Federal Register / Vol. 60, No. 52 / Friday, March 17, 1995 / Notices 14471

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

2 17 CFR 240.19b–4 (1991).

3See letter from Karen A. Aluise, Assistant Vice

President, BSE, to Beth A. Stekler, Attorney,

Division of Market Regulation, SEC, dated February

28, 1995 (‘‘Amendment No. 1’’).

4The Commission initially approved the BSE’s

proposal to codify procedures for stopping stock

and to establish a pilot program permitting

specialists to stop stock in minimum variation

markets in Securities Exchange Act Release No.

35068 (December 8, 1994), 59 FR 64717 (December

15, 1994) (File No. SR–BSE–94–09) (‘‘1994 Pilot

Approval Order’’). See also Ch. II, Sec. 38 of the

BSE Rules.

Independent of the BSE’s request for an extension

of its pilot program, the Commission has received

a comment letter regarding permanent approval of

the New York Stock Exchange’s procedures for

stopping stock in minimum variation markets. See

letter from Junius W. Peake, Monfort Professor of

Finance, University of Northern Colorado, to

Secretary, SEC, dated March 1, 1995. The comment

letter addresses the broader issue of whether

stopping stock is consistent with the specialist’s

agency obligations and recommends that the

Commission not grant permanent approval to the

minimum variation market pilot programs. The

current BSE filing, however, merely extends its

pilot program for four months to permit additional

information to be gathered and reviewed. The

Commission believes that it would be more

appropriate to address the issues raised by the

comment letter in the context of proposals

requesting permanent approval of the exchanges’

stopping stock pilot programs.

5The Commission notes that, in certain narrow

circumstances, a BSE specialist may execute a

stopped order before limit order interest on the

Exchange is exhausted. To do so, however, the

specialist must make the determination that such

action is necessary, in his or her professional

judgment, to prevent an execution that would create

a new high or new low, a double up or down tick

or an out-of-range print.

Moreover, the specialist must follow certain

procedures designed to ensure that the BSE’s limit

order book is adequately protected. First, the

specialist must split any contra-side order flow

between the stopped order and limit orders with

priority at the better price. In addition, if the

specialist elects to fill a stopped order at a price

better than the stop price before it is otherwise due

an execution, he or she must allocate an equal

number of shares, up to a maximum of 500 shares,

to orders at that price on the limit order book.

Finally, if any portion of a stopped order remains

unexecuted at the end of the trading day, the

specialist must fill such order in its entirety and,

as described above, allocate an appropriate number

of shares to the book.

Postal Service may incorporate by

reference in its briefs or motions, any

arguments presented in memoranda it

previously filed in this docket. If

necessary, the Commission also may ask

petitioners or the Postal Service for

more information.

The Commission Orders

(a) The Postal Service shall file the

record in this appeal by March 20, 1995.

(b) The Secretary of the Postal Rate

Commission shall publish this Notice

and Order and Procedural Schedule in

the Federal Register.

By the Commission.

Margaret P. Crenshaw,

Secretary.

Appendix

March 3, 1995—Filing of Appeal letter

March 13, 1995—Commission Notice

and Order of Filing of Appeal

March 28, 1995—Last day of filing of

petitions to intervene [see 39 CFR

3001.111(b)]

April 7, 1995—Petitioners’ Participant

Statements or Initial Brief [see 39 CFR

3001.115 (a) and (b)]

April 27, 1995—Postal Service’s

Answering Brief [see 39 CFR

3001.115(c)]

May 12, 1995—Petitioners’ Reply Brief

should Petitioners choose to file one

[see 39 CFR 3001.115(d)]

May 19, 1995—Deadline for motions by

any party requesting oral argument.

The Commission will schedule oral

argument only when it is a necessary

addition to the written filings [see 39

CFR 3001.116]

July 1, 1995—Expiration of the

Commission’s 120-day decisional

schedule [see 39 U.S.C. 404(b)(5)]

[FR Doc. 95–6580 Filed 3–16–95; 8:45 am]

BILLING CODE 7710–FW–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–35474; File No. SR–BSE–

95–03]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval to Proposed

Rule Change by Boston Stock

Exchange, Inc. Relating to an

Extension of a Pilot Program for

Stopping Stock in Minimum Variation

Markets

March 10, 1995.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on February

13, 1995, the Boston Stock Exchange,

Inc. (‘‘BSE’’ or ‘‘Exchange’’) filed with

the Securities and Exchange

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

the proposed rule change as described

in Items I and II below, which Items

have been prepared by the selfregulatory organization. On February 28,

1995, the BSE submitted to the

Commission Amendment No. 1 to the

proposed rule change in order to clarify

certain language in the original filing

and to request accelerated approval of

the proposal.3 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 Exchange seeks a four month

extension of its pilot program regarding

stopping stock in minimum variations

markets.4 The text of the proposed rule

change is available at the Commission.

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 III 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

The purpose of the proposed rule

change is to extend the SEC-approved

pilot provision regarding the execution

of stopped orders in minimum variation

markets for an additional four months.

