Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Granting Approval and Notice and Order Granting Accelerated Approval to Amendments No. 1, 2, and 3 to Proposed Rule Change Relating to Various Rule Revisions Recommended by the Market Regulation Review Committee of the New York Stock Exchange

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34231; File No. SR-NYSE-90-10]

Self-Regulatory Organizations; New York Stock Exchange, Inc.;

Order Granting Approval and Notice and Order Granting Accelerated

Approval to Amendments No. 1, 2, and 3 to Proposed Rule Change Relating

to Various Rule Revisions Recommended by the Market Regulation Review

Committee of the New York Stock Exchange

June 17, 1994.

I. Introduction

On March 12, 1990, the New York Stock Exchange, Inc. (``NYSE'') or

``Exchange'') submitted to the Securities and Exchange Commission

(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4

thereunder,\2\ a proposed rule change to amend various exchange rules.

On October 2, 1990, the NYSE submitted to the Commission Amendment No.

1 to the proposal.\3\ On March 19, 1993, the NYSE submitted Amendment

No. 2 to the proposal.\4\ On March 4, 1994, the NYSE submitted

Amendment No. 3 to the proposal.\5\

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\1\15 U.S.C. Sec. 78s(b)(1) (1988).

\2\17 CFR Sec. 240.19b-4 (1991).

\3\Amendment No. 1 deleted the proposed amendments to Rule

116.30 dealing with ``stopping stock.'' See letter from James E.

Buck, Senior Vice President and Secretary, NYSE to Mary Revell,

Branch Chief, Exchange Branch, Division of Market Regulation,

Commission, dated October 2, 1990, forwarding to the Commission

Amendment No. 1 to the proposal.

\4\Amendment No. 2 deleted ten of the proposed rule changes and

added a new amendment to Rule 107. The Exchange deleted the

following proposed changes contained in the original proposal:

amendments to Rule 440B pertaining to the short sale rule;

amendments to Rule 104 pertaining to dealings by specialists;

amendments to Rule 104.10(5)(i) and 104.10(b)(i) pertaining to

functions of specialists; amendments to Rule 104.12 pertaining to

the reasonable necessity test for proprietary dealings and regarding

the requirement that specialists make their investment accounts

available to maintain fair and orderly markets; amendments to Rule

104.13 which impose restrictions on transactions of spouses and

children and which delete restrictions on acquisitions and

liquidations of investment accounts; amendment to Rule 113 which

requires that certain orders be identified if greater than 2,000

shares; amendment to Rule 107B(6) pertaining to RCMM trading;

amendment to Rule 107B(7).10(ii)(B) pertaining to RCMM's purchase of

up to half of the offer on a zero plus tick in an \1/8\ point

market; amendments to Rule 112 pertaining to restrictions on

competitive traders. See letter from James E. Buck, Senior Vice

President and Secretary, NYSE to Diana Luka-Hopson, Branch Chief,

Exchange Branch, Division of Market Regulation, Commission, dated

March 18, 1993, forwarding to the Commission Amendment No. 2 to the

proposal.

\5\Amendment No. 3 deleted the agency facilitation trader

provisions from the proposal. See letter from James E. Buck, Senior

Vice President and Secretary, NYSE to Cheryl Evans Dunfee, Attorney,

Exchange Branch, Division of Market Regulation, Commission, dated

February 28, 1994.

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Notice of the proposal appeared in the Federal Register on May 1,

1990.\6\ Two comment letters were received supporting the proposed rule

change.\7\ This order approves the proposed rule change, including

Amendments No. 1, 2, and 3 on an accelerated basis.

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\6\The proposed rule change was published in Securities Exchange

Act Release No. 27939 (April 24, 1990), 55 FR 18207 (May 1, 1990).

\7\Both comment letters were supportive of the work done by the

Market Regulation Review Committee in developing the changes. Both

expressed specific support for changes that were subsequently

withdrawn from the proposal. See letter from Robert M. Newman, Jr.,

Managing Partner, Equitrade Partners, dated June 11, 1990, and

letter from George A. Corroon, Jr., Partner, Corroon, Lichtenstein &

Co., dated May 31, 1990.

