18634 Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Notices

1Rule 17a–8 provides relief from the affiliated

transaction prohibition of section 17(a) of the Act

for a merger of investment companies that may be

affiliated person of each other solely by reason of

having a common investment adviser, common

directors, and/or common officers.

1The Commission initially approved the BSE’s

proposal to codify procedures for stopping stock

and to establish a separate pilot program for

stopping stock in minimum variation markets in

Securities Exchange Act Release No. 35068 (Dec. 8,

1994), 59 FR 64717 (Dec. 15, 1994) (File No. SR–

BSE–94–09) (‘‘1994 Pilot Approval Order’’). The

Commission subsequently extended the pilot

program in Securities Exchange Act Release Nos.

35474 (Mar. 10, 1995), 60 FR 14471 (Mar. 17, 1995)

(File No. SR–BSE–95–03) (‘‘March 1995 Pilot

Approval Order’’); 36004 (July 21, 1995), 60 FR

38872 (July 28, 1995) (‘‘July 1995 Pilot Approval

Order’’). This pilot program expires after April 21,

1996. In this filing, the Exchange proposes a

modified version of its pilot program for stopping

stock in minimum variation markets.

between the applicant and the

Prudential Multi-Sector Fund, Inc. (the

‘‘Multi-Sector Fund’’). The Multi-Sector

Fund was incorporated under Maryland

law and SEC records indicate that it is

registered as an open-end, nondiversified management investment

company.

3. The Board approved the

reorganization because declining assets

had resulted in increased expense ratios

and the reorganization was expected to

achieve economies of scale by

eliminating duplicative expenses.

4. The Multi-Sector Fund and

applicant have the same investment

adviser, Prudential Mutual Fund

Management, Inc., and applicant and

the Multi-Sector Fund accordingly may

be deemed to be affiliated persons.

Applicant therefore relied on the

exemption provided by rule 17a–8

under the Act to effect the merger.1 In

accordance with the rule, the directors

of applicant determined that the sale of

applicant’s assets to the Multi-Sector

Fund was in the best interest of

applicant and that the interests of the

shareholders of applicant would not be

diluted by the exchange of Class A

shares, Class B shares and Class C

shares of applicant for Class A shares,

Class B shares and Class C shares of the

Multi-Sector Fund, respectively.

5. Proxy materials were filed with the

SEC on April 27, 1995 and distributed

to applicant’s shareholders on or about

that date. On June 9, 1995, applicant’s

shareholders approved the Agreement.

6. On June 23, 1995, the effective date

of the merger, applicant had total net

assets of $180,586,169, comprising

8,583,943 Class A shares at a rounded

net asset value of $16.31 per share,

2,524,094 Class B shares at a rounded

net asset value of $16.06 per share and

4,337 Class C shares at a rounded net

asset value of $16.05 per share.

7. Pursuant to the Agreement, on June

23, 1995 the applicant transferred all of

its assets to the Multi-Sector Fund, and

the Multi-Sector Fund assumed all of

applicant’s liabilities, in exchange for

10,248,304.170 Class A shares,

3,001,830.667 Class B shares and

5,157.037 Class C shares of the MultiSector Fund. Such Class A shares, Class

B shares and Class C shares of the MultiSector Fund were distributed pro rata to

the Class A, Class B and Class C

shareholders of applicant. The number

of shares of the Multi-Sector Fund

distributed to shareholders of the

Strategist Fund was determined by

dividing the net asset value of each

share of each class of the Strategist Fund

by the net asset value of each share of

each class of the Multi-Sector Fund.

8. Total expenses of the merger were

$110,550 for printing expenses, $48,000

for solicitation expenses, $99,500 for

legal fees and expenses, and $74,100 for

mailing expenses. The expenses will be

paid by applicant and the Multi-Sector

Fund in proportion to their respective

asset levels. Because applicant has no

assets and the Multi-Sector Fund has

assumed all applicant’s liabilities, these

expenses will be satisfied from the

assets of the Multi-Sector Fund.

