[Federal Register Volume 61, Number 45 (Wednesday, March 6, 1996)]
[Notices]
[Pages 8998-9000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5153]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36904; File No. SR-NYSE-96-01]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc. Relating to Amendment of
Exchange Rule 460.10
February 28, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 5, 1996, the New
York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change, and on February 26, 1996, filed Amendment No. 1 to the proposed
rule change,\2\ 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.
\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ See Letter from Donald Siemer, Director, Market
Surveillance, NYSE to Glen Barrentine, Team Leader, Division of
Market Regulation, SEC, dated February 23, 1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change consists of amendments to Exchange Rule
460.10 to modify certain prohibitions on the ownership by specialists
of securities in which they are registered (``specialty securities'')
and to modify the prohibition on business transactions specialists may
have with the issuers of specialty securities.
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 IV 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 Exchange is proposing to amend Rule 460.10 to modify certain
prohibitions on the ownership of specialty securities and business
transactions specialists may have with the issuers of specialty
securities.
a. Ownership Restrictions
NYSE Rule 460.10 prohibits a specialist \3\ from acquiring more
than 10% of the outstanding shares of any equity security in which the
specialist is registered. If a specialist acquires 5% or more of an
equity issue in which he or she is registered, notice is required to be
given to Market Surveillance, and the specialist may be directed to
reduce the position below that level.
\3\ By its terms, Rule 460.10 apply to the specialist, his or
her member organization or any other member, allied member or
approved person in such member organization or officer or employee
thereof, individually or in the aggregate.
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The restrictions on beneficial ownership codified in the rule are
intended to ensure that specialists do not enter into a control
relationship with an issuer in whose securities the specialist is
registered, such that the specialist's status as a significant
shareholder may create conflicts of interest with respect to the
specialist's affirmative and negative obligations to maintain a fair
and orderly market in the security.
The language of the rule refers specifically to ``any equity
security'' in which the specialist is registered, although a specialist
may be registered in a particular security where a position in excess
of the 5% and 10% parameters would not give rise to the control
relationship/potential conflict of interest issue noted above. For
example, a specialist registered in both a warrant and the underlying
common stock could convert a 10% position in the warrant tinto the
common stock, but the resulting position in the common stock would not
approach the 10% control relationship threshold. Other examples could
be found in convertible securities, or American Depository Receipts or
Global Depository Receipts, where conversion of the security would
result in a small position in relation to the overall number of shares
outstanding in the common stock. The proposed amendment would delete
the 10% threshold for such convertible
[[Page 8999]]
securities, provided that, upon conversion, the position in the
underlying common stock does not exceed 10% of the issue.\4\
\4\ The proposed rule does not change the requirement that if a
specialist acquires 5% or more of an equity issue in which he or she
is registered, he or she must give notice to market surveillance.
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Another example of a security in which 10% ownership would not
present a control issue is presented by certain investment company
units (the ``units''). In File No. SR-NYSE-95-23,\5\ the Exchange
described certain entities organized as open-end management investment
companies, which would hold securities comprising, or otherwise based
on or representing an investment in, an index or portfolio of
securities that represent the equity markets of a country. Each unit
represents ownership of a portion of a portfolio of securities
corresponding to an underlying ``country index,'' as determined by a
consortium of investment concerns and the Institute of Actuaries.
Specialists may be required to enter into transactions in these
securities to effect creation or redemption of the units, and these
transactions may result in an ownership of greater than 10% of an issue
of units. Pursuant to changes to Rule 460.10 that have been proposed in
File No. SR-NYSE-95-23,\6\ the specialists' activities in these
transactions, however, would be subject to facilitation of their
market-making responsibilities. In addition and as described more fully
below,\7\ Rule 460.10, as proposed to be amended hereby, would allow
the specialist to engage in such transactions only according to the
same terms and conditions as every other investor. The Exchange
believes that given the open-ended nature of these entities in that
securities will be issued on a continuous basis, the issue of control
by a specialist would not be relevant. The proposed amendment would
delete the 10% threshold for certain investment company units, provided
that, the redemption of such units would not result in a position,
directly or indirectly, in any equity security in which the specialist
is registered exceeding the 10% threshold.\8\
\5\ See Securities Exchange Act Release No. 36032 (July 28,
1995), 60 FR 40403 (Aug. 8, 1995) (File No. SR-NYSE-95-23).