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II. Discussion

A. Introduction

The NYSE's Board of Directors established the Market Regulation

Review Committee (``Committee'')\8\ to examine the structure of market

trading regulations. The Committee was charged with reviewing existing

regulations to enable the Exchange, in a manner consistent with

maintaining market integrity and protecting investors, to compete more

effectively with its current and future competitors, to provide

additional intra-market trading opportunities for all Exchange market

participants, and to eliminate requirements that may no longer serve a

meaningful regulatory purpose.

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\8\The Committee was established in December 1985 and it was

originally given an 18-month chartered life. The charter was

subsequently extended 27 months, until March 31, 1988.

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Over seventy recommendations for changes to Exchange rules were

made by the Committee. Several of these recommendations have been

approved by the Commission previously.\9\

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\9\See Securities Exchange Act Release No. 29318 (June 17,

1991), 56 FR 28937 (June 25, 1991) (File No. SR-NYSE-89-2)

(approving changes to 18 NYSE Rules). In conjunction with its filing

of File No. SR-NYSE-90-10, the NYSE also filed Amendment No. 1 to

File SR-NYSE-89-02, which withdrew certain provisions of File No.

SR-NYSE-89-02 as filed originally and resubmitted them in file No.

SR-NYSE-90-10, in order to expedite the Commission's consideration

of the Market Regulation Review Committee's recommendations. See

Amendment No. 1 to File No. SR-NYSE-89-2. See also letter from

Howard Kramer, Assistant Director, Division of Market Regulation,

Commission, to Brian McNamara, Managing Director, Market

Surveillance Division, NYSE, dated June 29, 1989.

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The proposed rule change reflects the recommendations of the

Committee.\10\ The specific proposals fall within three categories:

``general auction market rules''; ``trading rules applicable to

specialists''; and ``member proprietary and on-floor trading.''

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\10\The text of the Exchange rules to be amended and complete

descriptions of the proposed amendments are set forth in the

Exchange's original filing and in Amendments No. 1 and 2 thereto,

all of which are available for inspection at the Commission and at

the principal office of the NYSE. The changes being approved herein

are also discussed in detail infra.

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B. Commission Findings

The Commission has reviewed carefully the NYSE's proposed rule

change and concludes that the proposal is consistent with the

requirements of the Act and the rules and regulations thereunder

applicable to a national securities exchange and, in particular with

Section 6(b)(5), 6(b)(8), 11(b) and 11A(a)(1) of the Act.\11\ The

Commission supports the NYSE's efforts to continue to review the

structure of market trading regulation in response to changes in market

structure. The Commission believes it important to market quality that

the Exchange have a regulatory program that is tailored to the current

market structure, especially in light of the significant role played by

the NYSE in the U.S. markets. The Commission agrees that the proposed

rule change will be helpful in updating Exchange Rules. The

Commission's detailed discussion regarding the significant changes

proposed by the NYSE follows.

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\11\15 U.S.C. Sec. 78f(b)(5), 78f(b)(8), 78k(b), and 78 k-

1(a)(1) (1988).

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C. General Auction Market Rules

1. Rule 64: Bonds, Rights and 100-Share-Unit Stocks

NYSE Rule 64 specifies the time periods within which trades on the

Exchange must be settled. It provides that all trades shall be

considered ``regular way'' trades, which currently settle within five

business days after the transaction date, unless certain conditions are

specified, such as ``cash,'' ``next day'' and ``seller's option,'' or

any other settlement periods that may be determined by the Exchange.

Currently, the NYSE rule specifies a number of business days following

the date of the trade for settlement of most ``non-regular way''

trades. Seller's option trades currently settle between six and sixty

business days following the trade date.

The Exchange is amending Rule 64(a)(4) to provide that seller's

options shall be delivered not less than 2 business days nor more than

180 days following the day of the contract. The Exchange has indicated

that this change provides an alternative settlement mechanism with

which investors may more closely match their investment objectives with

their trading opportunities.\12\

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\12\Telephone conversation between Don Siemer, Director Market

Surveillance, Division, NYSE, and Cheryl Dunfee, Attorney, Division

of Market Regulation, February 9, 1994.