9. As of the date of the application,

applicant had no shareholders, assets, or

liabilities. There are no shareholders to

whom distributions in complete

liquidation of their interests have not

been made. Applicant is not a party to

any litigation or administrative

proceeding. Applicant is not now

engaged, nor does it propose to engage,

in any business activities other than

those necessary for the winding up of its

affairs.

10. Applicant intends to file Articles

of Dissolution with the Department of

Assessments and Taxation of the State

of Maryland as soon as practicable.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–10355 Filed 4–26–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37134; File No. SR–BSE–

96–03]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Boston Stock

Exchange, Incorporated Relating to

Stopping Stock in Minimum Variation

Markets

April 22, 1996.

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 April 19, 1996, the

Boston Stock Exchange, Incorporated

(‘‘BSE’’ 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 solicit

comments on the proposed rule change

from interested persons and grant

accelerated approval.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange seeks permanent

approval of its rule, as proposed be to

amended, regarding stopping stock in

minimum variation markets.1

II. Self-Regulatory Organization’s

Statement of the Propose 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 eliminate those provisions

of the current pilot program regarding

the execution of stopped orders in

minimum variation markets that

provide for the execution of stopped

orders ahead of same priced limits with

priority through the execution of 500

shares on the book. The Exchange seeks

permanent approval of all other aspects

of the rule regarding stopping stock in

minimum variation markets.

The proposed rule will require the

execution of stopped orders in

minimum variation markets (a) after a

transaction takes place on the primary

market at the stopped price or higher in

the case of a buy order (lower in the

case of a sell order) or (b) at an

improved price after the applicable

Exchange share volume at that

improved price has been exhausted. In

no event will a stopped order be
Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Notices 18635

2 15 U.S.C. § 78f.

3 15 U.S.C. § 78k.

4See SEC, Report of the Special Study of

Securities Markets of the Securities and Exchange

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

Sess., Pt. 2 (1963).

When stock is stopped, limit book orders on the

opposite side of the market do not receive an

immediate execution. Consequently, if the stopped

order then receives an improved price, limit orders

at the stop price are bypassed and, if the market

turns away from that limit, may never be executed.

5Recently, the Commission permanently

approved other exchanges’ programs for stopping

stock in minimum variation markets, which did not

raise the concerns that the BSE’s pilot program

raised with respect to limit orders on the same side

of the market as the stopped orders. In this filing,

the BSE amends its program to alleviate such

concerns. See Securities Exchange Act Release Nos.

36399 (Oct. 20, 1995), 60 FR 54900 (Oct. 26, 1995)

(permanently approving New York Stock

Exchange’s pilot program for stopping stock in

minimum variation markets); 36400 (Oct. 20, 1995),

60 FR 54886 (Oct. 26, 1995) (permanently

approving American Stock Exchange’s pilot

program for stopping stock in minimum variation

markets); 36401 (Oct. 20, 1995), 60 FR 54893 (Oct.

26, 1995) (permanently approving Chicago Stock

Exchange’s pilot program for stopping stock in

minimum variation markets).

6The BSE’s pilot had a unique provision

regarding the execution of stopped orders at an

improved price before pre-existing limit order

interest at the price is exhausted.

7As a result, in the orders approving the BSE’s

pilot procedures, the Commission asked the

Exchange to study the effects of stopping stock in

minimum variation markets. In the July 1995 Pilot

Approval Order, the Commission requested that the

BSE calculate data based on twenty stocks chosen

by the Commission during three different days

showing (1) how many orders and shares were

stopped in each stock, (2) the average number of

limit orders and the average number of shares on

the book ahead of the stopped stock, (3) how many

orders and shares received price improvement, and

(4) how many orders and shares were on the limit

order book at the time each order was stopped and

the number of such limit orders and shares that

were not executed by the end of the trading day.

