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;
8438 Federal Register / Vol. 60, No. 30 / Tuesday, February 14, 1995 / Notices

stock in which he is registered and must be able to

establish that he can meet, with his own net liquid

assets, the greater of, a minimum capital

requirement of $1,000,000 or 25% of the foregoing

position requirement.

7 15 U.S.C. 78f(b) (1988).

8 15 U.S.C. 78s(b)(2) (1988).

9 17 CFR 200.30–3(a)(12) (1994).

• Agree to maintain 2 times (2.5 times, in

the case of a 15% combination) the capital

requirement specified in Rule 104.20 with

respect to each of the combined entity’s

stocks that are component stocks of the

Standard and Poor’s 500 Stock Price Index;

and

• Agree that all capital required to be

dedicated to specialist operations be

accounted for separate and apart from any

other capital of the combined entity, and that

such specialist capital may not be used for

any other aspect of the combined entity’s

operations.

The proposal also requires that

proponents of a proposed combination

that would result in a specialist unit

accounting for more than 5%, but less

than or equal to 10%, of a concentration

measure, maintain 1.5 times the capital

requirement specified in Rule 104.20

with respect to each of the combined

entity’s stocks that are components

stocks of the Standard and Poor’s 500

Stock Price Index.

IV. Discussion and Conclusion

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, and, in particular, with the

requirements of Sections 6(b).7 In

particular, the Commission believes the

proposal is consistent with the Section

6(b)(5) requirements that the rules of an

exchange be designated to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protect investors

and the public, in that it addresses

concerns about capitalization,

operational efficiency, and risk

management where proposed

combinations would result in large

sized specialist units.

The Commission agrees with the

NYSE that these new requirements are

appropriate in that they should

minimize the risk of financial and/or

operational failure of larger-sized units,

and ensure that such units have

sufficient, separately dedicated capital

with which to meet their market making

responsibilities. The Commission

believes that it is appropriate to modify

the Policy to place additional

capitalization requirements when

specialist units are combining. The

combined entity will be larger than

either of the two (or more) original

entities, responsible for more securities,

and financially exposed to a larger

degree. The potential impact of the

financial failure of a large-sized

specialist unit upon the NYSE would be

proportionately greater in comparison to

either original unit. Thus, imposing

more stringent capitalization

requirements upon the new unit should

decrease the probability of any such

failure, and minimize any subsequent

detrimental impact upon the market

place.

The Commission also believes that the

proposal does not impose any

unnecessary or inappropriate burden on

competition under Section 6(b)(8) of the

Act in that it establishes review

procedures to prevent potential undercapitalization of specialist units that

could hinder market quality. The

Commission recognizes that the revised

Policy can prevent certain combinations

from occurring by placing additional

requirements for such combinations to

take place. Nonetheless, the

Commission believes that the additional

requirements will help to ensure that

combinations potentially detrimental to

the market place will not be permitted.

Accordingly, any potential burden on

competition resulting from the proposal

is, in the Commission’s view, justified

as necessary and appropriate under the

Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,8 that the

proposed rule change (SR–NYSE–94–

46) is approved.

For the Commission, by the Division of

Market Regulations, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–3619 Filed 2–13–95; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Declaration of Disaster Loan Area,

North Carolina

Duplin, Lenoir, and Sampson

Counties and the contiguous Counties of

Bladen, Crave, Cumberland, Greene,

Harnett, Johnston, Jones, Onslow,

Pender, Pitt, and Wayne in the State of

North Carolina constitute a disaster area

as a result of damages caused by severe

storms and tornadoes which occurred

on January 6 and 7, 1995. Applications

for loans for physical damage may be

filed until the close of business on April

10, 1995 and for economic injury until

the close of business on November 8,

1994 at the address listed below: U.S.

Small Business Administration, Disaster

Area 2 Office, One Baltimore Place,

Suite 300, Atlanta, GA 30308, or other

locally announced locations.

The interest rates are:

Percent

For physical damage:

Homeowners With Credit Available Elsewhere ........................ 8.000

Homeowners Without Credit

Available Elsewhere ................ 4.000

Businesses With Credit Available

Elsewhere ................................ 8.000

Businesses and Non-Profit Organizations Without Credit Available Elsewhere ........................ 4.000

Others (Including Non-Profit Organizations) With Credit Available Elsewhere ........................ 7.125

For Economic Injury:

Businesses and Small Agricultural Cooperatives Without

Credit Available Elsewhere ..... 4.000

The number assigned to this disaster

for physical damage is 276412 and for

economic injury the number is 844400.

(Catalog of Federal Domestic Assistance

Program Nos. 59002 and 59008)

Dated: February 8, 1995.

Philip Lader,

Administrator.

[FR Doc. 95–3593 Filed 2–13–95; 8:45 am]

BILLING CODE 8025–01–M

Commonwealth of the Northern

Mariana Islands; Declaration of

Disaster Loan Area

The Islands of Antahan, Saipan, and

Tinian in the Commonwealth of the

Northern Mariana Islands are hereby

declared a disaster area as a result of

damages caused by Typhoon Zelda

which occurred on November 3, 1994.

Applications for loans for physical

damage as a result of this disaster may

be filed until the close of business on

April 7, 1995 and for economic injury

until the close of business on November

6, 1995 at the address listed below: U.S.

Small Business Administration, Disaster

Area 1 Office, 360 Rainbow Blvd. South,

3rd Floor, Niagara Falls, NY 14303, or

other locally announced locations.

The interest rates are:

Percent

For physical damage:

Homeowners with credit available elsewhere ........................ 8.000

Homeowners without credit available elsewhere ........................ 4.000

Businesses with credit available

elsewhere ................................ 8.000

Businesses and non-profit organizations without credit available elsewhere ........................ 4.000