Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Amending Cancellation Procedures for MOC/LOC Orders

[Federal Register Volume 64, Number 159 (Wednesday, August 18, 1999)]
[Notices]
[Pages 44985-44986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21442]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41726; File No. SR-NYSE-99-26]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Amending Cancellation 
Procedures for MOC/LOC Orders

August 11, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 14, 1999, 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 
Exchange. 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).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change amends the Exchange's market-at-the-close 
(``MOC'') and limit on-close (``LOC'') procedures to prohibit 
cancellation of MOC an LOC orders for any reason after 3:50 p.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 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
    Current procedures \3\ utilized for MOC and LOC orders prohibit the 
cancellation of MOC orders and LOC orders after 3:40 p.m., except (1) 
in the case of legitimate error or; (2) to comply with the provisions 
of Exchange Rule 80A\4\ or; (3) when a regulatory trading halt is in 
effect at or after 3:40 p.m.\5\
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    \3\ See Securities Exchange Act Release No. 40094 (June 15, 
1998), 63 FR 33975 (June 22, 1998).
    \4\ Rule 80A requires index arbitrage orders in any stock in the 
Standard & Poor's 500 Stock Price Index entered on the Exchange to 
be stabilizing (i.e., the order must be marked either buy minus or 
sell plus) when the Dow Jones Industrial Average (``DJIA'') advances 
or declines from its closing value on the previous trading day by 2% 
of the DJIA average closing value from the last month of the 
previous calendar quarter. Current procedures require that, when the 
Rule goes into effect, an MOC index arbitrage order without the 
appropriate tick restriction must be canceled unless it is related 
to an expiring derivative index product.
    \5\See Securities Exchange Act Release No. 41497 (June 9, 1999), 
64 FR 32595 (June 17, 1999). If a regulatory trading halt is in 
effect at or after 3:40 p.m., MOC/LOC orders can be canceled until 
3:50 p.m. or the time the stock reopens, whichever occurs first.
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    The Exchange is proposing to prohibit cancellation or reduction in 
size of MOL/LOC orders after 3:50 p.m. for any reason, including cases 
of legitimate error or to comply with the provisions of Rule 80A. If 
Rule 80A goes into effect before 3:50 p.m., members and member 
organizations must cancel MOC index arbitrage orders that are related 
to a derivative index product that is not expiring and that do not meet 
the Rule's tick, restrictions no later than 3:50 p.m.
    In June 1998, the Commission approved amendments to procedures 
regarding entry of MOC and LOC orders and the publications of order 
imbalances.\6\ The Commission noted in its approval order that the 
enhanced publication requirements (e.g., at 3:50 p.m.  and the 
integration of marketable LOC orders in the imbalance may help ease 
market volatility at the close by attracting additional offsetting MOC/
LOC orders for stocks that have a significant order imbalance at 3:50 
p.m.
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    \6\ See supra note 3.
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    Historically, the window of opportunity for correcting errors has 
been from 3:50 p.m. to 4:00 p.m. When the cutoff time for MOC/LOC order 
entry on non-expiration days was moved from 3:50 p.m. to 3:40 p.m.,\7\ 
the Exchange did not revisit the issue of cancellations to correct 
errors. Upon review, the exchange has determined that it is appropriate 
to move the ten-minute window for error correction to 3:40 p.m. This 
would put the responsibility on members and member organizations to 
make sure by 3:50 p.m. that MOC/LOC orders entered are accurate. In 
turn, this will ensure that the 3:50 p.m. imbalance publication is 
accurate when offsetting orders are entered.
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    \7\ See supra note 3.
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    The Exchange believes that canceling MOC/LOC orders after 3:50 p.m. 
could exacerbate an order imbalance or cause a reversal in an order 
imbalance near the close. Precluding such cancellations would enhance 
the effectiveness of the MOC/LOC publication procedures in reducing 
volatility at the close.
    Upon Commission approval of this proposed rule change, the Exchange 
intends to issue an information Memo to inform its members of the 
revised procedures.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirement under Section 6(b)(5) of the Act \8\ that the rules of 
an exchange be 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

[[Page 44986]]

system and, in general, to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b)(5).
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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. 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 
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 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 
NYSE. All submissions should refer to File No. SR-NYSE-99-26 and should 
be submitted by September 8, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21442 Filed 8-17-99; 8:45 am]
BILLING CODE 8010-01-M