After submitting the data to the Commission, the

Exchange proposed to amend its procedures for

stopping stock in minimum variation to disallow

specialists from filling stopped stock at the better

price before the pre-existing limit orders ahead of

the stopped order.

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 priorentered 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

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 inappropriate burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

No written comments were either

solicited or received.

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, 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 Exchange. All submissions

should refer to File No. SR–BSE–96–03

and should be submitted by May 17,

1996.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

After careful consideration, the

Commission has determined to approve

permanently the proposed rule change.

For the reasons discussed below, 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 Section 6(b)(5) 2 and

Section 11(b) 3 of the Act.

Historically, the Commission has had

mixed reactions about the practice of

stopping stock. The 1963 Report of the

Special Study of the Securities Markets

found that unexecuted customer limit

orders on the specialist’s book might be

bypassed by the stopped orders.4 The

Commission, nevertheless, has allowed

the practice of stopping stock in markets

where the spread is at least twice the

minimum variation because the possible

harm to orders on the book is offset by

the reduced spread that results and the

possibility of price improvement.

Although the procedures for stopping

stock in minimum variation markets do

not reduce the spread between the

quotes, the Commission has allowed, on

a pilot basis, the practice on the

Exchange in limited circumstances.5

The Exchange now proposes

procedures for stopping stock in

minimum variation markets that have

been modified from its pilot program.

The BSE’s pilot program allowed BSE

specialists to elect to fill a stopped order

at a better price before the limit order

interest on the Exchange was exhausted

provided that the specialists adhered to

certain procedures. 6 In approving this

portion of the BSE’s pilot program, the

Commission noted its serious concerns

that limit orders on the same side of the

market as the stopped orders may be

bypassed when such stopped orders are

execute at an improved price. 7 The

stopping stock program currently being

proposed, however, would only allow

specialists to execute stopped stock

when volume equal to all the preexisting limit orders ahead of the

stopped order prints in the primary

market. Specifically, the specialist

would be required to execute stopped

market orders in minimum variation

markets either (1) at the stopped price

after a transaction takes place on the

primary market at the bid price or lower

for a sell order (or the offering price or

higher for a buy order) on the primary

market or (2) at an improved price after

the displayed BSE share volume has

been exhausted.

The Commission believes that the

Exchange’s proposed procedures for

stopping stock in minimum variation

markets are consistent with the Act in

that they will assist specialists in

providing an opportunity for primary

market price protection to the customer

whose order is stopped, without

requiring that specialists execute all preexisting bids or offers when such

executions otherwise would not be

required under Exchange rules.

Moreover, the Exchange’s currently

proposed procedures for stopping stock

in minimum variation markets eliminate

the potential for bypassing prior-entered

limit orders on the specialist’s book on

the same side of the market as the
18636 Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Notices

8 In permanently approving the CHX’s pilot

program for stopping stock in minimum variation

markets, the Commission noted that unintended

consequences may arise from the interplay between

a regional exchange’s price protection rules and its

procedures for stopping stock. In this regard, the

Commission believed that the benefits of stopping

stock in minimum variation markets sufficiently

offset the possible harm to the limit orders on the

book. For similar reasons, the Commission is

approving the BSE program, as proposed to be

amended, on a permanent basis. See Securities

Exchange Act Release No. 36401 (Oct. 20, 1995), 60

FR 54893 (Oct. 26, 1995).

9 17 CFR 240.11b–1(a)(2)(ii).

10Section 11(b) permits a specialist to accept only

market or limit orders.

11See H. Rep. No. 1383, 73d Cong. 2d Sess. 22,

S. Rep. 792, 73d Cong. 2d Sess. 18 (1934).

12See Special Study, supra note 4.

13Moreover, stopped orders as ‘‘limit orders’’

would not bypass pre-existing limit orders on the

same side of the market. Under the BSE’s new

procedures being approved herein, specialists may

not execute a stopped order before the limit order

interest on the Exchange (at the same price as the

stopped order) is exhausted.

14See supra note 7.

