Federal Register / Vol. 61, No. 112 / Monday, June 10, 1996 / Notices 29435

Company informed the Commission that

Union Electric Company has entered

into a merger agreement with CIPSCO

Incorporated which provides for Union

Electric Company to become a whollyowned operating company of Ameren

Corporation (‘‘Ameren’’), a registered

public utility holding company under

the Public Utility Holding Company Act

of 1935, as amended. Callaway is a

nuclear powered generating facility

which is solely-owned and operated by

Union Electric Company in accordance

with the Facility Operating License No.

NPF–30. As a result of the merger, the

common shareholders of Union Electric

Company and CIPSCO, immediately

prior to the merger (except for the

holders of Union Electric dissenting

shares), will all be common

shareholders of Ameren immediately

upon the consummation of the merger.

The merger will have no effect on the

operation of Callaway or the provisions

of its operating license. Union Electric

Company will continue to own and

operate Callaway after the merger, as

required by the operating license.

Pursuant to 10 CFR 50.80, the

Commission may approve the transfer of

control of a license after notice to

interested persons. Such approval is

contingent upon the Commission’s

determination that the holder of the

license following the transfer is

qualified to hold the license and that the

transfer is otherwise consistent with

applicable provisions of law,

regulations, and orders of the

Commission.

By this notice, the Commission is

seeking public comment on this

proposed transfer of control of the

license. Written comments may be

submitted by mail to the Rules Review

and Directives Branch, Division of

Freedom of Information and

Publications Services, Office of

Administration, U.S. Nuclear Regulatory

Commission, Washington, DC 20555–

0001, and should cite the publication

date and page number of this Federal

Register notice. Copies of written

comments received may be examined at

the NRC Public Document Room, the

Gelman Building, 2120 L Street, NW.,

Washington, DC 20555.

Antitrust Issues

Any person who wishes to submit

comments or information relating to any

antitrust issues believed to be raised by

this transfer request should submit said

comments or information within 30

days of the initial publication of this

notice in the Federal Register to the

U.S. Nuclear Regulatory Commission,

Washington, DC 20555–0001 Attention:

Chief, Generic Issues and

Environmental Projects Branch, Office

of Nuclear Reactor Regulation. The

Director of the Office of Nuclear Reactor

Regulation will issue a finding whether

significant changes in the licensee’s

activities or proposed activities have

occurred since the completion of the

previous antitrust review.

Although the staff is providing the

opportunity for comments concerning

the competitive aspects of the proposed

transfer, the staff notes that it is aware

of and is closely following a related

proceeding at the Federal Energy

Regulatory Commission (FERC). The

NRC will consider the FERC proceeding

to the maximum extent possible in

resolving issues brought before the NRC.

For further details with respect to this

proposed action, see the application

from Union Electric Company dated

February 23, 1996, and supplemental

letter dated April 24, 1996, which are

available for public inspection at the

Commission’s Public Document Room,

the Gelman Building, 2120 L Street,

NW., Washington, DC 20555, and at the

local public document room located at

the Callaway County Public Library, 710

Court Street, Fulton, Missouri 65251.

Dated at Rockville, Maryland, this 4th day

of June 1996.

For the Nuclear Regulatory Commission.

Kristine M. Thomas,

Project Manager, Project Directorate IV–2,

Division of Reactor Projects III/IV, Office of

Nuclear Reactor Regulation.

[FR Doc. 96–14558 Filed 6–7–96; 8:45 am]

BILLING CODE 7590–01–P

Application for a License To Export

Heavy Water (D2O)

Pursuant to 10 CFR 110.70(b) ‘‘Public

notice of receipt of an application’’,

please take notice that the Nuclear

Regulatory Commission has received the

following application for an export

license. Copies of the application are on

file in the Nuclear Regulatory

Commission’s Public Document Room

located at 2120 L Street, N.W.,

Washington, D.C.

A request for a hearing or petition for

leave to intervene may be filed within

30 days after publication of this notice

in the Federal Register. Any request for

hearing or petition for leave to intervene

shall be served by the requestor or

petitioner upon the applicant, the Office

of the General Counsel, U.S. Nuclear

Regulatory Commission, Washington,

D.C. 20555; the Secretary, U.S. Nuclear

Regulatory Commission, Washington,

D.C. 20555; and the Executive Secretary,

U.S. Department of State, Washington,

D.C. 20520.

The information concerning the

application follows.

