Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Requirements for Notification by Member Organizations of Participation in Distributions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38478; File No. SR-NYSE-97-11]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of Proposed Rule Change by the New York

Stock Exchange, Inc. Relating to Requirements for Notification by

Member Organizations of Participation in Distributions

April 4, 1997.

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

1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on March 31,

1997, the New York Stock Exchange, Inc. (``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 self-regulatory

organization. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons. For the

reasons discussed below, the Commission is granting accelerated

approval of the proposed rule change.

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

of the Proposed Rule Change

The NYSE is proposing a new rule, Rule 392, and an amendment to

existing Rule 460 to require notification by member organizations when

they are participating in an offering of securities listed on the

Exchange. Proposed new language is in italics; proposed deletions are

in brackets.

Notification Requirements for Offerings of Listed Securities

Rule 392. (a) A member or member organization which acts as the

lead underwriter of any offering in a listed security, other than a

secondary distribution pursuant to Rule 393, shall notify the Exchange

of such offering in such form and within such time frame as may be

prescribed by the Exchange and shall provide the information required

below:

1. name of security

2. symbol

3. type of security

4. number of shares offered

5. offering price

6. date of pricing

7. time pricing

8. pricing basis (e.g., NYSE or Consolidated close)

9. beginning and ending dates of restricted period under Regulations M

(if applicable)

10. syndicate members

11. firm submitting notification

12. name of individual submitting notification

13. telephone number

14. such other information as the Exchange may from time to time

require

(b) Any Exchange member or member organization effecting a

syndicate covering transaction or imposing a penalty bid in a listed

security shall provide notice of such to the Exchange in such format

and within such time frame as the Exchange may from time to time

require.

Rule 460 Specialists Participating in Contests

* * * * *

Supplemetary Material

* * * * *

.20 The restrictions in paragraphs (a) and .10 above shall not

apply, except as provided herein, to an approved person entitled to an

exemption from this Rule pursuant to Rule 98. The restriction on

acquisition of 10% or more of the outstanding shares of any equity

security in which an associated specialist is registered, as provided

in Rule 460.10, shall apply to such approved person separate and

distinct from the restriction as applied to any or all other persons

specified in rule 460.10, and positions of the approved person shall

not be aggregated with the positions of any one or more other persons

specified in Rule 460.10. The same principle applies with respect to

the reporting of positions specified in Rule 460.10. An approved person

entitled to an exemption from this Rule may engage in business

transactions with a company in whose stock an associated specialist is

registered, may accept a finder's fee from such company, and may act as

an underwriter in any capacity for a distribution of securities issued

by such company. [When an approved person entitled to an exemption from

this Rule is acting or has agreed to act in any underwriting capacity

for a distribution of (i) any security in which an associated

specialist is registered; (ii) any security which is immediately

exchangeable for or convertible into a security in which an associated

specialist is registered; and (iii) any security which entitles the

holder thereof immediately to acquire a security in which an associated

specialist is registered, the associated specialist member organization

shall ``give up the book'' in the security in which a specialist member

of the specialist member organization is registered to another

specialist organization satisfactory to the Exchange which shall serve

as a full time relief specialist until such book may, in accordance

with this Rule, be reacquired by the member organization that is

associated with the approved person. The period during which the member

organization shall give up the book as provided above shall commence

not later than the date specified in (A), (B), or (C), whichever is

applicable, of Rule 10b-6(a)(3)(xi) of the Securities and Exchange

Commission under the Securities Exchange Act of 1934 and shall end when

the approved person has completed his participation in such

distribution in accordance with paragraph (c)(3) of that Rule.]

.30(a) An approved person associated with a specialist member

organization (``Affiliated Specialist'') that is entitled to an

exemption from certain Exchange rules pursuant to Exchange rule 98

shall notify the Exchange of its participation in any distribution or

tender or exchange offer of any security covered by paragraph (b) of

this rule, in such form and within such time frame as may be prescribed

by the Exchange and shall provide the information required below:

1. name of security

2. symbol

3. type of security

4. symbol of reference security or securities (if different from

security being distributed

5. description of distribution or tender or exchange offer

6. distribution price or terms of tender or exchange offer

7. date of pricing

8. time of pricing

9. pricing basis (e.g., NYSE or Consolidated close)

10. beginning and ending dates of the restricted period under

Regulation M (if applicable) or, for a tender or exchange offer, the

date the offer is publicly announced and its expiration date

11. firm submitting notification

12. name and title of individual submitting notification

13. telephone number

14. such other information as the Exchange may from time to time

require

(b) The notification requirements of this rule are applicable to

any security in which the Affiliated Specialist is registered where

such security is either:

(i) the subject of a tender or exchange offer (or any other

security which is immediately convertible into or exchangeable for such

security) for purposes of Rule 10b-13 under the Securities Exchange Act

of 1934; or,

[[Page 17900]]

(ii) a covered security as defined in Rule 100 of Regulation M.

