[Federal Register Volume 59, Number 173 (Thursday, September 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22125]
[[Page Unknown]]
[Federal Register: September 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34626; File No. SR-NYSE-94-18]
September 1, 1994.
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to its Allocation Policy
and Procedures
I. Introduction
On May 26, 1994, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend its Allocation Policy
and Procedures.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 34325 (July 7, 1994), 59 FR 35775 (July 13,
1994). No comments were received on the proposal. This order approves
the proposed rule change.
II. Description of the Proposal
The NYSE Allocation Policy and Procedures (``Allocation Policy'' or
``Policy'') governs the allocation of equity securities to NYSE
specialist units.\3\ The NYSE is amending its Allocation Policy to
revise, among other things, the composition of the Allocation Committee
(``Committee'')\4\ and the Allocation Panel (``Panel''),\5\ the quorum
requirement for the Committee, and the allocation of merging companies.
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\3\The NYSE Allocation Policy applies to the allocation of
equity securities under the following circumstances: (1) when a
common stock is to be initially listed on the NYSE; (2) when a
security is to be reallocated as a result of disciplinary or other
proceedings under NYSE Rules 103A, 475 and 476; or (3) when a
specialist unit voluntarily surrenders its registration in a
security as a result of possible disciplinary or performance
improvement action. See NYSE Allocation Policy and Procedures.
\4\The NYSE Allocation Committee has sole responsibility for the
allocation of securities to specialist units under the allocation
policy pursuant to Board-delegated authority, and is overseen by the
Quality of Markets Committee of the Board of Directors (``Board'').
The Allocation Committee renders decisions based on the allocation
criteria specified in the Allocation Policy.
\5\The Allocation Committee is drawn from the Allocation Panel.
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The NYSE is revising the composition of the Allocation Committee,
which consists of nine members, to include three broker Governors\6\
(one of whom may be an independent/two-dollar broker),\7\ four other
Floor brokers from the Allocation Panel (one of whom must be an
independent/two-dollar broker), and two allied members\8\ from the
Market Performance Committee or the Panel. For options allocations,
only one Governor would sit on the Committee. Currently, only one
Governor sits as a member of the Allocation Committee, and there is no
requirement that one member of the Committee be an independent/two-
dollar broker.
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\6\A Floor Governor is an individual, designated as such by the
Chairman of the Exchange's Board of Directors, who is empowered to
perform any duty, make any decision or take any action assigned to
or required of a Floor Director as prescribed by the rules of the
Exchange's Board of Directors.
\7\The Exchange defines an ``independent/two-dollar broker'' as
a member on the Exchange floor acting as a broker for other members.
\8\An allied member is a general partner, principal executive
officer or employee who controls a member firm or member
organization.
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The Exchange is amending the quorum requirement for the Allocation
Committee to require that at least two Floor Broker Governors be
present out of the seven member quorum. For options allocations, a
quorum would include one Governor. Currently, only one Governor is
required for a quorum.
The amended Policy also allows Governors to serve as chairman of
the Allocation Committee. It also requires all candidates for chairman
to have prior experience on the Allocation Committee. Currently,
Governors are not eligible to serve as chairman of the Committee.
The Exchange is further amending the Policy to state that all
incoming Allocation Committee members are expected to observe as many
Committee meetings as possible prior to beginning their terms as
Committee members.
The Exchange is also revising the composition of the Allocation
Panel. The revised panel will be composed of 48 persons, including 28
Floor brokers and eight allied members, plus the eight broker Governors
and four allied members serving on the Exchange's Market Performance
Committee. Currently, the four allied members of the Market Performance
Committee do not serve on the Panel.
Selection to the Allocation Panel currently occurs through an
annual appointment process which utilizes input from the membership.
The Exchange is amending the Policy to require Panel members to be
nominated by the Exchange membership.
To be eligible to serve on the Allocation Panel, the Exchange
currently requires Floor brokers to have five years of trading Floor
experience. The Policy also states that to the maximum extent possible,
the Panel should consist of a core group of experienced, senior
professionals, such as former Allocation Committee chairmen, senior
Floor Officials, and current and former Floor Governors. In the case of
allied members, the member organization is appointed to the Panel and
it selects a representative to serve. The Exchange is amending the
Policy to require that the allied members chosen to serve have at least
five years of experience in trading listed equities and have a senior
position on the trading desk. The Policy is also being amended to
permit allied members to designate one alternate who meets the Panel
qualifications, subject to approval by the Floor Directors.
The Exchange is amending the Policy to provide for a four month
term of service on the Allocation Committee for all members, including
Governors. The current terms are six months for non-Governor members
and two months for Governors. The Exchange is also codifying the
existing practice of permitting Panel members to serve a maximum of six
consecutive one year terms and to stagger terms so that every two
months four or five members would rotate from the Allocation Committee.
Finally, the Exchange is amending the Policy to codify its practice
on the allocation of merging listed companies. The Policy is being
amended to state that when two listed companies merge, the new entity
will be assigned to the specialist in the company determined to be the
surviving/dominant company. If no surviving/dominant company can be
identified, the entity will be referred to the Allocation Committee for
allocation. Currently, the Market Performance Committee, with the
assistance of Exchange Counsel and the Marketing Division, makes the
determination of which company is the surviving/dominant company.
The NYSE believes that the proposal is consistent with Section
6(b)(5) of the Act, which provides, in pertinent part, that the rules
of an exchange be 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 NYSE believes that the proposal is consistent with these
objectives in that the amendments enable the Exchange to further
enhance the process by which stocks are allocated to ensure fairness
and equal opportunity in the allocation process.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, with the requirements of section 6(b)(5) of the Act.\9\
Section 6(b)(5) requires that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts and practices, to remove impediments to and
perfect the mechanism of a free and open market, and, in general, to
protect investors and the public interest. Further, the Commission
finds that the rule change is consistent with section 11(b) of the
Act\10\ and Rule 11b-1 thereunder,\11\ which allow exchanges to
promulgate rules relating to specialists in order to maintain fair and
orderly markets. For the reasons set forth below, the Commission
believes that the amended Allocation Policy should enhance the
Exchange's allocation process, encourage improved specialist
performance and, thereby, protect investors and the public interest.
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\9\15 U.S.C. 78f(b)(5) (1988).
\10\15 U.S.C. 78k(b) (1988).
\11\17 CFR 240.11b-1 (1994).
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Specialists play a crucial role in providing stability, liquidity
and continuity to the trading of securities. Among the obligations
imposed upon specialists by the Exchange, and by the Act and the rules
thereunder, is the maintenance of fair and orderly markets in their
designated securities.\12\ To ensure that specialists fulfill these
obligations, it is important that the Exchange develop and maintain
stock allocation procedures and policies that ensure that securities
are allocated in an equitable and fair manner and that all specialists
have a fair opportunity for allocations based on established criteria
and procedures. The Commission fully supports and encourages the NYSE's
continuing effort to develop meaningful and effective Allocation
Policies, which in turn, should improve the allocation system. The
Commission believes that amending the Allocation Policy to revise,
among other things, the composition of the Allocation Committee and
Allocation Panel, the quorum requirement for the Committee, and
allocation of merging companies, should maximize the professionalism,
expertise and objectivity of the Committee and Panel, which in turn,
should provide the best possible match between specialist units and the
securities to be allocated and, thereby, effect improved specialist
performance.
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\12\Rule 11b-1, 17 CFR 240.11b-1 (1994); NYSE Rule 104.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSE-94-18) is approved.
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\13\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22125 Filed 9-7-94; 8:45 am]
BILLING CODE 8010-01-M