Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to the Trading of Bonds

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39903; File No. SR-NYSE-98-13]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the New York Stock Exchange, Inc. Relating to the Trading of

Bonds

April 22, 1998.

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

(``Act''),\1\ notice is hereby given that on April 15, 1998, 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 NYSE. The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

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

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[[Page 23325]]

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

Substance of the Proposed Rule Change

The NYSE is proposing amendments to its rules and procedures

governing the trading of bonds. The Exchange is deleting obsolete

provisions of its bond trading rules, streamlining those rules, and

consolidating the bond-trading rules in new Rule 86. In addition to

adopting new Rule 86, the proposal includes amendments to the following

Exchange rules: Rule 13; Rule 61; Rule 70; Rule 72; Rule 76; Rule 79A;

and Rule 85.

II. Self-Regulatory Organization's Statement of the Proposed 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

The Exchange currently trades non-convertible bonds in its

Automated Bond System (``ABS'') and convertible bonds on

its bond Floor. Later this year, the Exchange will move all bond

trading into ABS. Currently, various Exchange rules govern the trading

of bonds, particularly Rule 85, governing the trading of ``cabinet''

securities. The proposed rule change will provide for uniform bond

trading procedures and will consolidate those procedures in new Rule

86.\2\ The rule change (i) will incorporate into new Rule 86 the same

price/time priority matching procedures as Rule 85, (ii) will establish

appropriate cross references to new Rule 86 in other NYSE rules and

(iii) will eliminate the rules governing trading on the bond Floor,

which will no longer be necessary.

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\2\ New Rule 86 specifies that these bond trading procedures

apply only to bonds ``traded through ABS.'' The Exchange trades

certain bonds, such as equity-linked securities, on its stock Floor.

These securities are traded pursuant to NYSE equity-trading

procedures and are not subject to Rule 86. See Securities Exchange

Act Release No. 32650 (July 16, 1993) 58 FR 39586 (July 23, 1993).

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A substantive change the Exchange is proposing involves the

crossing of bonds. Currently, Rule 85 requires that a member hold a

proposed cross for a ``reasonable'' period of time before effecting the

cross, and that the member announce the intention to effect the cross

on the bond Floor. For the purposes of ABS, the Exchange has

interpreted this as requiring a member to display a proposed cross in

ABS for two minutes prior to effecting the trade. The Exchange's

experience with these crossing procedures indicates that they no longer

are needed. There are very few crosses in ABS (approximately two to

four a day), and those that do take place are of small size (generally

between two and nine bonds). Furthermore, most crosses involve

instances where bond brokers receive matching buy and sell orders from

two different correspondent firms within two minutes of each other.

Also, members may cross orders of ten bonds and over off the Exchange,

with the result being that the current rule places the Exchange at a

competitive disadvantage to off-Exchange markets.

The final change to the bond trading rules moves the rules

governing transactions at wide variations from Rule 79A.40 to new Rule

86(g). For non-convertible bonds, the Exchange is retaining the

requirement that a Floor Official approve all sales made two points

away from the last sale or more than 30 days after the last

transaction. The Exchange is not proposing to apply those requirements

to convertible bonds, since such bonds generally are priced in relation

to the underlying equity security. However, new Rule 86(g) allows a

Floor Governor to impose the same requirements on the trading of

convertible bonds if market conditions warrant.

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 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

The proposed rule change does not 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 not solicited, and does not intend to solicit,

comments on this proposed rule change. The Exchange has not received

any unsolicited written comments from members or other interested

parties.

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 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 such 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 is consistent with the Act. 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 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

NYSE. All submissions should refer to the File No. SR-NYSE-98-13 and

should be submitted by May 19, 1998.

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).

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[[Page 23326]]

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98-11210 Filed 4-27-98; 8:45 am]

BILLING CODE 8010-01-M