NRC EXPORT LICENSE APPLICATION

Name of Applicant, Date of Application, Date Received, Application Number

Description of Material

Material type Total qty End use Country

Cambridge Isotope Labs, April 19, 1996, April 25,

1996, XMAT0392.

Deuterium Oxide (D2O)

‘‘Heavy Water’’.

22,500 Kgs As a ‘‘mud tracer’’ in oil

exploration.

United Arab Emirates.

Dated this 31st day of May 1996 at

Rockville, Maryland.

For the Nuclear Regulatory Commission.

Ronald D. Hauber,

Director, Division of Nonproliferation,

Exports and Multilateral Relations, Office of

International Programs.

[FR Doc. 96–14559 Filed 6–7–96; 8:45 am]

BILLING CODE 7590–01–PM

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

22001; 812–10096]

Sierra Asset Management Trust, et al.;

Notice of Application

June 3, 1996.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for an

Order under the Investment Company

Act of 1940 (the ‘‘Act’’).

APPLICANTS: Sierra Asset Management

Trust (the ‘‘Trust’’); Sierra Trust Funds

(‘‘Sierra Trust’’); Sierra Investment

Advisors Corporation (‘‘SIAC’’); and

Sierra Investment Services Corporation

(‘‘SISC’’).

RELEVANT ACT SECTIONS: Order requested

under section 6(c) of the Act from
29436 Federal Register / Vol. 61, No. 112 / Monday, June 10, 1996 / Notices

1Rule 11a–3 under the Act defines ‘‘group of

investment companies’’ as two or more companies

that: (a) Hold themselves out to investors as related

companies for purposes of investment and investor

services; and (b) that have a common investment

adviser or principal underwriter or the investment

adviser or principal underwriter of one of the

companies is an affiliated person, as defined in

section 2(a)(3) of the Act, of the investment adviser

or principal underwriter of each of the other

companies. Although certain existing registered

investment companies, or portfolios thereof, that

are Sierra Funds do not presently intend to rely on

the requested order, any such registered investment

company, or portfolios thereof, would be covered

by the order if they later proposed to enter into a

fund of funds arrangement in accordance with the

terms described in the application.

section 12(d)(1) of the Act and under

sections 6(c) and 17(b) of the Act from

section 17(a) of the Act.

SUMMARY OF APPLICATION: Applicants

request an order that would permit the

Trust to operate as a ‘‘fund of funds.’’

FILING DATE: The application was filed

on April 24, 1996 and amended on May

30, 1996.

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 applicants with a

copy of the request, personally or by

mail. Hearing requests should be

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

June 27, 1996, and should be

accompanied by proof of service on

applicants, 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, DC 20549.

Applicants, 9301 Corbin Avenue,

Northridge, California 91324.

FOR FURTHER INFORMATION CONTACT:

Marianne H. Khawly, Staff Attorney, at

(202) 942–0562, or Alison E. Baur,

Branch Chief, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee from the SEC’s

Public Reference Branch.

Applicants’ Representations

1. The Trust is an open-end

management investment company. The

Trust’s registration statement was filed

on March 27, 1996, but has not yet been

declared effective. The Trust will

consist of five separate investment

portfolios: Aggressive Growth, Growth,

Balanced, Fixed, and Value

(collectively, the ‘‘SAM Funds’’). Each

SAM Fund will seek to provide

diversification among major asset

categories (e.g., stocks, bonds, and cash

equivalents) and stock and bond subcategories (e.g., large company stocks,

small company stocks, and international

stocks, corporate bonds and government

mortgage securities). Certain of the SAM

Funds will be designed to provide

exposure to the growth potential of the

stock market, while other SAM Funds

will be designed to provide exposure to

the income potential of the bond

market. A defined range will be

established for each asset category in

each of the SAM Funds.

2. Applicants propose a fund of funds

arrangement whereby each SAM Fund

will invest in shares of the portfolios of

Sierra Trust, a registered open-end

management investment company

comprised of sixteen portfolios (the

‘‘Underlying Portfolios’’). Any assets

that are not invested in Underlying

Portfolio shares will be invested directly

in other types of instruments, including

money-market instruments. Applicants

request that any relief granted pursuant

to the application also apply to any

open-end management investment

company that currently or in the future

is part of the same ‘‘group of investment

companies,’’ as defined in rule 11a–3

under the Act, as the Trust (collectively,

the ‘‘Sierra Funds’’).1

3. In accordance with a written plan

adopted pursuant to rule 18f–3 under

the Act, the SAM Funds will offer two

classes of shares, Class A shares and

Class B shares. Class A shares will be

subject to a maximum front-end sales

charge ranging from 4.50% to 5.75%.