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 III below. The NYSE has prepared summaries, set forth in Sections

(A), (B), and (c) below.

(A) Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

The SEC has adopted Regulation M to replace certain trading

practices rules under the Securities Exchange Act of 1934 (the

``Act''). Like the rules it replaces, Regulation M proscribes certain

activities that offering participants might engage in to manipulate the

price of an offered security. However, the six rules adopted under

Regulation M represent a streamlined and more flexible approach to

regulating conduct during offerings. An essential part of this approach

is reliance on surveillance conducted by self-regulatory organizations

with respect to offerings of securities traded in their marketplaces.

The Exchange has surveillance procedures in place which monitor

markets for various types of manipulative activity. The Exchange is

proposing a new rule and an amendment to a rule to require notification

by member organizations when they are participating in an offering of

securities listed on the Exchange.

Rule 392 (Notification Requirements for Offerings of Listed

Securities)

This rule will require notification to the Exchange whenever a

member or member organization acts as a lead underwriter of any

offering of a listed security. Such notification will enable the

Exchange to monitor trading in the security or any related security

traded on the Exchange for possible price manipulation. The data

required to be transmitted to the Exchange include the name and type of

the security, symbol, number of shares offered, offering price, date,

time and basis of pricing, applicable restricted period and syndicate

members, as well as the firm, name and telephone number of the

individual submitting the notification.

Rule 392 will also require notification, effective April 1, 1997,

to the Exchange of any initial syndicate covering transaction to reduce

a short position created in connection with the offering, and the

imposition of any penalty bid by a managing underwriter against a

syndicate member that has sold any of the securities originally

distributed which are subsequently purchased in a syndicate covering

transaction. These notifications are required by Rule 104(h) under

Regulation M.

Rule 460.30

Under Regulation M and Exchange Rule 98, specialist organizations

associated with an underwriter of their specialty stock will not have

to ``give-up-the-book'' during distributions of such stocks if they

have functional separation procedures in place approved by the

Exchange. Rule 460.20 is being amended accordingly to reflect this

change. However, when such an underwriter is engaged in a distribution

of a specialty stock, the Exchange will conduct specific types of

surveillance on trading in the security by the specialist and

associated underwriter to monitor for possible manipulation of the

stock. These surveillance procedures were designed when the Exchange

received no-action relief from Rules 10b-6 and 10b-13 under the Act

from the requirement for specialists to ``give up the book'' during

participation in a distribution of a specialty stock by an affiliated

broker-dealer, and are being carried forward under Regulation M.

Rule 460.30 will require notification to the Exchange, the earlier

of two business days prior to pricing the offering or one business day

prior to the commencement of the restricted period for a distribution

participant as defined in Rule 100 under Regulation M, whenever an

approved person associated with a specialist member organization

(``Affiliated Specialist'') that has a functional separation approved

pursuant to Rule 98 participates in the distribution of a security in

which the Affiliated Specialist is registered. With respect to tender

or exchange offers, notification must be made to the Exchange prior to

the commencement of the Rule 10b-13 covered period, i.e., from the time

the offer is publicly announced until its expiration. The data elements

required are similar to those in Rule 392.

2. Statutory Basis

The NYSE believes that the proposed rule change is consistent with

provisions of Section 6(b)(5) of the Act \1\ in that the proposed rule

change is 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.

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\1\ 15 U.S.C. Sec. 78f(b)(5) (1988).

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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. 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 U.S.C. 552, will be available for inspection and copying in the

Commission's Public Reference Room. Copies of such filing will also be

available for inspection and copying at the principal office of the

above-mentioned self-regulatory organization. All submissions should

refer to the file number in the caption above and should be submitted

by May 2, 1997.

IV. Commission's Findings and Order Granting Accelerated Approval of

the Proposed Rule Change

The Commission finds that the NYSE's proposal is consistent with

the Act and the rules and regulations thereunder applicable to national

securities exchanges. Specifically, the Commission finds that the

proposed rule change is consistent with Section 6(b)(5) of the Act

which requires that an exchange have rules that are designed to

[[Page 17901]]

prevent fraudulent and manipulative acts and practices, 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.

In addition, the Commission believes the Exchange's policy

requiring notification by member organizations when they are

participating in an offering of securities listed on the Exchange will

facilitate compliance of Exchange members with the requirements of

Regulation M, SEC Rules 100 through 105, and Rule 10b-13 under the Act.

The Commission, therefore, finds good cause for approving the proposed

rule change prior to the thirtieth day after the date of publication of

filing thereof in the Federal Register.

It is therefore ordered, pursuant to Section 19(b)(2) of the

Act,\2\ that the proposed rule change be and hereby is approved.

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

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\3\

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\3\ 17 CFR 200.30-3(a)(12) (1996).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97-9348 Filed 4-10-97; 8:45 am]

BILLING CODE 8010-01-M