\6\ In Release No. 34-36032, supra, note 5, the Exchange
proposed, among other matters, to amend Rule 460.10 to provide that,
notwithstanding the prohibition of Rule 460.10 on specialist
engaging in any business transaction with any company in whose stock
the specialists is registered, specialists registered in a security
issued by an investment company may purchase and redeem the listed
security, or securities that can be subdivided or converted into the
listed security, from the issuer as appropriate to facilitate the
maintenance of a fair and orderly market in the subject security.
\7\ See part II. A. 1. b. below.
\8\ For purposes of Rule 460.10, on investment company unit
refers to a security that represents an interest in a registered
investment company that could be organized as a unit investment
trust, an open-end management investment company, or a similar
entity, all as more completely described in proposed Section 703.16
of the Exchange's Listed Company Manual, which is proposed to be
amended in Release No. 34-36032, supra, note 5.
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The proposed amendment would also exempt from the 10% threshold,
with Exchange permission, a specialist registered in a security where
the corporate control relationship issue is absent, such as a foreign
currency warrant, which trades in relationship to the value of that
underlying currency, or an index warrant, which trades in relationship
to the value of that underlying index. With respect to these
securities, however, the specialist would not be permitted to acquire a
position of more than 25% of the issue.
In these situations, the Exchange believes that the specialist
should be permitted, to the extent consistent with the specialist's
market making responsibilities, to exceed the 10% parameter in Rule
460.10 without being required to liquidate its position in the
security.
b. Business Transactions
Rule 460.10 also prohibits a specialist, his or her member
organization or any other member, allied member, approved person in
such member organization or officer or employee from engaging in any
business transaction with any company in whose stock the specialist is
registered.\9\ This prohibition is designed to prevent a potential
conflict of interest with the specialist's market making obligations
and any status he or she might attain through business dealings with
the issuer. This prohibition, however, may be read to cover any type of
business dealing between a specialist and an issuer, including one
where the service or good is routinely available to the public and
confers no special status to the recipient beyond that of a consumer.
The Exchange proposes to amend the rule to permit the receipt of such
routine business services by a specialist or other party listed in the
rule. For example, a specialist organization may wish to contract for
commercial insurance services from one of its specialty stock
companies. The amended rule would permit such a transaction, as long as
the type of service is generally available to other business entities.
\9\ Under certain circumstances, NYSE Rule 98 affords exemptive
relief to approved persons of a specialist organization from
restrictions found in various NYSE rules, including certain
provisions of NYSE Rule 460. See Securities Exchange Act Release No.
36043 (Aug. 1, 1995), 60 FR 40218 (August 7, 1995) (Order approving
File No. NYSE-95-21).
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act in that it is designed to prevent fraudulent and manipulative acts
and practices and to perfect the mechanism of a free and open
market.\10\
\10\ 15 U.S.C. Sec. 78f(b)(5).
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The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(8) that an Exchange have rules that do
not impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.\11\ The Exchange does not
believe that market makers in derivative securities in other market
centers are subject to restrictions such as those contained in Rule
460.10. Thus, the proposed rule change is consistent with these
objectives in removing a barrier to competition without compromising
investor protection or the public interest.
\11\ 15 U.S.C. Sec. 78f(b)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The New York Stock Exchange does not believe that the proposed rule
change will impose any inappropriate 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
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 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.
[[Page 9000]]
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. Sec. 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 Exchange. All submissions should refer to File
No. SR-NYSE-96-01 and should be submitted by March 27, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-5153 Filed 3-5-96; 8:45 am]
BILLING CODE 8010-01-M