The pilot provision expires on March

21, 1995, and this proposal would

extend the pilot until July 21, 1995.

The pilot rule requires the execution

of stopped orders in minimum variation

markets (a) after a transaction takes

place on the primary market at the stop

price or higher in the case of a buy order

(lower in the case of a sell order), (b)

after the applicable Exchange share

volume is exhausted or (c) at any time

prior to (a) or (b) if filled at an improved

price.5 In no event will a stopped order

be executed at a price inferior to the

stop price. The Exchange states that, as

in the case of greater than minimum

variation markets, the proposed rule

will continue to benefit customers

because they might receive a better price

than the stop price, yet it also protects

prior-entered same-price limit orders on

the book.

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b)(5) of the

Act in that it furthers the objectives to

promote just and equitable principles of

trade, to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to and
14472 Federal Register / Vol. 60, No. 52 / Friday, March 17, 1995 / Notices

6 15 U.S.C. 78f(b) (1988).

7 17 CFR 240.11b–1 (1991).

8See 1994 Pilot Approval Order, supra, note 4.

9See, e.g., SEC, Report of the Special Study of the

Securities Markets of the Securities and Exchange

Commission, H.R. Doc. No. 95, 88th Cong., 1st Sess.

Pt. 2 (1963).

When stock is stopped, book orders on the

opposite side of the market that are entitled to

immediate execution lose their priority. If the

stopped order then receives a better price, limit

orders at the stop price are bypassed and, if the

market turns away from that limit, may never be

executed.

10See NYSE Rule 116.30; American Stock

Exchange (‘‘Amex’’) Rule 109; and Article XX, Rule

12 of the Chicago Stock Exchange (‘‘CHX’’) Rules.

The relevant NYSE, Amex and CHX rules

incorporate their pilot programs to permit

specialists to stop stock in minimum variation

markets. See also Securities Exchange Act Release

No. 34614 (August 30, 1994), 59 FR 46280

(September 7, 1994) (File No. SR–Phlx–93–41)

(approving a Philadelphia Stock Exchange (‘‘Phlx’’)

proposal to codify its procedures for stopping stock

into Equity Floor Procedure Advice A–2, Stopping

Orders).

11For further discussion of the NYSE, Amex and

CHX pilot programs and the Commission’s rationale

for extending them until July 21, 1995, see

Securities Exchange Act Release Nos. 35309

(January 31, 1995), 60 FR 7247 (February 7, 1995)

(File No. SR–NYSE–95–02); 35310 (January 31,

1995), 60 FR 7236 (February 7, 1995) (File No. SR–

Amex–95–01); and 35431 (March 1, 1995) (File No.

SR–CHX–95–04).

12See supra, note 5.

facilitating transactions in securities, 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; and is not designed to

permit unfair discrimination between

customers, issuers, brokers or dealers.

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 comments on the proposed

rule change.

III. 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 BSE. All submissions

should refer to File No. SR–BSE–95–03

and should be submitted by April 7,

1995.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

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) and

11(b).6 In particular, the Commission

believes the proposal is consistent with

the Section 6(b)(5) requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to prevent fraudulent and

manipulative acts, and, in general, to

protect investors and the public interest.

The Commission also believes that the

proposed rule change is consistent with

the requirement of Section 11(b), and

Rule 11b–1 thereunder,7 that specialist

transactions must contribute to the

maintenance of fair and orderly markets.

In its order approving the pilot

procedures,8 the Commission asked the

BSE to study the effects of stopping

stock in a minimum variation market.

Specifically, the Commission requested

information on (1) the number of orders

stopped in minimum variation markets;

(2) the average size of such orders; and

(3) the percentage of stopped orders that

received price improvement. In

addition, the Commission encouraged

the BSE to develop an appropriate

measure of the pilot program’s impact

on limit orders, particularly those limit

orders on the specialist’s book ahead of

the stopped stock.

Although the BSE has begun to gather

certain information requested by the

Commission and to upgrade its

technological capabilities in this regard,

there has not been sufficient time since

initial approval of the pilot program for

the Exchange to produce conclusive

results. The Commission believes that

the BSE needs to submit comprehensive

data on the operation of this rule and,

in particular, on the impact on limit

orders on the specialist’s book before

the Commission fairly can evaluate the

BSE’s use of its pilot procedures. To

allow such information to be gathered

and reviewed, the Commission believes

that it is reasonable to extend the pilot

program until July 21, 1995. During this

extension, the Commission expects the

BSE to respond fully to the concerns set

forth below.

The Commission historically has been

concerned that the practice of stopping

stock may compromise the specialist’s

fiduciary duty to unexecuted customer

orders on the limit order book.9 The

Commission, however, has approved the

practice in limited circumstances where

the potential harm is offset by the

improvement in marketplace liquidity

and the possibility of price

improvement for the customer.