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The Commission agrees that this change in the delivery time for

seller's options is appropriate in light of current market realities.

The Commission believes that this change will give ``seller's options''

parties increased flexibility in settling such transactions, thereby

removing impediments to a free and open market in accordance with

Section 6(b)(5) of the Act.

The Exchange is adding new paragraph (b) to Rule 64 to provide that

all trades effected for other than `'regular way'' settlement must be

approved by a Floor Official, except during the last calendar week of

the year, at which time Floor Official approval is required only for

sales which are more than \1/4\ point away from the ``regular way'' bid

or offer. In addition, in considering whether to grant such approval,

the rule states that the Floor Official should take into consideration

whether the price of the transaction is reasonable in relation to the

``regular way'' market. The Exchange states that this provision is a

codification of existing practice.\13\ The Exchange believes that Floor

Official approval is generally beneficial prior to the execution of

each non-regular way transaction to ensure that each is appropriately

priced in relation to the regular way market. The Exchange does not,

however, believe that it is appropriate to require Floor Official

approval during the last calendar week of the year when numerous non-

regular way trades are affected for legitimate tax purposes, unless the

non-regular way trade is more than \1/4\ point away from the regular

way market.

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\13\Id.

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The Commission agrees that Rule 64(b) is an appropriate change to

ensure adequate pricing of such trades and agrees that it may not be

practical to obtain Floor Official approval for every non-regular way

trade during the last calendar week of the year, which traditionally

has more non-regular way trades for tax purposes. The \1/4\ point limit

related to receiving Floor Official approval for non-regular way trades

during the last calendar week of the year should provide enough

protection to ensure adequate pricing of such trades. The Commission

therefore believes that new paragraph (b) will help to remove

impediments to and perfect the mechanism of a free and open market in

accordance with Section 6(b)(5) of the Act.

The Exchange is adding new paragraph (c) to Rule 64 to provide

that: all ``seller's option'' trades, for delivery between two and 180

business days, should be reported to the tape only in calendar

days;\14\ weekends and holidays are counted; and the trade date is not

included when calculating the print for ``seller's option'' trades. In

addition, the settlement date of a ``seller's option'' transaction

printed as calendar days cannot coincide with the normal five business

day ``regular way'' settlement.

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\14\The Exchange provides the following example in Rule 64(c): A

trade settling in six business days would print as a ``seller's 8''

unless there is an intervening holiday (in which case it would print

as a ``seller's 9'').

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The Commission believes that Rule 64(c) accurately reflects the

method by which seller's options trades are settling and will serve to

promote just and equitable principles of trade, to foster cooperation

and coordination with persons engaged in regulating, clearing, and

processing information with respect to transactions in securities in

accordance with Section 6(b)(5) of the Act.

D. Trading Rules Applicable to Specialists

1. Rule 104.10(7): ``Clean-ups''

Rule 104.10(7) currently provides that when an inquiry is made of a

specialist as to the price at which a block of stock may be sold, the

specialist may advise the broker of the ``clean up'' price of the

block, but may not specify the amount that would be purchased by the

book and the amount that he would take as dealer. The Rule further

provides that when a specialist participates as a dealer in the block

at the ``clean-up'' price, the specialist must give all the executable

orders that he is holding the ``clean-up'' price, except for the amount

of the block that can be executed at the price of the current bid

(whether such bid is for orders held by him or for the account of the

specialist, or both).\15\

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\15\The same principles apply to inquiries respecting an order

to purchase a block of stock.

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In the interest of facilitating the overall transaction, the

Exchange is deleting the provision whereby the specialist may not

specify the amount that would be purchased by the book and the amount

that he would take as dealer in cleaning up the block. The Exchange is

also deleting the provision that limits who can get the ``clean-up''

price when the specialist participates as a dealer in the block

sale,\16\ thereby providing that all executable orders would receive

the clean-up price.

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\16\Specifically, the Exchange is deleting the following

language: ``. . . except for the amount of the block which can be

executed at the current bid, whether such bid is for orders held by

him or for the account of the specialist or both.''

