Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by New York Stock Exchange, Inc. Relating to Specialists Displaying the Full Size of Certain Orders

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35687; File No. SR-NYSE-95-17]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by New York Stock Exchange, Inc. Relating to Specialists

Displaying the Full Size of Certain Orders

May 8, 1995.

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

21, 1995, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')

filed with the Securities and Exchange Commission (``Commission'') 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 an Information Memo which

discusses procedures under Exchange rules with respect to specialists

displaying orders received through the SuperDOT order routing system

and the full size of orders received by specialists manually which are

subsequently entered into the electronic book.

II. Self-Regultory 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

1. Purpose

The Exchange is proposing to issue an Information Memo outlining

its policy with respect to displaying certain orders received by a

specialist.\1\ The policy requires specialists to display the full

size\2\ of all orders received through the SuperDOT order routing

system and the full size of all orders received by specialists manually

which are subsequently entered into the electronic book. This

requirement includes increasing the size of a quotation for orders at

the same price as the current bid or offer. The policy also sets forth

the specialist's responsibility when a member who gives an order

requests that less than the full size of the order be shown in the

quotation. In that situation, a specialist is only responsible to enter

in the electronic book and show the size requested. The portion not

requested to be shown will be handled manually as a ``held'' order, but

will be last in terms of time priority to all other orders on the

specialist's electronic book at that price. If the specialist is

subsequently requested to show an additional portion, or the remainder,

of the order, the specialist would enter the price and size into the

electronic book, with the order so entered having priority on the book

vis-a-vis other orders as of the time of entry on the book. The

specialist would increase the quotation size to reflect the additional

amount entered on the book.

\1\In Information Memo No. 93-12, the Exchange has previously

advised specialists that, pursuant to NYSE Rule 79A.10, all orders

received by specialists through the SuperDOT system are deemed to be

accompanied by an instruction that they be quoted at the limit price

on the order when such limit price is better than the current

quotation.

\2\Currently the Exchange is capable of displaying quotations up

to 99,900 shares. The Exchange plans to expand this capability in

the future.

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The Exchange believes that this policy is consistent with Exchange

Rule 104, which requires the effective execution of agency orders

received by specialists, and with NYSE Rule 60(e).\3\ The Exchange

expects that specialists would display as soon as practicable any order

which, in relation to current market conditions in a particular

security, [[Page 25752]] represents a material change in the supply or

demand for that security. For example, if the market in XYZ security is

20 bid to 20\1/4\ offered, 1,000 shares bid and 1,000 shares offered,

and the specialist receives an order to sell 10,000 shares at 20\1/4\,

the specialist would be expected to change the size of the offer to

11,000 shares as soon as he or she becomes aware of the order. If the

quotation already reflects significant supply (demand), and the

specialist receives an order that is relatively de minimis in relation

to such supply (demand), the specialist may take a reasonable period of

time, which should not generally exceed two minutes, before updating

the quotation, so as to avoid constant revisions of quotations that do

not reflect material changes in supply and demand. For example, if the

market in XYZ security is 20 bid to 20\1/4\ offered, 5,000 shares bid

and 50,000 shares offered, and the specialist receives an order to sell

200 shares at 20\1/4\, the specialist would be permitted to wait a

reasonable period of time before changing the size of the offer to

50,200 shares.

\3\NYSE Rule 60(e) requires a specialist to promptly report the

highest bid and lowest offer made in the trading crowd and the

associated quotation size that he wishes to make available to

quotation vendors. The rule also requires a specialist to promptly

report whenever a bid, offer or quotation size he previously

reported is to be revised and whenever a bid and/or offer he

previously reported is to be cancelled or withdrawn.

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Under exceptional circumstances, the specialist would not

necessarily display the full quotation size. For example, as noted in

Information Memo 94-32, when a member proposes to effect a block

transaction at a significant premium or discount from the prevailing

market and the specialist is aware of interest on the contra side, it

may be more appropriate for the specialist and Floor Official(s) to gap

the quotation in a security for a brief period, generally not exceeding

five minutes, with a view toward contacting and/or attracting contra

market interest. In such case, the bid or asked price should touch the

prior sale price and reflect size of 100 shares by 100 shares. The same

principles would also apply to a situation where there is a sudden

influx of market orders on one side of the market which would be likely

to result in a significant price change.

2. Statutory Basis

The basis under the Act for the 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, in general, to protect investors and the public interest. The

policy with respect to displaying full size of orders received by

specialists enhances the purposes of the Act by assuring that accurate

and complete information with respect to the current market on the

Exchange for any stock is available to market participants.

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

No written comments were either solicited or 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 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. Sec. 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-95-17 and should be

submitted by June 2, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-11774 Filed 5-11-95; 8:45 am]

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