[Federal Register Volume 63, Number 23 (Wednesday, February 4, 1998)] [Notices] [Pages 5829-5830] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 98-2691] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-39583; File No. SR-NYSE-97-38] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. to Amend its Rule 13 to Create a New Percentage Order Type to be Called ``Immediate Execution or Cancel Election'' January 27, 1998. 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 January 2, 1998, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared by the NYSE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change seeks to amend Rule 13 to provide that if a percentage order is marked ``Immediate Execution or Cancel Election,'' the elected portion of a percentage order with this designation is to be executed immediately in whole or in part at the price of the electing transaction. If the elected portion cannot be so executed, the election shall be deemed cancelled, and shall revert back to the percentage order and be subject to subsequent election or conversion. The text of the proposed rule change is available at the Office of the Secretary, the NYSE, 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 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. The NYSE 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 Currently, NYSE Rule 13 provides for three types of percentage orders: straight limit, last sale (which pursuant to a recently approved amendment, can be further designated ``last sale cumulative volume''), and ``buy minus/sell plus.'' The election provisions of each type of percentage order operate as follows: Straight Limit: When a trade takes place, an amount of shares equal to the size of that trade is ``elected'' as a limit order, and becomes a ``held'' order executable at a price within the overall limit on the order. Typically, the limit price is above the market when the order is entered (in the case of an order to buy), or below the market (in the case of an order to sell). Last Sale: When a trade takes place, an amount of shares equal to the size of that trade is ``elected'' as a limit order, and becomes a ``held'' order executable at the price of that trade, or at a better price, within the overall limit of the order. If the order is further designated ``last sale cumulative volume,'' an elected portion of such order can move with the market and become a held limit order executable at the price of subsequent transactions that are higher (in the case of a buy order) or lower (in the case of a sell order), within the overall limit price on the order. Typically, the limit price is above the market when the order is entered (in the case of a buy order) or below the market (in the case of a sell order). ``Buy Minus/Sell Plus'': When a trade takes place, an amount of shares equal to the size of the trade is elected, and becomes a ``held'' order executable only on stabilizing ticks. An order of this type must be further qualified by placing an overall limit price on the order. The Exchange believes that the application of the election provisions do not meet the interests of some investors placing percentage orders, particularly straight limit and last sale percentage orders: Straight Limit: Investors entering percentage orders seek to trade along with the trend of the market, without initiating price changes or otherwise influencing the equilibrium of buying and selling interest. When a straight limit percentage order is elected, it will typically receive an execution in one of two ways: (1) There is sufficient additional liquidity at the price of the electing transaction for the elected portion to receive an immediate execution at the price of the electing transaction; or (2) If the order cannot receive an immediate execution at the price of the electing transaction, it is, as a held order whose limit is above the market (in the case of a buy order) or below the market (in the case of a sell order), required to be immediately executed (or stopped) against the contra side of the market. [[Page 5830]] An execution pursuant to (2) above may initiate a price change, contrary to the ``go along'' expectations of the customer. In most instances percentage orders represent a desire to trade along with, rather than ahead of, the market. Last Sale: Investors entering last sale percentage orders also seek to trade along with the trend of the market. When a last sale percentage order is elected, it will typically receive an execution in one of three ways: (1) There is sufficient additional liquidity at the price of the electing transaction for the elected portion to receive an immediate execution at the price of the electing transaction; or (2) If the order cannot receive an immediate execution at the price of the electing transaction, it is sequenced with other limit orders at that price, and will receive an execution when there is sufficient contra side interest for trades to be effected at that price; or (3) In the case of a last sale cumulative volume percentage order, the order's executable price can move to the level of prices of subsequent trades, but the order will receive an execution only when there is sufficient contra side interest for trades to be effected at those subsequently established prices. Executions pursuant to (2) and (3) above may not always be able to be effected, as the market trend may continue to move away from the price at which the order may be executed. Elected portions of the last sale percentage order may lag behind movement of the market, which defeats the investor's purpose in entering the order. In response, the Exchange is proposing a new percentage order type called ``immediate execution or cancel election.'' The Exchange believes that consistent with the underlying philosophy of the percentage order rules, any proposed approach to accommodating investors should limit the specialist's discretion in representing such orders, while still allowing a degree of flexibility to meet the needs of those entering the orders. The Exchange notes that ``Immediate or Cancel'' is a recognized order type under Exchange Rule 13. By placing this designation on the percentage order, the investor would require the specialist to treat an election as cancelled unless the elected portion can be executed immediately (in whole or in part) at the price of the electing transaction. If the order cannot be so executed, the election would be cancelled, and the unexecuted elected portion would revert to the percentage order, subject to subsequent election (and execution/cancellation as above) or conversion. The NYSE believes that this approach sets forth objective criteria to guide the specialist's representation of the order, while ensuring that the elected portion does not lead the market by initiating any significant price change, thereby defeating the investor's objectives. The investor's instructions, not the specialist's discretion, would dictate how the order is handled. The Exchange notes that an investor seeking to have a percentage order executed under current rules would be free to continue to do so by simply designating the order as one of the three currently existing order types. 2. Statutory Basis The NYSE believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act \3\ 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 Exchange believes that the proposed rule change will remove impediments to and perfect the mechanism of a free and open market to accommodate investors by requiring the specialist to treat an election as cancelled unless the elected portion can be executed immediately at the price of the electing transaction. --------------------------------------------------------------------------- \3\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposal does not 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 of Comments on the Proposed Rule Change Received From Members, Participants or Others Comments were neither solicited nor 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 such 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. 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 this 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 NYSE. All submissions should refer to File Number SR-NYSE-97-38 and should be submitted by February 25, 1998. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\4\ --------------------------------------------------------------------------- \4\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 98-2691 Filed 2-3-98; 8:45 am] BILLING CODE 8010-01-M