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The Exchange asserts that the amendment to Rule 104.10(7)

incorporates a concept that currently exists in Exchange rule 127,

which provides that when a member is crossing block-sized orders, and

will be positioning all or part of one side of the cross, he must give

public orders limited to the clean-up price the benefit of that price.

The Commission believes that the changes to Rule 104.10(7) increase

fairness in execution of block orders in accordance with Section

6(b)(5) of the Act, which requires that the rules of an exchange be

designed to promote just and equitable principles of trade. The

Commission also believes that the changes to Rule 104.10(7) help to

assure that investors' orders are executed at the best possible market

in accordance with Section 11A(a)(1) of the Act which provides, inter

alia, that, it is in the public interest and appropriate for the

protection of investors and the maintenance of fair and orderly markets

to assure the practicability of brokers executing investors' orders in

the best market.

2. Rule 104.12: Specialists' Investment Accounts

Rule 104.12 concerns reporting by specialists about investment

positions in speciality stocks. The Exchange is replacing current

reporting requirements for specialist investment accounts with a

simplified, aggregated, monthly reporting requirement.\17\

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\17\Currently, the rule lists three circumstances in which a

specialist must file equity trading data reports. Whenever a

specialist assigns a specialty stock to an investment account, he

must file a report (on Form 81) covering his transactions in that

stock for the calendar week in which the purchase was made, and for

the day of the assignment. A specialist must file a report (on Form

81) of all transactions in any stock on a day in which his dealer

accounts show a ``short'' position in excess of 500 shares while he

maintains a long position in his investment account. A report must

be filed as of the last business day of each month in which a

specialist had an investment position in a specialty stock

indicating the number of shares held ``long'' in the investment

account and the extent of any ``short'' position existing in the

dealer account with respect to such stock.

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The Exchange is adopting the following simplified reporting

requirement. In connection with investment positions in specialty

stocks, a specialist shall report to the Exchange, on such form and in

such format as the Exchange may from time to time prescribe, a record

of all transactions effected for investment purposes and shall also

report a record of all such transactions effected for investment

purposes for the account of any person specified in Rule 104.13.

The Commission believes that the changes to Rule 104.12 are

reasonable because the NYSE's reporting requirements still ensure that

the NYSE receives information about all transactions effected for

investment purposes by a specialist in specialty stocks.

3. Rule 104.13: Investment Transactions

Rule 104.13 generally requires that transactions in specialty

stocks by specified persons, such as the specialist's spouse and

persons residing in his household, be for investment purposes. The

Exchange is adding new paragraph (d) to this rule\18\ that states that

specialists should not originate orders in the specialty stocks in

which they are registered for any accounts over which they may have

discretion.

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\18\The Exchange states that the information in paragraph (d)

was transposed from NYSE Rule 95.20.

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The Commission believes that paragraph (d) is an appropriate

addition to Rule 104.13 in accordance with Section 11(a) of the Act

which generally makes it unlawful, with certain exceptions, for any

member of a national securities exchange to effect a transaction on

such exchange for his own account, the account of an associated person,

or an account with respect to which it or an associated person thereof

exercises investment discretion. The Commission also believes that

paragraph (d) is an appropriate limitation on specialist trading

designed to prevent fraudulent and manipulative actions in accordance

with Section 6(b)(5) of the Act.

4. Rule 113(c): Specialists' Public Customers

Rule 113 governs a specialist's actions when handling public

customer orders in stocks for which he is registered as a specialist.

Rule 113(c) currently provides that every specialist shall report to

the Exchange such information as the Exchange may require with respect

to transactions which are made in a stock in which he is registered for

any customer account not prohibited under Section (a)\19\ which is: (1)

Carried by a member organization; (2) serviced by him or his member

organization; or (3) introduced by him or his member organization to

another member organization on a disclosed basis.

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\19\Section (a) of Rule 113 deals with when a specialist or his

member organization or corporate subsidiary of such organization may

accept an order for the purchase or sale of any stock in which he is

registered as a specialist.

