Federal Register / Vol. 60, No. 4 / Friday, January 6, 1995 / Notices 2169

8See, e.g., Rule 11b–1, 17 CFR 240.11b–1 (1994);

NYSE Rule 104.

9See, e.g., Commission’s order approving

revisions to the NYSE’s Allocation Policy and

Procedures, Securities Exchange Act Release No.

34906 (October 27, 1994), 59 FR 55142.

10See note 3, supra.

11The Commission notes that this request for

information is not exclusive an that the NYSE

should add any additional data and analysis to the

report in order to assess the effectiveness of the

capital utilization measure.

12This information should include which stocks

were reallocated due to performance, and the

specialist units involved in each reallocation.

13 15 U.S.C. 78s(b)(2) (1988).

14 17 CFR § 200.30–3(a)(12) (1991).

Specialists play a crucial role in

providing stability, liquidity and

continuity to the trading of securities.

Among the obligations imposed upon

specialists by the Exchange, and by the

Act and rules thereunder, is the

maintenance of fair and orderly markets

in designated securities.8 To ensure that

specialists fulfill these obligations, it is

important that the Exchange develop

objective measures of specialist

performance and prescribe stock

allocation procedures and policies that

encourage specialists to strive for

optimal performance. The Commission

supports the NYSE’s effort to develop an

objective measure of specialist capital

utilization to encourage improved

specialist performance and market

quality.

The Commission believes that

extending the pilot period for the

specialist capital utilization tier ratings

is appropriate because that standard

should provide the NYSE Allocation

Committee with an objective measure of

specialist performance that will refine

the Exchange’s allocation process and

thereby encourage improved specialist

performance. The NYSE’s Allocation

Policy emphasizes that the most

significant allocation criterion is

specialist performance.9 In the

Commission’s view, performance based

stock allocations not only help to ensure

that stocks are allocated to specialists

who will make the best markets, but

will provide an incentive for specialists

to improve their performance or

maintain superior performance.

For these reasons and for the other

reasons discussed in Release No.

33369,10 the Commission has

determined to extend the pilot period

for this measure through June 30, 1995.

The Commission believes that extending

the pilot period is appropriate because

it will provide the Exchange and the

Commission with an opportunity to

further study the effects of the use of the

measure on the NYSE’s allocation

process. During the pilot period, the

Commission continues to expect the

NYSE to monitor carefully the effects of

the revised Allocation Policy and report

its findings to the Commission.

Specifically, the Commission request

the NYSE report the capital utilization

data as presented to the Allocation

Committee in three tiers 11 and any

action taken by the Allocation

Committee.12 The Commission also

requests that the NYSE submit its

monitoring report, as well as any

requests for extension or permanent

approval of the use of the capital

utilization measure, by May 1, 1995.

The Commission finds good cause

pursuant to Section 19(b)(2) of the Act

for approving the proposed rule change

prior to the thirtieth day after

publication of the proposed rule change

in the Federal Register. Accelerated

approval will enable the Exchange to

continue to make use of the capital

utilization measure of specialist

performance on an uninterrupted basis

and will ensure continuity and

consistency in the stock allocation

deliberation process.

V. Conclusion

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

NYSE–94–49) be approved through June

30, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–370 Filed 1–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35169; File No. SR–NASD–

94–71]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to the

Application of ‘‘Do Not Reduce’’ and

‘‘Do Not Increase’’ Instructions With

Respect to the Repricing of Open

Orders

December 28, 1994.

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 December 7, 1994,

the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

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 NASD. 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 NASD is proposing to amend

Article III, Section 46 of the Rules of

Fair Practice. Below is the text of the

proposed rule change. Proposed new

language is italicized and proposed

deletions are bracketed.

Adjustment of Open Orders

Sec. 46.

* * * * *

(e) The provisions of this rule shall

not apply to: (1) orders governed by the

rules of a registered national securities

exchange; (2) orders marked ‘‘do not

reduce’’ where the dividend is payable

in cash; (3) orders marked ‘‘do not

increase[;]’’ where the dividend is

payable in stock, provided that the price

of such orders shall be adjusted as

required by this rule; (4) open stop

orders to buy; (5) open sell orders; or (6)

orders for the purchase or sale of

securities where the issuer of the

securities has not reported a dividend,

payment or distribution pursuant to

Securities and Exchange Commission

Rule 10b–17.