Purchases of $1 million or more and

certain other purchases are not subject

to a front-end sales charge but may be

subject to a 1.00% contingent deferred

sales charge (‘‘CDSC’’). Class A shares

also will be subject to a .25% rule 12b–

1 fee. Class B shares may be subject to

a CDSC and will be subject to a .75%

rule 12b–1 fee and a .25% shareholder

servicing fee.

4. The Underlying Portfolios are

authorized to issue multiple classes of

shares in accordance with a written plan

adopted pursuant to rule 18f–3 under

the Act. Applicants propose that the

Underlying Portfolios will offer a new

class of shares, Class I shares, to the

SAM Funds. Initially, Class I shares will

not be subject to any sales charges, rule

12b–1 fees, or shareholder servicing

fees.

5. SISC is registered as a broker-dealer

under the Securities Exchange Act of

1934 and as an investment adviser

under the Investment Advisers Act of

1940 (the ‘‘Advisers Act’’). SISC also is

a member of the National Association of

Securities Dealers, Inc. (‘‘NASD’’). SISC

serves as Sierra Trust’s principal

underwriter. In addition, SISC will

serve as the SAM Funds’ investment

adviser and principal underwriter.

SIAC, a registered investment adviser

under the Advisers Act, serves as Sierra

Trust’s investment adviser. SISC and

SIAC are wholly-owned subsidiaries of

Sierra Capital Management Corporation

(‘‘Sierra Capital’’).

6. SISC will charge the SAM Funds,

and SIAC will charge the Underlying

Portfolios, investment advisory fees.

SIAC and SISC may, however, agree to

waive all or a portion of the advisory

fees at one or both levels. In addition,

SIAC, SISC, their affiliates, and other

service providers will charge the SAM

Funds and Underlying Portfolios for all

other operational services, including

administration and custody fees.

Applicants’ Legal Analysis

1. Applicants request an order under

section 6(c) of the Act for an exemption

from section 12(d)(1) of the Act and

under sections 6(c) and 17(b) of the Act

for an exemption from section 17(a) of

the Act. The requested relief would

permit the Trust to acquire up to 100%

of the voting shares of any Underlying

Portfolio.

2. Section 12(d)(1)(A) of the Act

provides that no registered investment

company may acquire securities of

another investment company if such

securities represent more than 3% of the

acquired company’s outstanding voting

stock, more than 5% of the acquiring

company’s total assets, or if such

securities, together with the securities of

any other acquired investment

companies, represent more than 10% of

the acquiring company’s total assets.

Section 12(d)(1)(B) provides that no

registered open-end investment

company may sell its securities to

another investment company if the sale

will cause the acquiring company to

own more than 3% of the acquired

company’s voting stock, or if the sale

will cause more than 10% of the

acquired company’s voting stock to be

owned by investment companies.

3. Section 6(c) of the Act provides that

the SEC may exempt persons or

transactions from any provision of the

Act if such exemption is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the Act. Applicants request an order

permitting the SAM Funds to acquire
Federal Register / Vol. 61, No. 112 / Monday, June 10, 1996 / Notices 29437

shares of the Underlying Portfolios in

excess of the section 12(d)(1) limits.

4. The restrictions in section 12(d)(1)

were intended to prevent certain abuses

perceived to be associated with the

pyramiding of investment companies,

including: (a) Unnecessary duplication

of costs, e.g., sales loads, advisory fees,

and administrative costs; (b) additional

diversification without any clear

benefit; (c) undue influence by the fund

holding company over its underlying

funds; (d) the threat of large scale

redemptions of the securities of the

underlying investment companies; and

(e) unnecessary complexity. For the

following reasons, applicants believe

that the proposed arrangement will not

create these dangers and, therefore, that

the requested relief is appropriate.

5. Applicants assert that the proposed

arrangement will not raise the fee

layering concerns contemplated by

section 12(d)(1). The proposed

arrangement will not involve the

layering of advisory fees since, before

approving any advisory contract under

section 15(a) of the Act, the board of

trustees of the Trust, including a

majority of the trustees who are not

‘‘interested persons,’’ as defined in

section 2(a)(19) of the Act, will find that

the advisory fees charged under the

contract are based on services provided

that are in addition to, rather than

duplicative of, services provided under

any Underlying Portfolio advisory

contract. In addition, the proposed

structure will not involve layering of

sales charges. Any sales charges or

service fees relating to the shares of a

SAM Fund will not exceed the limits set

forth in Article III, section 26 of the

Rules of Fair Practice of the NASD when

aggregated with any sales charges or

service fees that the SAM Funds pay

relating to Underlying Portfolio shares.