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The Exchange proposes to simplify the reporting requirements of

Rule 113(c) with regard to transactions in specialty stocks for

accounts carried by a specialist,\20\ by requiring reports on all such

transactions to be submitted to the Exchange on a monthly rather than

weekly basis.\21\ The Exchange states that experience has shown that

monthly reporting of customer account data by specialists is adequate

and will allow the Exchange to properly review specialist

activities.\22\

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\20\Under the amended rule, every specialist shall report to the

Exchange on a monthly basis, on such forms and in such format as the

Exchange may prescribe, a record of all purchases and sales effected

in stocks in which he is registered for any customer account not

prohibited under section (a).

\21\In addition, Rule 113(c), Supplementary Material .10, which

requires specialists to submit weekly reports on Form SPA, is being

deleted.

\22\Telephone conversation between Don Siemer, Director, Market

Surveillance Division NYSE, and Cheryl Evans Dunfee, Staff Attorney,

Division of Market Regulation, Commission, February 9, 1994.

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In this regard, we note that the revised rule, although decreasing

the frequency of specialist reports, requires all purchases and sales

in specialty stocks to be reported to the Exchange. The Commission

believes that the changes to Rule 113(c) could facilitate transactions

in securities in accordance with Section 6(b)(5) of the Act by

requiring specialists to spend less time on compiling and reporting

activities without compromising the information available to the NYSE

to adequately surveil its markets.

E. Member Proprietary and On-Floor Trading

Rules 107A and B govern Registered Competitive Market Makers

(``RCMMs''). A RCMM is an individual who may initiate trades for his

own account or for the account of his member organization or who may

execute orders as broker for the purchase or sale of stock which has

been left with him for execution by his member or any other member

organization. A RCMM may initiate such trades on the Floor and is

expected to trade in certain market situations on the other side of the

market imbalance.\23\ The Exchange is making a number of changes to

Rules 107A and B to facilitate the contribution of RCMMs to the NYSE

market.

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\23\All RCMM purchases and sales on the Exchange shall

constitute a course of dealings reasonably calculated to contribute

to the maintenance of price continuity with reasonable depth, and to

the minimizing of the effects of any temporary disparity between

supply and demand. At the request of any Floor Official, a RCMM

shall make a bid or offer for his own account or for the account of

his member organization in order to contribute to the maintenance of

a fair and orderly market. All purchases and sales of any stock on

the Exchange by a RCMM for his own account or the account of his

member organization shall be effected in a reasonable and orderly

manner in relation to the condition of the general market and the

market in such stock. See Rule 107B (3), (4) and (5).

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1. Rule 107A(2)(a): Requirements (RCMM)

Rule 107A(2)(a) currently requires that an RCMM be able to

establish that he can meet, at all times, with his own liquid assets, a

minimum net capital requirement of $25,000 over and above any and all

other federal and or Exchange capital requirement to which he may be

subject. The Exchange is increasing that amount to $100,000, and making

the $100,000 inclusive of all other federal and/or Exchange capital

requirements to which he may be subject, unless federal or Exchange

capital rules require a greater amount. The Exchange asserts that the

$100,000 capital requirement is a reasonable figure in today's markets

which are characterized by greater trading volume and volatility than

existed when the $25,000 figure was first specified in 1977.

The Commission agrees that an increase in RCMM capital requirements

is appropriate in light of significant trading volume increases in the

last 15 years. In response to price and trading volume increases, the

Commission, in 1992, increased the federal minimum net capital

standards for broker-dealers, market makers, and certain dealers, in

order to provide greater investor protection. The Commission,

therefore, believes that this increase in the RCMM aggregate minimum

capital requirement will serve to protect investors and the public

interest in accordance with Section 6(b)(5) of the Act.

2. Rule 107A(3): Voluntary Withdrawal of Registration

Rule 107A(3) currently provides that a RCMM may withdraw his

registration as such upon no less than 10 days written notice of such

withdrawal given to the Exchange. The Exchange is amending Rule 107A(3)

to state that a RCMM may withdraw his registration by giving notice to

the Market Surveillance Division and such withdrawal shall become

effective immediately on the giving of the notice. The Exchange also is

prohibiting an RCMM from re-entering the Exchange market as an RCMM for

six months after withdrawing his registration.