Accordingly, those exchanges with

stopping stock rules,10 including the

BSE, require their specialists to reduce

the spread between the consolidated

best bid and offer or, in a minimum

variation market, to add size at the

inside quote. The Commission believes

that such a requirement strikes an

appropriate balance between the

interests of various market participants.

Moreover, by encouraging accurate

representation of the trading interest

held by the specialist, it also facilitates

greater transparency in the securities

markets.

Despite these potential benefits, the

Commission continues to be particularly

concerned that, in minimum variation

markets, limit orders on the specialist’s

book may be bypassed when stopped

orders are executed at a better price. For

that reason, the Commission has

required that procedures for stopping

stock in minimum variation markets be

implemented on a pilot basis. These

pilot programs have been extended until

July 21, 1995, in order to allow the

Commission and the relevant exchanges

to determine whether the benefits of the

practice substantially outweight the

costs thereof.11

The Commission has concluded that

it is appropriate to place the BSE on

equal competitive footing with the other

exchanges by extending its pilot

program until July 21, 1995.

Nevertheless, the Commission believes

that the BSE rule, specifically the

provisions regarding execution of

stopped orders at an improved price

before limit order interest at the price is

exhausted,12 raises certain unique

issues. Accordingly, before the

Commission would consider another

extension or permanent approval of the
Federal Register / Vol. 60, No. 52 / Friday, March 17, 1995 / Notices 14473

13No comments were received in connection with

the proposed rule change that implemented these

procedures. See Approval Order, supra note 4.

14 15 U.S.C. 78s(b)(2) (1988).

15 17 CFR 200.30–3(a)(12) (1991).

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

2For a complete description of DTC’s procedures,

refer to Securities Exchange Act Release No. 35034

(December 8, 1994), 59 FR 63396 [File Nos. SR–

DTC–94–08 and SR–DTC–94–09] (order granting

temporary approval of procedures to recall certain

deliveries which have created short positions as a

Exchange’s pilot program, the

Commission would expect the BSE to

submit comprehensive quantitative data

on the impact of stopping stock in

minimum variation markets on

customer limit orders on the specialist’s

book and to demonstrate that the

Exchange has the technological

capabilities necessary to monitor

specialist compliance with the pilot

procedures.

At a minimum, the Commission

requests that the BSE calculate (1) the

average number of limit orders and the

average number of shares on the book

ahead of the stopped stock and (2) how

much of that volume typically is

executed by the close. Similarly, the

Exchange should determine how often

limit orders against which stock is

stopped in a minimum variation market

are executed by the close of the day’s

trading. This should include a one-day

review of all book orders in the five

stocks receiving the greatest numbers of

stops.

Finally, in its order initially

approving the BSE proposal, the

Commission requested that the BSE

determine how often stopped orders

received price improvement and which

investors were most affected by the pilot

program. At this time, the Commission

believes that further information is

necessary to ensure that BSE specialists

are handling stopped orders in a manner

which is consistent with their obligation

to maintain fair and orderly markets.

Accordingly, the Exchange should

continue to monitor (1) the number of

orders stopped in minimum variation

markets; (2) the average size of such

orders; and (3) the percentage of

stopped orders that receive price

improvement.

The Commission requests that the

BSE submit a report describing its

findings on the above matters by April

15, 1995. In addition, if the Exchange

determines to request an extension of

the pilot program beyond July 21, 1995,

the BSE should submit to the

Commission a proposed rule change by

April 15, 1995.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing thereof.

This will permit the pilot program to

continue on an uninterrupted basis. In

addition, the procedures the Exchange

proposes to continue using are the

identical procedures that were

published in the Federal Register for

the full comment period and were

approved by the Commission.13

It is therefore ordered, pursuant to

Section 19(b)(2)14 that the proposed rule

change (SR–BSE–95–03) is hereby

approved on a pilot basis until July 21,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6571 Filed 3–16–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35469; File No. SR–DTC–

95–01]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of a Proposed Rule Change

Seeking to Establish a Procedure to

Buy-in Securities to Eliminate

Participants’ Short Positions Older

than Ninety Days

March 10, 1995.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

January 13, 1995, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–DTC–95–01) as

described in Items I, II, and III below,

which items have been prepared

primarily by DTC. 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

DTC proposes to establish a buy-in

procedure to eliminate participants’

short positions that are outstanding for

more than ninety calendar days.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments that it received on the

proposed rule change. The test of these

statements may be examined at the

places specified in Item IV below. DTC

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

DTC currently employs procedures to

help eliminate short positions caused by

book entry deliveries of callable

securities made between the call

publication date and the lottery

processing date and procedures to help

eliminate short positions caused by

rejected deposits.2 Under DTC rules

when DTC participants have short

positions in their accounts, DTC debits

the participants’ accounts by an amount

equal to 130% of the market value of the

short position as determined by DTC.

DTC believes collecting 130% of the

value of the short position protects DTC

against risk and provides participants

with an incentive to cover short

positions promptly. the charge is

marked to the market until the short

position is covered or matures.