The aggregate sales charges at both

levels, therefore, will not exceed the

limit that otherwise lawfully could be

charged at any single level.

Furthermore, applicants expect that

administrative and other expenses will

be reduced at both levels under the

proposed arrangement.

6. Applicants state that the proposed

arrangement will provide true

diversification benefits. Each SAM Fund

will pursue a different investment

strategy by investing in Underlying

Portfolios that also pursue distinct

investment strategies. The proposed

arrangement also will be structured to

minimize undue influence concerns.

The SAM Funds only will acquire

shares of Underlying Portfolios that are

Sierra Funds. Because SIAC serves as

investment adviser to the Underlying

Portfolios, and SISC, a company under

common control with SIAC, will serve

as investment adviser to the SAM

Funds, a redemption from one

Underlying Portfolio will simply lead to

the investment of the proceeds in

another Underlying Portfolio.

7. Applicants also state that the

proposed arrangement, furthermore,

will be structured to minimize large

scale redemption concerns. The SAM

Funds will be designed for long-term

investors. This will reduce the

possibility of the SAM Funds from

being used as short-term trading

vehicles and further protect the SAM

Funds and the Underlying Portfolios

from unexpected large redemptions. The

proposed arrangement will not be

unnecessarily complex. No Underlying

Portfolio will acquire securities of any

other investment company in excess of

the limits contained in section

12(d)(1)(A) of the Act.

8. Section 17(a) of the Act makes it

unlawful for an affiliated person of a

registered investment company to sell

securities to, or purchase securities

from, the company. The SAM Funds

and the Underlying Portfolios may be

considered affiliated persons by virtue

of being under common control of Sierra

Capital. They may also be deemed to be

affiliated persons of one another to the

extent that each SAM Fund owns 5% or

more of an Underlying Portfolio.

Therefore, purchases by the SAM Funds

of Underlying Portfolio shares and the

sale by the Underlying Portfolios of

their shares to the SAM Funds could be

considered transactions prohibited by

section 17(a).

9. Section 17(b) of the Act provides

that the SEC shall exempt a proposed

transaction from section 17(a) if

evidence establishes that: (a) the terms

of the proposed transaction are

reasonable and fair and do not involve

overreaching; (b) the proposed

transaction is consistent with the

policies of the registered investment

company involved; and (c) the proposed

transaction is consistent with the

general provisions of the Act.

10. Applicants believe that the

proposed transactions meet the

standards of sections 6(c) and 17(b). The

consideration paid for the sale and

redemption of Underlying Portfolio

shares will be based on the net asset

value of the Underlying Portfolio,

subject to applicable sales charges. The

investment of assets of the SAM Funds

in Underlying Portfolio shares and the

issuance of Underlying Portfolio shares

to the SAM Funds will be effected in

accordance with the investment

restrictions and policies of each SAM

Fund as set forth in the registration

statement of each SAM Fund.

Applicants also believe that the

proposed transactions are consistent

with the general purposes of the Act.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief shall be

subject to the following conditions:

1. Each SAM Fund and each

Underlying Portfolio will be part of the

same ‘‘group of investment companies,’’

as defined in rule 11a–3 under the Act.

2. No Underlying Portfolio will

acquire securities of any other

investment company in excess of the

limits contained in section 12(d)(1)(A)

of the Act.

3. A majority of the trustees of the

Trust will not be ‘‘interested persons,’’

as defined in section 2(a)(19) of the act.

4. Any sales charges or service fees

charged to the shares of a SAM Fund,

when aggregated with any sales charges

or service fees paid by the SAM Fund

relating to the securities of the

Underlying Portfolios, shall not exceed

the limits set forth in Article III, section

26, of the NASD’s Rules of Fair Practice.

5. Before approving any advisory

contract under section 15 of the Act, the

board of trustees of the Trust, including

a majority of the trustees who are not

‘‘interested persons,’’ as defined in

section 2(a)(19), will find that advisory

fees charged under the contract are

based on services provided that are in

addition to, rather than duplicative of,

services provided under any Underlying

Portfolio advisory contract. The finding,

and the basis upon which the finding

was made, will be recorded fully in the

minute books of the Trust.