The Exchange states that it does not believe it is necessary to

require 10 days notice of withdrawal. The Exchange believes that there

is no reason for RCMMs to be prevented from immediately withdrawing

from the marketplace as long as RCMMs are not able to immediately re-

enter the marketplace. The Exchange states that the re-entry limitation

will ensure that RCMM withdrawal is not based upon transitory

events.\24\

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\24\Telephone conversation between Don Siemer, Director, Market

Surveillance Division, NYSE and Cheryl Evans Dunfee, Attorney,

Exchange Branch, Division of Market Regulation, Commission, March

30, 1994.

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The Commission agrees that there is no reason to prevent RCMMs from

immediately withdrawing from their RCMM status as long as they are

prevented from re-entering as an RCMM for six months. As noted above,

RCMMs have certain obligations to the market and as a result receive

the benefits from their status as a market maker. Because of their

obligations as a market maker, the Commission believes that it is

appropriate to prevent RCMMs from re-entering the Exchange market as an

RCMM for a six month period after their withdrawal. Without such a

requirement, RCMMs could easily avoid their market obligations by

withdrawing during volatile market conditions and then re-entering the

market soon thereafter. The Commission also believes that the need for

the six month re-entry bar outweighs any burden on competition that

such a bar would impose in accordance with Section 6(b)(8) of the Act

because it assures that RCMMs are adequately fulfilling their market

making obligations required under the Act.

3. Dealings of Registered Competitive Market-Makers Rule 107B(7)

The Exchange states that it has informed RCMMs that it would be

desirable for them to respond, on a monthly average basis, to at least

one market imbalance ``call-in'' as disseminated electronically on the

floor.\25\ The Exchange, therefore, is adding new Rule 107B(7) to

provide that a RCMM shall respond, on a monthly averaged basis, to at

least one market imbalance call-in notification disseminated

electronically on the floor for each trading session that he is on the

floor. It would also provide that a RCMM shall not be required to

respond to more than three individual call-ins, in the aggregate, by

Floor Officials or brokers, for any trading session that he is on the

floor. Notwithstanding the aforementioned, the rule makes clear that a

RCMM shall be required to respond to as many call-ins as required by

market circumstances and needs. The Exchange states that it is

proposing Rule 107B(7) as a means of strengthening an RCMM's

affirmative commitment to providing additional depth and liquidity to

the market as may be needed.

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\25\The Exchange states that these call-ins are popularly

referred to as ``bluelight call-ins.''

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The Commission does not believe that it is unreasonable for the

NYSE to set forth specific guidelines for call-ins for RCMMs. Requiring

RCMMs to respond to at least one but not more than three call-ins for

any trading session will help to ensure adequate market depth and

liquidity when needed. Most important, however, is the rule's

requirement that RCMMs should be required to respond to all call-ins

that are necessary under market circumstances. This should ensure that

RCMMs are using their market making obligations to provide liquidity to

the market when needed, consistent with Sections 6(b)(5) and 11(b) of

the Act.

4. Rule 107B(7).10(ii) and 107B(7).30:

Rule 107B(7).10(ii) currently provides that when two or more RCMMs,

or one or more RCMMs and the specialist, are purchasing or supplying

stock, they may not, in the aggregate, supply or take more than 50% of

the stock bid for or offered. The Exchange is deleting the reference to

the specialist's participation with respect to the aggregated 50%

limitation. In conjunction with this change, the Exchange is also

eliminating the requirement that RCMMs report instances when they trade

along with a specialist.\26\

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\26\Specifically, the Exchange is deleting the language in Rule

107B(7).30 which requires a RCMM to submit a Form 81/RCMM Report to

the Exchange whenever having purchased or sold pursuant to paragraph

B(4) he also effects a transaction on the other side of the market

at the same price with a specialist on the same day.

