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Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Amendments to Exchange Rule 123B

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Start Preamble March 23, 2000.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on February 28, 2000, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) file with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change. The proposed rule change is described in Items I, II, and III below, which Items have been prepared by the Exchange. 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 involves two amendments to Exchange Rule 123B. The first amendment relates to commission-free execution or orders received by specialists through the SuperDOT System, and the second amendment clarifies the status of an order that is canceled and replaced.[3]

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 Exchange 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 Exchange 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

On October 4, 1999, the Exchange filed a proposed rule change with the Commission consisting of three amendments to Exchange Rule 123B. On November 30, 1999, the Commission approved the proposed rule change as a pilot through February 26, 2000.[4]

One of the amendments to Rule 123B provided for the commission-free execution of all orders received by Exchange specialists through the SuperDOT system if such orders were executed within five minutes. Under former Exchange Rule 123B(b)(1), specialists were not permitted to charge floor brokerage (i.e., a commission imposed on exchange floor brokers) for executing market and marketable limit orders [5] received by means of the Exchange's automated order routing system known as SuperDOT. The Exchange proposed to amend Rule 123B and add .10 in the Supplementary Material to the Rule to extend the no commission policy to all orders received by specialists via SuperDOT that are executed within five minutes of receipt. This proposal extended the commission-free execution to include limit orders that are not marketable at the time of receipt by the specialist but that are executed within the five-minute timeframe. The proposed rule change Start Printed Page 17326eliminated reference to “market” and “marketable limit orders” since all orders received through SuperDOT would be eligible for commission-free execution. The provision allowing the specialist to charge a commission on orders to sell short was also eliminated. The Exchange instituted the pricing initiative of commission-free executions, in conjunction with the Exchange's specialist community, effective with trades executed on December 29, 1999. To date, the procedure has worked well. The Exchange has not received any complaints concerning this policy.

A second amendment added language to Rule 123B to clarify that if an order that had been placed with the specialist is canceled and replaced, the replacement order is considered a new order for purposes of the Rule. Since the implementation of the pilot program, the Exchange is not aware of any problems associated with the clarifying language.

2. Statutory Basis

The Exchange believes that the basis for the proposed rule change is the requirement under Section 6(b)(5) of the Act [6] that an Exchange have rules that are designed to promote just and equitable principles of trade, facilitate transactions in securities, 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 accordance with Section 11A(a)(1)(C) of the Act,[7] the Exchange also believes that the proposed rule change will foster the economically efficient execution of securities transactions, fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets.

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

These enhancements will provide the Exchange the opportunity to compete more effectively for order flow with other marketplaces. Thus, 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 reviewed the proposed rule change with members and organizations representing various constituencies of the Exchange and the responses to the proposed rule changes were positive. The Exchange has not otherwise solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any 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 in 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 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 including whether the proposed rule is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 Exchange. All submissions should refer to File No. SR-NYSE-00-09 and should be submitted April 21, 2000.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[8]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  The Commission approved these two amendments to Exchange Rule 123B on a pilot basis on November 30, 1999. See Exchange Act Release No. 42184 (November 30, 1999), 64 FR 68710 (December 8, 1999), File No. SR-NYSE-99-40. In SR-NYSE-99-40, a third amendment to Exchange Rule 123B relating to execution reports of stopped orders was also proposed and approved by the Commission. However, the Exchange did implement this third amendment upon the Commission's approval, and is not seeking to implement this third amendment at this time. See letter from James E. Buck, Senior Vice President and Secretary, Exchange, to Richard Strasser, Assistant Director, Division of Market Regulation, Commission, dated February 25, 2000. Additionally, in File No. SR-NYSE-00-13, filed with the Commission on March 21, 2000, the Exchange has requested an extension of this pilot program for an additional 60 days or until April 26, 2000, and has requested permanent approval of this pilot program on an accelerated basis.

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4.  See Exchange Act Release No. 42184 (November 30, 1999), 64 FR 68710 (December 8, 1999). The third proposed change to Rule 123B related to reports of executions within two minutes for orders stopped by specialists. The Exchange is not implementing this third proposed change to Rule 123B at this time. See Footnote 3, infra. Therefore, the Commission is not seeking comment on this third amendment.

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5.  A marketable limit order is defined as an order with a limit price which is at or better than the prevailing quotation at the time the order is received by the specialist. See Exchange Rule 123B(b)(1).

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7.  15 U.S.C. 78k-1(a)(1)(c).

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[FR Doc. 00-7974 Filed 3-30-00; 8:45 am]