Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc., Relating to Audit Trail Account Identification Codes

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34269; File No. SR-NYSE-94-16]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the New York Stock Exchange, Inc., Relating to Audit Trail

Account Identification Codes

June 28, 1994.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April

20, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')

filed with the Securities and Exchange (``Commission'' or ``SEC'') the

proposed rule change 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The proposed rule change consists of the addition of identification

codes to the Exchange's audit trail to indicate transactions that are

exempt from the short sale rules.

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

(a) Purpose

NYSE Rule 132 requires a clearing member firm submitting a trade to

comparison to include specified audit trail data elements, including a

specification of the account type for which that trade was effected

according to specified account categories. Currently, the Exchange uses

12 identifiers. Three additional account type identifiers, relating to

orders of competing dealers, have been approved by the Commission, but

have not yet been implemented.\1\ These three identifiers would be

implemented upon Commission approval of the new identifiers being

proposed herein.

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\1\The three identifiers recently approved by the Commission

consist of O, T, and R and will denote that a transaction was

effected for the account of a competing dealer. The identifier ``O''

denotes a proprietary order for the account of a competing dealer.

The identifier ``T'' denotes an order where one member is acting as

an agent for another member's competiting dealer account. The

identifier ``R'' denotes an order for the account of a non-member

competiting dealer. See Securities Exchange Act Release No. 33662

(February 23, 1994), 59 FR 10027 (March 2, 1994) (order approving

File No. SR-NYSE-91-46).

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The Exchange is proposing to expand use of the audit trail account

type field to require designation of a type of trade, namely, ``short

exempt'' trades. Four identifiers would be added to the audit trail

account type field to identify ``short exempt'' trades for:

The proprietary account of a clearing member organization

or an affiliated member/member organization--to be designated E.

The proprietary account of an unaffiliated member/member

organization--to be designated F.

An Individual customer account--to be designated H.

Other agency customer account--to be designated B.

In addition, three identifiers would be added to identify ``short

exempt'' trades of competing dealers. A competing dealer is defined as

a registered specialist on another stock exchange or a marker-maker

bidding and offering over-the-counter in a NYSE traded security. The

identifiers, as proposed, are:

L--to designate a ``short exempt'' transaction for the account of a

competing dealer that is a member or member organization trading for

its own account

X--to designate a ``short exempt'' transaction where one member is

acting as agent for another member's competing dealer account

Z--to designate a ``short exempt'' transaction for the account of a

non-member competing dealer.

The Exchange is proposing the addition of older type identifiers to

enhance its ability to identify violations of SEC Rule 10a-1\2\ and

Exchange Rule 440B, which prohibit short selling under specified

circumstances. The rules require orders to sell to be marked as

``long,'' or ``short,'' or ``exempt.''\3\

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\2\SEC Rule 10a-1 states, in part, that no person shall, for his

own account or for the account of any other person, effect a short

sale of any security registered on, or admitted to unlisted trading

privileges on, a national securities exchange, if trades in such

security are reported pursuant to an effective transaction reporting

plan as defined in Rule 11Aa3-1, and information as to such trades

is made available in accordance with such plan on a real-time basis

to vendors of market transaction information, (A) below the price at

which the last sale thereof, regular way, was reported pursuant to

an effective transaction reporting plan; or (B) at such price unless

such price is above the next preceding different price at which a

sale of such security, regular way, was reported pursuant to an

effective transaction reporting plan. See 17 CFR 240.10a-1 (1993).

\3\SEC Rule 10a-1 requires only that orders be marked ``long''

or ``short.'' NYSE Rule 440B.20 provides, in effect, that orders

relying on an exception to Rule 10a-1 should be marked ``short

exempt.''

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SEC Rule 10a-1(e)\4\ provides exemptions for certain orders to the

prohibitions against short selling. These are limited to types of

trades that are believed to be beneficial to the market or that carry

little risk of the kind of manipulative or destabilizing trading that

Rule 10a-1 was designed to address. By requiring identification of

``short exempt'' orders in the Exchange's post trade audit trail

process, the Exchange will enhance its ability to examine whether

trades effected pursuant to such orders were in compliance with the

exceptions set forth in SEC Rule 10a-1(e).

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\4\17 CFR 240.10a-1(e) (1993).

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Member firms would be given a reasonable period of time

(approximately six months) to make their own system enhancements so

that they may be in compliance with the new trade type identification

requirements.

The Exchange is also proposing to amend its definition of competing

dealer and to change the term ``competing dealer'' to ``competing

market-maker'' in order to correspond more closely with the definition

of market-maker included in the Act.\5\

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\5\The term ``competing market-maker'' is proposed to be defined

as any person acting as a market-maker, as defined in Section

3(a)(38) of the Act, in a NYSE traded security. A person acting

solely in the capacity of a block positioner would not be considered

to be a competing market-maker.

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(b) Statutory Basis

The basis under the Act for this proposed rule change is the

requirement under Section 6(b)(5) 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 the addition of the identifiers

for ``short exempt'' trades will add to the protection of investors by

enhancing the Exchange's surveillance capabilities with respect to

``short'' sales.

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 publication of this notice in the Federal

Register or within such other 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. 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 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 No. SR-NYSE-94-16 and should be

submitted by July 26, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 94-16188 Filed 7-1-94; 8:45 am]

BILLING CODE 8010-01-M