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In the Exchange's view, possible regulatory concerns that a

specialist and one or more RCMMs may be improperly trading in collusion

with each other can be effectively addressed by review of audit trail

data and other surveillance activities. The Exchange believes that it

is not necessary to place an arbitrary limitation on trading that may

provide liquidity to the market and which is otherwise permissible in

terms of specialist trading regulations.\27\

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\27\Telephone conversation between Don Siemer, Director, Market

Surveillance Division, NYSE, and Cheryl Dunfee, Attorney, Division

of Market Regulation, Commission, March 30, 1994.

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The Commission agrees that the trading restrictions in Rule

107B(7).10(ii) and the reporting obligations in Rule 107B(7).30 are

unnecessary in view of Exchange surveillance capabilities. Moreover,

specialists would continue to have to comply with specialist

obligations under NYSE Rule 104 and the requirements under Section

11(b) and Rule 11(b)(1) thereunder.

5. Rule 107B(7).60

Rule 107B(7).60 currently provides that, with respect to orders

received by the specialist by means of the Exchange's SuperDot

System,\28\ the specialist may request a Floor Official to consider

whether to call in an RCMM to trade with an order imbalance. In

particular, Rule 107B(7).60 states that, with respect to orders

received by a specialist via the SuperDot system, the specialist may

request that a Floor Official consider whether to call upon RCMMs to

discharge obligations as set forth in subparagraph .10(i).\29\ The

Exchange is deleting Rule 107B(7).60. The Exchange states that it is

unnecessary in light of other call-in provisions in Rule 107.\30\

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\28\The SuperDot system is an electronic order-routing system

that enables member firms to quickly transmit market and limit

orders in all NYSE-list securities directly to the specialist post

where the securities are traded, or to the member firm's booth.

After the order has been executed in the action market, a report of

execution is returned directly to the member firm office over the

same electronic circuit that brought the order to the trading floor,

and the execution is submitted directly to the comparison system.

\29\Subparagraph .10(i) states that each RCMM shall comply with

the provisions of paragraphs B (2), (3), (4) and (5) which govern

dealings by RCMMs. Subparagraph .10(i) describes, for example, what

actions should be taken by an RCMM who is called upon by a Floor

Broker holding an unexecuted customer order.

\30\According to the NYSE, a specialist always has the ability

to go to a floor official and ask for an RCMM. The Exchange believes

that the general call-in provisions under Rule 107 are sufficient.

Telephone conversation between Don Siemer, Director, Market

Surveillance Division, NYSE, and Cheryl Evans Dunfee, Attorney,

Commission, February 9, 1994.

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The Commission agrees that Rule 107B(7).60 is unnecessary as other

call-in provisions, such as the call-in requirements of Rule 107B(4),

are sufficient. This change will serve to eliminate unnecessary

regulations, streamline market regulation, and thereby remove

impediments to and perfect the mechanism of a free and open market in

accordance with Section 6(b)(5) of the Act.

6. Rule 110: Congregating in, Dominating Market and Effecting Purchases

or Sales in Orderly Manner

Rule 110 currently provides that members who are acting as

Competitive Traders (``CTs'')\31\ on the floor of the Exchange and who

desire to purchase or sell stock for accounts in which they have an

interest: (1) shall not congregate in a particular stock and

individually or as a group intentionally or unintentionally dominate

the market in that stock; (2) shall not effect such purchases or sales

except in a reasonable and orderly manner and shall not be conspicuous

in the general market or in the market in a particular stock.

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\31\A member who is registered as a CT may initiate transactions

while on the Floor for an account in which he has an interest. A CT

must be approved for such trading by the Exchange.

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Supplementary Material .10 to Rule 110 provides that, when

establishing, increasing or liquidating a position, no more than three

CTs may be in the trading crowd for one stock at the same time unless

an increase is approved in writing by a Floor Director whenever he

believes that the presence of a larger number of CTs would be

constructive. It further provides that this limitation includes brokers

who are attempting to execute orders for CTs; in such cases, brokers

must announce publicly that they are so acting for CTs.

