[Federal Register Volume 63, Number 96 (Tuesday, May 19, 1998)]
[Notices]
[Pages 27609-27611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13182]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39981; File No. SR-NYSE-98-11]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc. To Amend Rule 97,
``Limitation on Members' Trading Because of Block Positioning,'' To
Except Transactions That Facilitate Certain Customer Stock
Transactions, and To Except Certain Transactions Made To Rebalance an
Index Portfolio
May 11, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 30, 1998, the New
York Stock Exchange, Inc. (``Exchange'' or ``NYSE'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
changes as described in Item 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.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change would amend Exchange Rule 97, ``Limitation
on Members' Trading Because of Block Positioning,'' to except
transactions that facilitate certain customer transactions in: (i)
basket of stock; (ii) blocks of stock; (iii) specific stocks within a
basket of stocks; and (iv) index component stocks. The proposal would
also would except certain transactions made to rebalance an index
portfolio.
The following is the text of Exchange Rule 97 marked to reflect the
proposed rule change. Additions to the current text appear in italics
while deletions appear in brackets.
Limitation on Members' Trading Because of Block Positioning
Rule 97 (a) When a member organization holds any part of a long
position in a stock in its trading account resulting from a block
transaction it effected with a customer, such member organization may
not effect the following transactions for any account in which it has a
direct or indirect interest for the remainder of the trading day on
which it acquired such position:
(i) a purchase on a ``plus'' tick if such purchase would result in
a new daily high;
(ii) a purchase on a ``plus'' tick within one-half hour of the
close;
(iii) a purchase on a ``plus'' tick at a price higher than the
lowest price at which any block was acquired in a previous transaction
on that day; or
(iv) a purchase on a ``zero plus'' tick of more than 50% of the
stock offered at a price higher than the lowest price at which any
block was acquired in a previous transaction on that day.
For purposes of the restrictions in subparagraph (iii) and (iv)
above, in the case where more than one block was acquired during the
day, the lowest price of any such block will be the governing price.
(b) The provisions of paragraph (a) shall not apply to transactions
made:
(1) For bona fide arbitrage or to engage in the purchase and sale,
or sale and purchase of securities of companies involved in publicly
announced merger, acquisition, consolidation, tender, etc.;
(2) To offset a transaction made in error;
(3) To facilitate the conversion of options;
(4) By specialists in the stocks in which they are registered; [or]
(5) To facilitate the sale of a block of stock or a basket of
stocks by a customer[.];
[[Page 27610]]
(6) To facilitate an existing customer's order for the purchase of
a block of stock, or a specific stock within a basket of stocks, or a
stock which is being added to or reweighed in an index, at or after the
close of trading on the Exchange, provided that the facilitating
transactions are recorded as such and the transactions in the aggregate
do not exceed the number of shares required to facilitate the
customer's order for such stock; or
(7) Due to a stock's addition to an index or an increase in a
stock's weight in an index, provided that the transactions in the
aggregate do not exceed the number of shares required to rebalance the
index portfolio.
Supplementary Material
.10 Definitions. A block positioner is a member organization which
engages, either regularly or on an intermittent basis, in a course of
business of acquiring positions to facilitate the handling of
customers; order's on the Floor of the Exchange. For the purposes of
this Rule, a block shall mean a quantity of stock having a market value
of $500,000 or more which is acquired by a number organization on its
own behalf and/or others from one or more buyers or sellers in a single
transaction.
For purposes of this Rule, a ``basket of stocks'' shall mean a
group of 15 or more stocks having a total market value of $1 million or
more.
For purposes of this Rule, an ``index'' shall mean a publicly
disseminated statistical composite measure based on the price of market
value of the component stocks in a group of stocks.
.20-.50 No change.
II. Self-Regulatory Organizations'; 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 purposes 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 Exchange 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
Exchange Rule 97 currently prohibits a member organization that
holds any part of a long stock position in its trading account, which
position resulted from a block transaction it effected with a customer,
from purchasing for an account in which it (i.e., the block positioning
member organization) has a direct or indirect interest, additional
shares of each stock on a ``plus'' or ``zero plus'' tick under certain
conditions for the remainder of the trading day on which the member
organization acquired the long position. Under Exchange Rule 97, the
term ``block'' is defined as a quantity of stock having a market value
of $500,000 or more that was acquired in a single transaction.
The restrictions in Exchange Rule 97 presently do not apply to
transactions that: (i) involve bona fide arbitrage or the purchase and
sale (or sale and purchase) of securities of companies involved in a
publicly announced merger, acquisition, consolidation or tender offer;
(ii) offset transaction made in error; (iii) facilitate the conversion
of options; (iv) are engaged in by specialists in their specialty
stocks; or (v) facilitate the sale of a block of stock by a customer.
Exchange Rule 97 was adopted to address concerns that a member
organization might engage in manipulative practices by attempting to
``mark-up'' the price of a stock to enable the position acquired in the
course of block positioning to be liquidated at a profit, or to
maintain the market at the price at which the position was acquired.
