[Federal Register: August 2, 2004 (Volume 69, Number 147)]
[Notices]
[Page 46197-46199]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02au04-84]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50090; File No. SR-NYSE-2004-06]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1 and 2 Thereto by the New York Stock
Exchange, Inc. Relating to Amendments to Exchange Rule 104 and Rule 123
July 27, 2004.
Pursuant to section 19(b)(1)\1\ of the Securities Exchange Act of
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 6, 2004, the New York Stock Exchange, Inc. (``NYSE''
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. On April
5, 2004, the Exchange amended the proposed rule change.\3\ On July 14,
2004, the Exchange again amended the proposed rule change.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE,
to Nancy J. Sanow, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated April 2, 2004 and accompanying
Form 19b-4 (``Amendment No. 1''). In Amendment No. 1, the NYSE
clarified that, under the proposed rule change, customers may limit
specialists from trading along with their orders and from invoking
precedence based on size.
\4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE,
to Nancy J. Sanow, Assistant Director, Division, Commission, dated
July 13, 2004 and accompanying Form 19b-4 (``Amendment No. 2''). In
Amendment No. 2, NYSE amended the proposed rule text and added
additional explanatory material to clarify the proposal. Amendment
No. 2 replaced the Exchange's original filing and Amendment No. 1
thereto in their entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Rule 104.10 (Dealings by
Specialists) to provide that customers may limit the ability of
specialists to trade along with their orders or to invoke precedence
based on size when the specialist is liquidating a position in a
specialty security for its dealer account. Exchange Rule 123 (Records
of Orders) is also proposed to be amended to require a record of any
such request to the specialist to yield.
The text of the proposed rule change is below. Proposed new
language is italicized; proposed deletions are in brackets.
* * * * *
Rule 104.
Dealings by Specialists
* * * * *
Supplementary Material:
Functions of Specialists
.10 Regular Specialists.--Any member who expects to act regularly as
specialist in any listed stock and to solicit orders therein must be
registered as a regular specialist.
* * * * *
(6)(i) Transactions on the Exchange by a specialist for his own
account in liquidating or decreasing his position in a specialty stock
are to be effected in a reasonable and orderly manner in relation to
the condition of the general market, the market in the particular stock
and the adequacy of the specialist's positions to the immediate and
reasonably anticipated needs of the round-lot and the odd-lot market
and in this connection:
* * * * *
(B) the specialist should maintain a fair and orderly market during
liquidation and, after reliquifying, should re-enter the market to
offset imbalances between supply and demand. The selling of stock on a
direct minus tick or a zero minus tick, or the purchasing of stock on a
direct plus tick or a zero plus tick should be effected in conjunction
with the specialist's re-entry in the market on the opposite side of
the market from the liquidating transaction where the imbalance of
supply and demand indicates that immediately succeeding transactions
may result in a lower price (following the specialist's sale of stock
on a direct minus tick or a zero minus tick) or a higher price
(following the specialist's
[[Page 46198]]
purchase of stock on a direct plus tick or a zero plus tick). During
any period of volatile or unusual market conditions resulting in a
significant price movement in the subject security, the specialist's
transactions in re-entering the market following a liquidating
transaction effected by selling stock on a direct minus tick or zero
minus tick, or purchasing stock on a direct plus tick or zero plus
tick, should, at a minimum, reflect the specialist's usual level of
dealer participation in the subject security. During such periods of
unusual price movement in a security, any series of such transactions
which may be effected in a brief period of time should be accompanied
by the specialist's re-entry in the market and effecting transactions
which reflect a significant degree of dealer participation[.];
(C) transactions by a specialist for his or her dealer account in
liquidating or decreasing a position in a specialty security must yield
parity to and may not claim precedence based on size over a customer
order in the crowd upon the request of the member representing such
order, where such request has been documented as a term of the order,
to the extent of the volume of such order that has been included in the
quote prior to the transaction.
* * * * *
Rule 123.
Record of Orders
* * * * *
(g) Requests to Yield.
A request to a specialist to yield to a customer order in
accordance with Rule 104.10(6)(C) is a condition of that order and must
be documented in accordance with applicable books and records
requirements.
* * * * *
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 NYSE 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 and is set forth in sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rules 104.10(6)(i)
(Dealings by Specialists) and 123 (Records of Orders) to provide that
customers may limit the ability of specialists to trade along with
their orders or to invoke precedence based on size when the specialist
is liquidating a position in a specialty security for its dealer
account.
It is well established that specialists must always yield to
customer orders on the book when trading in their specialty securities
for their dealer accounts. However, when liquidating a position in a
specialty security for its dealer account, a specialist is permitted to
trade along with customer orders represented in the crowd and is
entitled to invoke precedence based on size. The proposed amendment to
NYSE Rule 104.10(6)(i) will give the crowd broker the right to require
that the specialist yield to his or her customer's order. The proposed
amendment will create more similarity in the way orders on the book and
in the crowd are handled and will help diminish the perception that
specialists have an advantage in trading for their dealer accounts.
NYSE Rule 104 requires that specialists' proprietary dealings be
reasonably necessary to permit the specialist to maintain a fair and
orderly market. Specialist dealer transactions when liquidating a
position must meet this standard. In addition, specialists are required
to obtain Floor Official approval for any liquidations that are
conducted on a direct plus or minus tick. Thus, specialists'
transactions when liquidating proprietary positions are subject to
specific affirmative market-making standards and review. Nevertheless,
there may be circumstances in which a customer will wish to preclude a
specialist from participating with a specific trade. The proposed rule
change will provide the mechanism for the customer to effect this
restriction.
Specifically, Exchange Rule 104.10(6)(i) will be amended to include
new paragraph (C) to provide that transactions by a specialist for his
or her dealer account in liquidating or decreasing a position in a
specialty security must yield to a customer's order in the crowd upon
the request of the member representing such order, where such request
has been documented as a term of the order, to the extent of the volume
of such order included in the quote prior to the transaction. The
customer's order will then participate in the transaction to the extent
that priority, parity and precedence rules permit.
Exchange Rule 123 will be amended to add new paragraph (g) to
provide that a request to a specialist to yield to a customer order is
a condition of that order and must be documented in accordance with
applicable books and records requirements (Exchange Rules 123 and 410;
Rules 17(a)-3 and (a)-4 \5\ under the Act).
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\5\ 17 CFR 240.17a-3 and 240.17a-4.
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2. Statutory Basis
The Exchange believes that the basis under the Act for this
proposed rule change is the requirement under section 6(b)(5) \6\ that
an exchange have rules that are 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
also is designed to support the principles of section 11A(a)(1) of the
Act \7\ in that it seeks to assure economically efficient execution of
securities transactions, make it practicable for brokers to execute
investors' orders in the best market and provide an opportunity for
investors' orders to be executed without the participation of a dealer.
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\6\ 15 U.S.C. 78f(b)(5).
\7\ 15 U.S.C. 78k-1(a)(1).
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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 written comments on
the proposed rule change.
III. 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
[[Page 46199]]
organization consents, the Commission will:
(A) By order approve the 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, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2004-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-NYSE-2004-06. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 Section, 450 Fifth
Street, NW., Washington, DC 20549. Copies of such filing also will be
available for inspection and copying at the principal office of the
NYSE. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSE-2004-06 and should be submitted on or before August 23, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-17491 Filed 7-30-04; 8:45 am]
BILLING CODE 8010-01-P