15 15 U.S.C. § 78s(b)(2).

16 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 36841

(February 14, 1996), 61 FR 6666 (February 21,

1996).

stopped orders. The BSE’s program, as

currently proposed, would be

substantially similar to the program

already in place in the Chicago Stock

Exchange, Incorporated (‘‘CHX’’).8

For the above reasons, the

Commission believes that the BSE

proposal is consistent with Section

6(b)(5) of the Act. Moreover, the

Commission also believes that the

proposal is consistent with the Rule

11b–1(a)(2)(ii) of the Act.9 Rule 11b–

1(a)(2)(ii) requires that a specialist

engage in a course of dealings for his

own account that assist in the

maintenance, so far as practicable, of a

fair and orderly market. The

Commission believes that the proposal

is consistent with the objectives of this

Rule because the implementation of the

proposal should help the specialist to

provide an opportunity for price

improvement to the customer whose

stop order is granted, without placing a

burden on specialists by requiring that

specialists execute other pre-existing

bids or offers when such executions

would not be otherwise required under

Exchange rules.

The Commission also believes that the

proposal is consistent with the

prohibition in Section 11(b) against

providing discretion to a specialist in

the handling of an order.10 Section 11(b)

was designed, in part, to address

potential conflicts of interest that may

arise as a result of the specialist’s dual

role as agent and principal in executing

stock transactions. In particular,

Congress intended to prevent specialists

from unduly influencing market trends

through their knowledge of market

interest from the specialist’s book and

their handling of discretionary agency

orders.11 The Commission has stated

that, pursuant to Section 11(b), all

orders other than market or limit orders

are discretionary and therefore cannot

be accepted by specialists.12

The Commission believes that it is

appropriate to treat stopped orders as

equivalent to limit orders. A limit order

is an order to buy or sell a stated

amount of security at a specified price,

or better if obtainable. The Commission

believes that stopped orders are

equivalent to limit orders, in this

instance, because the orders would be

automatically elected after a transaction

takes place on the primary market at the

stopped price. The Commission,

therefore, believes that the requirements

imposed on the specialist for granting

stops in minimum variation markets

provide sufficiently stringent guidelines

to ensure that the specialist will

implement the proposed rule change in

a manner consistent with his market

making duties and Section 11(b).13

In permanently approving the

Exchange’s proposal, the Commission

expects the Exchange to continue

monitoring the practice of stopping

stock in minimum variation markets

and to take appropriate action in the

event BSE identifies any instances of

specialist non-compliance with the

program’s procedures.

Finally, 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. Accelerating the approval of the

proposal would allow the BSE

specialists to continue stopping stock in

minimum variation markets although

they will no longer be able to execute

stopped stock ahead of prior-entered

same priced limit orders. Moreover, the

BSE’s program, as currently proposed, is

substantially similar to the CHX’s

procedures, which were published in

the Federal Register for the full

comment period and were approved by

the Commission on October 20, 1995.14

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (SR–BSE–96–03)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Jonathan G. Katz,

Secretary.

[FR Doc. 96–10317 Filed 4–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37133; File No. SR–PSE–

96–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Stock Exchange

Incorporated, Relating to the FLEX

Equity Options

April 19, 1996.

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 April 5,

1996, the (‘‘PSE’’ 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 Exchange.

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 proposes to reduce

from five to three the minimum number

of market makers who must be qualified

to trade flexible exchange options

(‘‘FLEX Options’’) on an underlying

equity security (‘‘FLEX Equity Option’’)

before such options may be traded on

that security. The text of the proposed

rule change is available at the Office of

the Secretary, the Exchange, and 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

Exchange included statements

concerning the purpose of and basis for

the proposed rule change. The text of

these statements may be examined at

the places specified in Item IV below.

The Exchange 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

On February 14, 1996, the

Commission approved an Exchange

proposal to list and trade FLEX Equity

Options.3 Pursuant to that rule change,

if the Exchange trades FLEX Equity