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NASD Rulemaking:
Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc., and Amendment No. 1 thereto, to Amend Exchange Rule 115 Regarding Disclosure of Specialists' Orders

SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-40146; File No. SR-NYSE-98-10)
June 30, 1998

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc., and Amendment No. 1 thereto, to Amend Exchange Rule 115 Regarding Disclosure of Specialists' Orders

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 March 17, 1998, the New York Stock Exchange, Inc. (the "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 Exchange. On June 23, 1998, the NYSE filed an amendment to the proposal. 3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.

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 115, Disclosure of Specialists' Orders Prohibited. 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 Exchange Rule 115 prohibits disclosure of information in regard to orders on a specialist's book except in certain limited circumstances. This policy was first adopted as a rule in February 1934. Limited exceptions were adopted for disclosure when demonstrating methods of trading to visitors in 1938 and to implement the Intermarket Trading System in 1978. A third exception, approved in 1991, allows a specialist to provide information about buying or selling interest in the market at or near the prevailing quote in response to a market probe of a member.

4 The specialist must make this same information available, in a fair and impartial manner, to all members making a similar inquiry. The specialist must also be expressly authorized to release the names of buyers and sellers by the member who entered the order. The names of buyers and sellers refers to the names of members or member organizations entering orders or expressing interest with the specialist, and not the names of their customers.

The Exchange is proposing to amend Rule 115 to permit a specialist, acting solely in his or her capacity as a market maker ( i.e., while on the Floor), and responding to a market probe by a member, to give any information concerning buying and selling interest or orders he or she holds on the book in a stock. 5 This proposal deletes the limitation that such disclosed interest be "at or near the prevailing quote." However, with respect to stop orders on the book for a stock, 6 a specialist may disclose this information when the specialist judges that the member conducting the market probe has the intention to trade in the stock at a price at which such stop orders would be relevant. The additional restriction on the disclosure of stop orders will permit disclosure in legitimate circumstances, e.g. , when a proposed trade would be effected at a price which would trigger stop orders.

The proposal would also permit the specialist to disclose the identity of any buyer or seller represented on his book without being required to have express authorization from the member who entered the order to disclose the names of buyers and sellers, i.e. , the members or member organizations who are representing the buying and selling interest. Nevertheless, a member may request that the identity of a buyer or seller not be disclosed at any time, or in respect to a particular order left with a specialist.

The rule will continue to require a specialist to make any information available in a fair and impartial manner.

The Exchange believes that enabling specialists to provide information under amended Rule 115 will facilitate the bringing together of buyers and sellers in a more efficient manner. For example, information will be given to members acting in the capacity of agents for their customers, and thus, the benefits of having this information will inure to these customers by giving them a more complete picture of trading interest.

An added exception to Rule 115 is proposed to permit specialists to disclose information about orders on the book in their stock to listed companies, except for information pertaining to stop orders in the stock. The Exchange believes this will provide the opportunity for specialists to respond to listed companies' requests to be kept apprised concerning the market for their stocks.

2. Statutory Basis

The basis under the Act for this proposed rule change is Section 11(b), 7 which prohibits a specialist from disclosing information on orders he or she holds "which is not available to all members. . . ." The Exchange believes that the change to NYSE Rule 115 is consistent with Section 11(b) 8 because it provides a mechanism for the fair and impartial disclosure of information by the specialist in a manner that is neither anti-competitive nor discriminatory. The specialist must respond to market probes by members with the same information being disclosed to each such member. With respect to the disclosure of stop orders, the rule's requirement that the specialist have a reasonable belief that the inquiry is fostered by an intent to trade at a relevant price supports the aims of Section 6(b)(5) of the Act 9 concerning the prevention of fraudulent or manipulative acts. Disclosure of certain information to issuers also supports the provisions of Section 6(b)(5) 10 with respect to creating a free and open market.

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 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, as amended, is consistent with the Act. Specifically, the Commission requests comments on whether the proposed provisions regarding issuer access to the specialist's book is consistent with the Act, including Section 6(b)(5) of the Act. 11 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 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 Room, 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 No. SR-NYSE-98-10 and should be submitted by [insert date 21 days from date of publication].

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.12

Jonathan G. Katz
Secretary


Footnotes

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

217 CFR 240.19b-4.

3See Letter from Agnes M. Gautier, Vice President, Market Surveillance, NYSE, to Richard Strasser, Assistant Director, Division of Market Regulation, Commission, dated June 17, 1998 ("Amendment No. 1"). In Amendment No. 1, the NYSE clarifies that percentage orders, under the proposed rule change, will be treated the same as other orders other than stop orders. The NYSE also notes that the proposed amendment to NYSE Rule 115, permitting a specialist to respond to an issuer's inquiry regarding buying and selling interest in its stock, is consistent with NYSE Rule 106, recent changes to the Exchange's Allocation Policy, and the duties of a specialist in that the proposal should promote a positive professional relationship between the specialist and the Exchange-listed company. Furthermore, the Exchange notes it believes that non-member, non-issuer market participants are not disadvantaged by communications between the issuer and the specialist because the same information is available through a member's market probe of the specialist. The Exchange represents that under the proposed rule change issuers will not have direct access to the floor of the Exchange.

4Securities Exchange Act Release No. 29318 (June 17, 1991) 56 FR 28937 (June 25, 1991).

5 The proposal includes not only orders on the specialist's book, but also any percentage orders held by the specialist. See Amendment No. 1, supra note 3.

6 A stop order is an order to buy or sell at the market when a definite price is reached either above (on a buy) or below (on a sell) the price that prevailed when the order was given. A stop order becomes a market order after a transaction at the stop price occurs. A stop-limit order is a stop order that designates a price limit. A stop-limit order becomes a limit order when a transaction takes place at the stop price. See NYSE Rule 13.

7 15 U.S.C. 78k(b).

8 Id.

9 15 U.S.C. 78f(b)(5).

10Id.

11 Id.

12 17 CFR 200.30-3(a)(12).

http://www.sec.gov/rules/sro/ny9810n.htm


Modified:12/10/98