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 has

prepared summaries, set forth in Section

(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

Article III, Section 46 of the Rules of

Fair Practice, which became effective

September 15, 1994, requires a member

holding an open order, prior to

executing or permitting the order to be

executed, to adjust the price and size of

the order in proportion to the dividend

or other distribution, on the day that the

security is quoted ex. Since the rule

became effective, the NASD has

discovered an inconsistency in the

definition of the terms ‘‘Do Not Reduce’’

(DNR) and ‘‘Do Not Increase’’ (DNI)

between the NASD’s Section 46 and
2170 Federal Register / Vol. 60, No. 4 / Friday, January 6, 1995 / Notices

1 17 CFR 200.30–3(a)(12).

NYSE Rule 118, on which Section 46

was patterned.

Under NYSE Rule 118, a DNR

instruction applies only with respect to

cash dividends; i.e., an order with a

DNR instruction would be reduced in

price and increased in size, in the event

of a stock dividend or split, but would

not be reduced in price in the event of

a cash dividend. In addition, under

NYSE Rule 118, a DNI instruction

applies only with respect to stock

dividends, i.e., an order with a DNI

instruction would not be increased in

size, but would be reduced in price, in

the event of a stock dividend. Because

Section 46 was intended to operate in

the same manner as NYSE Rule 118, and

the NASD has determined to amend the

definitions of DNR and DNI to conform

to the definitions in Rule 118.

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 open orders

for such customers. 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, while applying NYSE Rule

118 would result in an adjustment. 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 market for the security. Thus, the

customer could be faced with a

purchase execution at twice the new

market price for the security, assuming

that the original order was priced

between the old bid and ask quotations.

The apparent rationale behind limiting

the application of the DNR instruction

to cash dividends under NYSE Rule 118

(and the proposed amendment to

Section 46) is that cash dividends are

less likely to result in large quotation

moves that would place an unadjusted

order very far out of line with the

market.

Similarly, consistent with Rule 118, a

DNI instruction should apply only to

order size adjustment in the event of a

stock dividend. Because orders are only

adjusted (increased) in size in a sock

dividend situation, and price is never

adjusted upward as a result of a

distribution, a DNI instruction would

operate to prevent the size of an order

from being increased. This will prevent

a customer from ending up with more

shares than he wanted or intended.

Moreover, because a DNI instruction

only applies to the size of the order, the

price of the order in a dividend

situation will be adjusted downward as

required by the rule.

The NASD believes that the proposed

rule change is consistent with the

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

Act in that the clarification of the

definitions of DNR and DNI will

alleviate confusion, and order

executions that may be harmful to

investors, caused by the differences

between Section 46 and NYSE Rule 118

and, thereby, remove an impediment to

the functioning of the market and

protect investors.

(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.

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, 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 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–94–71 and should be

submitted by January 27, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.1

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–369 Filed 1–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–20810; File No. 811–3645]

Pilgrim Corporate Utilities Fund:

Notice of Application for Deregistration

December 29, 1994.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

deregistration under the Investment

Company Act of 1940 (‘‘Act’’).

APPLICANT: Pilgrim Corporate Utilities

Fund.

RELEVANT ACT SECTION: Section 8(f).

SUMMARY OF APPLICATION: Applicant

requests an order declaring that it has

ceased to be an investment company.

FILING DATE: The application was filed

on December 13, 1994.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

January 23, 1995, and should be

accompanied by proof of service on

applicant, in the form of an affidavit, or

for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons may request notification of a

hearing by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, D.C. 20549.

Applicant, 10100 Santa Monica

Boulevard, Los Angeles, California

90067.

FOR FURTHER INFORMATION CONTACT:

Bradley W. Paulson, Staff Attorney, at

(202) 942–0147 or Robert A. Robertson,

Branch Chief, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).