6. Applicants agree to provide the

following information, in electronic

format, to the Chief Financial Analyst of

the SEC’s Division of Investment

Management: monthly average total

assets of each SAM Fund and each

Underlying Portfolio; monthly

purchases and redemptions (other than

by exchange) for each SAM Fund and

each Underlying Portfolio; monthly

exchanges into and out of teach SAM

Fund and each Underlying Portfolio;

month-end allocations of each SAM

Fund’s assets among the Underlying

Portfolios; annual expense ratios for

each SAM Fund and each Underlying

Portfolio; and a description of any vote

taken by the shareholders of any

Underlying Portfolio, including a

statement of the percentage of votes cast

for and against the proposal by each

SAM Fund and by the other

shareholders of the Underlying

Portfolio. The information will be

provided as soon as reasonaby

practicable following the Trust’s fiscal

year-end (unless the Chief Financial
29438 Federal Register / Vol. 61, No. 112 / Monday, June 10, 1996 / Notices

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 36658 (Dec.

29, 1995), 61 FR 436.

4See letter from John I. Fitzgerald, Executive Vice

President, Legal Affairs and Trading Services,

Boston Stock Exchange, Inc. (‘‘BSE’’), to Jonathan G.

Katz, Secretary, SEC, dated February 21, 1996

(‘‘BSE February 21, 1996 Letter’’); letter from George

T. Simon, Foley & Lardner, on behalf of the Chicago

Stock Exchange, Incorporated (‘‘CHX’’), to Jonathan

G. Katz, Secretary, SEC, dated March 4, 1996 (‘‘CHX

March 4, 1996 Letter’’); letter from William W.

Uchimoto, First Vice President and General

Counsel, Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’), to Jonathan G. Katz, Secretary, SEC, dated

February 23, 1996 (‘‘Phlx February 23, 1996

Letter’’); letter from David P. Semak, Vice President,

Regulation, Pacific Stock Exchange Incorporate

(‘‘PSE’’), to Jonathan G. Katz, Secretary, SEC, dated

March 4, 1996 (‘‘PSE March 4, 1996 Letter’’).

5See letter from James E. Buck, Senior Vice

President and Secretary, NYSE, to Jonathan Katz,

Secretary, SEC, dated April 25, 1996 (‘‘NYSE April

25, 1996 Letter’’). Previously, the NYSE had granted

the Commission an extension of 30 days after the

date of the Commission’s receipt of the Exchange’s

response within which to act on the NYSE’s

proposal. See letter from James E. Buck, Senior Vice

President and Secretary, NYSE, to Glen Barrentine,

SEC, dated March 13, 1996.

6See letter from George W. Mann, Jr., Senior Vice

President and General Counsel, BSE, to Jonathan G.

Katz, Secretary, SEC, dated April 23, 1996 (‘‘BSE

April 23, 1996 Letter’’); letter from John I.

Fitzgerald, Executive Vice President, Legal Affairs

and Trading Services, BSE, to Jonathan G. Katz,

Secretary, SEC, dated May 6, 1996 (‘‘BSE May 6,

1996 Letter’’); letter from J. Craig Long, Foley &

Lardner, on behalf of the CHX, to Jonathan G. Katz,

Secretary, SEC, dated May 6, 1996 (‘‘CHX May 6,

1996 Letter’’); letter from William W. Uchimoto,

First Vice President and General Counsel, Phlx, to

Jonathan G. Katz, Secretary, SEC, dated May 3, 1996

(‘‘Phlx May 3, 1996 Letter’’).

7 15 U.S.C. 78s(b)(3)(A). Pursuant to Section

19(b)(3)(A), a proposed rule change may take effect

upon filing with the Commission if designated by

the self-regulatory organization as, among other

matters, establishing or changing a due, fee, or other

charge imposed by the self-regulatory organization.

8The NYSE’s transaction fee schedule defines the

term ‘‘equity’’ to include shares, rights, and

warrants.

9Securities Exchange Act Release No. 36465

(Nov. 8, 1995), 60 FR 57473 (publishing SR–NYSE–

95–38.

10Equity public agency transaction fees and

credits do not apply to principal transactions by

NYSE members for their own accounts. See NYSE

Transaction Fee Schedule n.1.

11The Common Message Switch is a data

communications application that accommodates a

wide variety of member firm computer and

technical connections, enabling a member firm to

send orders directly to the appropriate floor booth

for execution by the firm’s floor broker or by

SuperDot to the appropriate specialist post.

