustments in the event of stock

dividends. While an order with a DNI

instruction will not increased in size, it

will be reduced in price in the event of

a stock dividend or split. An order with

a DNI instruction is inapplicable in the

event of a cash distribution because the
Federal Register / Vol. 60, No. 30 / Tuesday, February 14, 1995 / Notices 8437

8 15 U.S.C. 78o–3(b)(6).

9 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1994).

3See Securities Exchange Act Release No. 24411

(April 29, 1987), 52 FR 17870 (May 12, 1987).

4See Securities Exchange Act Release Nos. 25481

(March 17, 1988), 53 FR 9554 (March 23, 1988)

(interim extension); 34167 (June 6, 1994), 59 FR

30625 (June 14, 1994) (permanent approval).

5Once the proponents agree that they will abide

by the requirements listed below, the Exchange will

verify the ability of the units to make such

commitments by reviewing their individual

capitalization information. If such a review shows

that the units do not have the requisite capacity,

then the combination will not be approved. Once

the combination has been approved, the Exchange

will monitor the combined unit to ensure that it

continues to meet the additional requirements. In

the event the combined unit fails to meet the

additional requirements, the Exchange will address

the issue as it would any other capital requirements

violation. In such circumstances, the Exchange,

through its Rule 476, has several courses of action

available to it including stock reallocation.

Conversations between Don Seimer, NYSE, and

Amy Bilbija, Attorney, SEC, on January 27, 1995

and February 6, 1995.

6Pursuant to NYSE Rule 104.20, a specialist unit

at an active post is required to be able to assume

a position of 150 trading units in each common

Continued

number of shares is not affected by a

cash distribution and, therefore, no

order size adjustment is necessary.

Currently, under Section 46, a DNR

instruction applies to both cash and

stock distributions. For example, the

price of an order marked DNR would

not be adjusted under the current

definition in Section 46 even in the

event of a 2 for 1 or similar stock

dividend. Such a dividend would halve

the quotes for the security, but the order

would remain at the original price, far

out of line with the adjusted market for

that security. Similarly, all orders

marked DNI would not be subject to the

current adjustment provisions of

Section 46. While an order marked DNI

would not be increased in size in the

event of stock dividend, it also would

not be reduced in price pursuant to the

provisions of Section 46.

For customers who understand the

operation of Section 46 to be the same

as NYSE Rule 118, leaving the current

definitions in place could result in

unexpected executions of certain open

orders. To address this concern, the

NASD has proposed to amend the

applicability of Section 46 to orders

marked DNR and DNI. Pursuant to the

amendment, the provisions of the rule

will not apply to orders marked DNI

where the distribution is payable in

cash, nor to orders marked DNI where

the distribution is payable in stock,

provide, however, that the price of such

DNI orders will be adjusted as required

by the rule.

The Commission has determined to

approve the NASD’s proposal. The

Commission finds that the rule change

is consistent with the requirements of

the Act and the rules and regulations

thereunder applicable to the NASD,

including the requirements of Section

15A(b)(6) of the Act.8 Section 15A(b)(6)

requires, in part, that the rules of a

national securities association be

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 proposed rule

change acts to remedy an unintentional

inconsistency between Section 46 and

NYSE Rule 118. The rule change also

protects against the unexpected and

unintended execution of open orders.

It is therefore ordered, pursuant to

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

proposed rule change SR–NASD–94–71

be, and hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–3567 Filed 1–13–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35343; File No. SR–NYSE–

94–46]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change Amending Specialist

Combination Review Policy to Require

Proponents of Certain Specialist Unit

Combinations to Address Issues

Related to the Capitalization, Risk

Management, and Operational

Efficiency of Large Sized Specialized

Units

February 8, 1995.

I. Introduction

On December 9, 1994 the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

adopt amendments to the NYSE’s

Specialist Combination Review Policy

(‘‘Policy’’). Specifically, the proposal

would require proponents of certain

specialist unit combinations to address

issues related to the capitalization, risk

management, and operational efficiency

of large sized specialist units.

The proposed rule change was

published for comment in Securities

Exchange Act Release No. 35171

(December 28, 1994), 60 FR 1818

(January 5, 1995). No comments were

received on the proposal.

II. Background

The Exchange’s Policy was first

approved by the Commission on a sixmonth pilot basis in 1987.3 The

Commission subsequently granted

permanent approval following an

interim extension.4

The Policy is a three-tier system of

review, primarily conducted by the

Quality of Markets Committee

(‘‘QOMC’’), to review proposed

specialist combinations that raise

concentration-related issues. The Policy

calls for review of a potential

combination where the combination

will result in a specialist unit

accounting for more than 5% of any one

of four specified concentration

measures: Allocation for all listed

common stocks; allocation for the 250

most active listed common stocks; total

share volume of stock trading on the

Exchange; and total dollar value of stock

trading on the Exchange. Once a review

is triggered under the Policy, the

primary factors taken into consideration

by the QOMC depend upon whether the

proposed combination warrants a Tier I

review (exceeding a concentration

measure by more than 5%), Tier II

review (exceeding a concentration

measure by more than 10%, up to and

including 15%), or a Tier III review

(exceeding a concentration measure by

15%). The level of the burden of proof

placed upon the proposed combining

units also may vary depending on the

Tier of review.

III. Description

The proposal will add several

requirements that address issues related

to the capitalization, risk management,

and operational efficiency of large-sized

specialist units.5 The proposal requires

proponents of a combination that would

exceed 10% of a concentration measure

to:

• Submit an acceptable risk management

plan with respect to any line of business in

which they engage;

• Submit an operational certification

prepared by an independent, nationally

recognized management consulting

organization with respect to all aspects of the

firm’s management and operations;

• Agree to maintain a minimum of 1.5

times (2 times, in the case of a 15%

combination) the total capital requirement

specified in Rule 104.20 6 with respect to the

combined entity’s stocks;