The ``tick'' restrictions of Exchange Rule 97 are designed to address
these specific concerns. The current exceptions under Exchange Rule 97
permit certain types of purchases that are effected for a permitted
purpose, but do not include transactions solely effected to increase
the block positioner's position.
The Exchange seeks to amend Exchange Rule 97 to provide certain
additional exceptions. The proposed additional exceptions would apply
to purchases by the block positioning member organization that increase
a position in order to: (i) facilitate the sale of a basket of stocks
by a customer; and (ii) facilitate an existing customer's order for the
purchase of a block of stock, a specific stock within a basket of
stocks, or a stock being added to or reweighted in an index, at or
after the close of trading on the Exchange. The proposal requires that
these facilitating transactions be recorded as such and the
transactions in the aggregate may not exceed the number of shares
required to facilitate the customer's order for such stock. Finally,
the proposal would add an exception for transactions made due to a
stock's addition to an index or an increase in a stock's weight in an
index provided that the transactions in the aggregate do not exceed the
number of shares required to rebalance the index portfolio.
With respect to revised paragraph (b)(5), the proposal would extend
the exception, which currently applies to a subsequent facilitation
trade of block size ,to a facilitation trade of less than block size
provided that the stock was part of a ``basket'' of stocks being sold
by a customer. Proposed Supplementary Material .10, ``Definitions,''
defines the term ``basket'' as a group of 15 or more stocks having a
market value of one million dollars or more.
As to proposed paragraph (b)(6), the proposal would permit a block
positioner to purchase stock to increase its position up to the amount
required to facilitate a customer's purchase at the close or after-
hours of a block of stock, a specific stock within a basket of stocks,
or a stock being added to or reweighted in an index, provided the firm
has an existing customer's order for the at-the-close or after-hours
purchase. This provision will permit a member organization to position
stock to effect a cross with a customer at or after the close. The
proprietary purchase would be required to be recorded in a manner which
identifies them as transactions entered into for the purpose of
facilitating the customer buy transaction. Also, the transactions in
the aggregate could not exceed the number of shares required to
facilitate the customer's order.
The block positioner's purchases exempted under proposed paragraph
(b)(6) would, however, remain subject to the limitations on positioning
to facilitate customer orders as discussed in Exchange Information
Memorandum No. 95-28, ``Positioning to Facilitate Customer Orders.''
\2\ These limitations generally preclude a block positioner, that has
committed to sell securities after the close to a customer at the
closing price, from being in the market on a proprietary basis after
3:40 p.m. when it has left a portion of its positioning to be executed
at the close, and such at-the-close proprietary order can be reasonably
expected to impact the closing price.
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\2\ See Securities Exchange Act Release No. 35837 (June 12,
1995), 60 FR 31749 (June 16, 1995).
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Finally, with regard to proposed paragraph (b)(7), the proposal
would allow a block positioner to increase its proprietary portion in a
stock where such stock is being added to an index or its weight in an
index is being increased. However, purchases in the
[[Page 27611]]
aggregate may not exceed the number of shares required to rebalance an
index portfolio.
The Exchange believes the proposed exceptions in paragraphs (b)(5)
and (b)(6) to facilitate certain customer transactions are appropriate
because these types of transactions are effected to accommodate a
customer. The Exchange further believes the proposed exception in
paragraph (b)(7) for additions to, or increased weigh in, an index is
appropriate because such purchases are usually made at the close of
trading to obtain the closing price of the index and therefore are
indifferent to the price level so long as it represents the closing
valuation.
The proposal also would expand the Rule's Supplementary Material,
Section .10, ``Definitions,'' to provide definitions for the terms
``basket'' and ``index,'' which terms are used in proposed paragraphs
(b)(5), (b)(6), and (b)(7). The term ``basket'' would be defined as a
group of 15 or more stocks having a total market value of $1 million or
more. The Exchange has represented that this definition is consistent
with the use of ``basket'' in the definition of program trading that
appears in Exchange Rule 80A. The proposal would define ``index'' as a
publicly disseminated statistical composite measure based on the price
or market value of the component stocks in a group of stocks. The
Exchange believes this definition would preclude the possibility of a
firm creating an ``index'' for the purpose of circumventing the
restrictions of the Rule.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b)(5) of the Act \3\ in that it is designed to facilitate
transactions in securities, and remove impediment to and perfect the
mechanism of a free and open market. The Exchange believes the proposed
rule change would permit trading by member organizations, when
appropriate, to facilitate customer trading, and would thereby add
depth, liquidity, and quality to the market for Exchange-traded
securities.
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\3\ 15 U.S.C. 78f(b)(5).
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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 Exchange 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. 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 submissions, 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 persons, 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 Room in 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-NYSE-98-11 and should be submitted by June 9, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13182 Filed 5-18-98; 8:45 am]
BILLING CODE 8010-01-M