Accordingly, the NYSE’s transaction fee schedule

provided credits for SuperDot orders. See Securities

Exchange Act Release No. 28655 (Nov. 29, 1990),

55 FR 50260, at n.1 (publishing SR–NYSE–90–54).

12An Individual order is an order for the account

of any customer who is an individual as defined by

NYSE Rule 80A. See Securities Exchange Act

Release No. 29866 (Oct. 28, 1991), 56 FR 56432.

That rule, in turn, cites Section 11(a)(1)(E) of the

Act, which defines an individual investor as a

natural person. See Securities Exchange Act Release

No. 32377 (May 27, 1993), 58 FR 31568, at n.7

(approving NYSE’s limitation on the additional

system credit concerning nonmember competing

market makers).

13An Agency order is an order for the account of

any customer, other than a natural person, who is

a nonmember of nonmember organization. Id. at

n.8.

14The proposed rule change defines a competing

market maker as ‘‘a specialist or market maker

registered as such on a registered stock exchange

(other than the NYSE), or a market maker bidding

and offering over-the-counter in a New York Stock

Exchange-traded security.’’

15 17 CFR 240.11Ac1–3.

16 17 CFR 240.10b–10.

17See Securities Exchange Act Release No. 34902

(Oct. 27, 1994), 59 FR 55006 [hereinafter Payment

for Order Flow Release].

18See 17 CFR 240.11Ac1–2(a)(14) (defining

‘‘reporting market center’’).

19See Payment for Order Flow Release, supra

note 17.

20See Payment for Order Flow Release, supra

note 17.

Analyst shall notify applicants in

writing that such information need no

longer be submitted).

For the Commission, by the Division of

Investment Management, under delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 96–14497 Filed 6–7–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37273; File No. SR–NYSE–

95–47]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change Relating to the Exclusion of

Competing Market Maker Orders From

Trading at No Charge

June 4, 1996.

I. Introduction

On December 29, 1995, 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

exclude orders of nonmember

competing market makers from the

NYSE’s no charge provision for system

orders of 100 to 2,099 shares.

The proposed rule change was

published for comment in the Federal

Register on January 5, 1996.3 The

Commission initially received a total of

four comment letters opposing the

proposal.4 On April 26, 1996, the NYSE

submitted its response to these

comment letters.5 After receiving the

NYSE’s response, the Commission

received four additional comment

letters.6 For the reasons discussed

below, the Commission, after careful

consideration, has decided to approve

the NYSE’s proposal.

II. Background and Description of the

Proposal

A. Transaction Credits

On November 7, 1995, the NYSE,

pursuant to Section 19(b)(3)(A) of the

Act,7 filed a rule change with the

Commission that made a series of

revisions to the Exchange’s equity 8

transaction fee schedule, including the

exclusion of nonmember competing

market makers from the NYSE’s no

charge provision for system orders of

100 to 2,099 shares.9 Prior to such filing,

the NYSE’s transaction fee schedule

imposed on all public agency,10 equity

transactions the following charges:

$0.00265 per share for the first 5,000

shares;

$0.00010 per share for 5,001 to 672,500

shares; and no charge for all shares in

excess of 672,500.

The NYSE’s transaction fee schedule

also provided for a credit of $0.30 per

order for all orders of 100 to 2,099

shares that were placed through the

NYSE’s Common Message Switch

(‘‘CMS’’)11 and an additional credit of

$1.30 for all Individual 12 or Agency 13

market orders of 100 to 2,099 shares

placed through the NYSE’s CMS. Orders

executed by members and member

organizations for the account of a

competing market maker,14 however,

were not eligible for the additional

system credit. This additional system

credit was applied on a monthly basis

against the member or member

organization’s total transaction charges.

B. Payment for Order Flow

On October 27, 1994, the Commission

adopted Rule 11Ac1–3 15 and

amendments to Rule 10b–10 16 under

the Act concerning payment for order

flow practices.17 These provisions were

designed to improve the information

available to investors about their brokerdealer’s order routing practices and

disclose to investors whether the brokerdealer received market center 18

inducements for routing unspecified

order flow to a particular market.19 In

defining payment for order flow, the

Commission took a very broad approach

so that all forms or arrangements

whereby a broker-dealer received

compensation for directing order flow to

a particular market were included.

Specifically, payment for order flow was

designed to include any credit, rebate,

or discount against execution fees that

exceeds the fee charged for executing

the order.20 As a result, credits received

by NYSE members under the NYSE’s

transaction fee schedule constituted