The Exchange is deleting Supplementary Material .10 because it

believes this provision is unnecessary given the relatively small

number of CTs active on the floor and the low level of their overall

activity. The Commission agrees that, given current market conditions

and the other market making obligations on the CT, that this provision

is not necessary and its deletion is consistent with removing

impediments to a free and open market in accordance with Section

6(b)(5) of the Act.

7. Rule 111(b)(1): Competitive Traders

Rule 111(b)(1) currently provides that a member who is registered

as a CT is required to establish and maintain minimum capital of

$25,000 over and above any other Federal or Exchange capital

requirements. The Exchange is revising the CT capital requirement to

parallel the change to the RCMM capital requirement in Rule 107A,

discussed above. As revised, Rule 111(b)(1) would provide that a member

who is registered as a CT must establish and maintain minimum capital

of $100,000, including all federal and Exchange capital requirements,

unless federal or Exchange capital rules require a greater amount.

As with Rule 107A(2)(a), the Commission agrees that the $100,000

capital requirement is a reasonable figure in today's markets which

have greater trading volume than when the $25,000 figure was enacted in

1965. The Commission believes that this increase in CT aggregate

minimum capital requirement will serve to protect investors and the

public interest in accordance with Section 6(b)(5) of the Act.

III. Conclusion

The Commission has reviewed carefully the Exchange's proposed rule

change and concludes that, for the above stated reasons, the proposal

is consistent with the requirements of the Act and the rules and

regulations thereunder applicable to a national securities exchange.

The Commission believes that the proposals developed by the Exchange's

Market Regulation Review Committee appropriately balance the competing

concerns of various Exchange constituencies in a manner consistent with

just and equitable principles of trade. Given the significant role

played by the NYSE as a primary market and the dynamic nature of

competitive forces shaping the national market system, the Commission

supports the NYSE's efforts to review the structure of market trading

regulation in order to have an efficient and meaningful regulatory

program consistent with the protection of investors and the public

interest.

Accordingly, based upon the aforementioned factors, the Commission

finds that the Exchange's proposal discussed above is consistent with

the Act, and in particular with sections 6(b)(5), 6(b)(8), 11(b) and

11A(a)(1) of the Act\32\ and the rules and regulations thereunder

applicable to a national securities exchange.

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\32\15 U.S.C. Sec. 78f(b)(5), 78f(b)(8), 78k(b), 78k-1(a)(1)

(1988).

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The Commission finds good cause for approving Amendments No. 1, 2

and 3 prior to the thirtieth day after the date of publication of

notice of filing thereof. Amendments No. 1, 2 and 3 appropriately

deleted certain proposed rule revisions from the proposal. Amendment

No. 2 made additional clarifying and technical changes. For example,

Amendment No. 2 clarified that the new capital requirements for RCMMs

and CTs must accommodate other federal or exchange rules concerning

capital requirements for those parties. Amendment No. 2 also clarified

that RCMMs would continue to have the obligation to respond to call-ins

as dictated by market circumstances, notwithstanding that, in normal

circumstances, they need respond only to three individual call-ins.

Finally, Amendment No. 2 codified that a member who withdrew as a RCMM

must wait six months before re-registering as a RCMM to ensure that

RCMMs do not withdraw based on short term market conditions. The

Commission believes these amendments are clarifying and strengthen the

proposal from a regulatory perspective.

Interested persons are invited to submit written data, views and

arguments concerning Amendments No. 1, 2, and 3 to the proposed rule

change. 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 changes that are filed with the Commission, and all

written communications relating to Amendments No. 1, 2 or 3 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. Sec. 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 will also be available at the principal office of the

NYSE. All submissions should refer to File No. SR-NYSE-90-10 and should

be submitted by July 15, 1994.

It Is Therefore Ordered, pursuant to section 19(b)(2)\33\ of the

Act, that the proposed rule change (SR-NYSE-90-10) be, and hereby is

approved, including Amendments No. 1, 2 and 3 on an accelerated basis.

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\33\15 U.S.C. Sec. 78s(b)(2) (1988).

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\34\

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\34\17 C.F.R. 200.30-3(a)(12) (1992).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-15361 Filed 6-23-94; 8:45 am]

BILLING CODE 8010-01-M