Self-Regulatory Organizations; New York Stock Exchange, Inc., Order Approving Proposed Rule Change Amending Cancellation Procedures for MOC/LOC Orders

[Federal Register Volume 64, Number 206 (Tuesday, October 26, 1999)]
[Notices]
[Page 57681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27893]



[[Page 57681]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42040; File No. SR-NYSE-99-26]


Self-Regulatory Organizations; New York Stock Exchange, Inc., 
Order Approving Proposed Rule Change Amending Cancellation Procedures 
for MOC/LOC Orders

October 20, 1999.

I. Introduction

    On June 14, 1999, 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,\2\ a 
proposed rule change to amend market-on-close (``MOC'') and limit-on-
close (``LOC'') order cancellation procedures.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on August 18, 1999.\3\ The Commission received no comments on 
the proposal. This order approves the proposal.
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    \3\ Securities Exchange Act Release No. 41726 (August 11, 1999), 
64 FR 44985.
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II. Description of the Proposal

    The Exchange utilizes special order cancellation procedures for 
MOC/LOC orders. Current procedures prohibit the cancellation of MOC/LOC 
orders after 3:40 p.m., except: (1) To correct a legitimate error, (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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    \4\ NYSE 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 for the 
last month of the previous calendar quarter. Current procedures 
require that, when Rule 80A goes into effect, a MOC index arbitrage 
order without the appropriate tick restriction must be cancelled 
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 cancelled until 
3:50 p.m. or the time the stock reopens, whichever is first.
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    The proposed rule change would prohibit the cancellation or 
reduction in size of MOC/LOC orders after 3:50 p.m. for any reason. If 
Rule 80A goes into effect before 3:50 p.m., then 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 tick restrictions no later than 3:50 p.m.

III. Discussion

    After careful review, 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.\6\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \7\ which requires, among 
other things, 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 system and, 
in general, to protect investors and the public interest.
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    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5)
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    The Exchange proposes to amend its MOC/LOC order cancellation 
procedures by prohibiting any cancellations after 3:50 p.m. The 
Commission finds that prohibiting cancellations after 3:50 p.m. may 
increase the effectiveness of the MOC/LOC publication procedures 
thereby reducing volatility at the close. Currently, a market 
participant is permitted to cancel a MOC/LOC order until the market 
closes if Rule 80A has been triggered or if a legitimate error has been 
made or when a regulatory trading halt is in effect after 3:40 p.m. 
Under this current procedure, a specialist with a large order imbalance 
who may have been attempting to find contra side interest may have an 
imbalance change dramatically with very little time to arrange an 
orderly close. Under the proposed rule change, no MOC/LOC orders could 
be cancelled after 3:50 p.m. under any circumstances. As a result, 
specialists should be able to rely on their 3:50 p.m. imbalance figure 
because after that time, cancellations will no longer be permitted to 
alter the existing order imbalance. This proposal should allow 
specialists to effectively close a stock in an orderly fashion because 
they will no longer have to process cancellations after 3:50 p.m.
    The Commission further finds that market participants should have 
sufficient time to cancel any MOC/LOC orders that may have been entered 
as the result of a legitimate error by 3:50 p.m. In addition, in the 
event that Rule 80A has been triggered, market participants should have 
sufficient time to cancel orders that do not meet the Rule's tick 
restrictions by 3:50 p.m. In both of these instances, market 
participants have the responsibility to make sure that the orders they 
have entered are accurate by this time.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NYSE-99-26) is approved.

    \8\ 15 U.s.C. 78s(b)(2).
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    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. 99-27893 Filed 10-25-99; 8:45 am]
BILLING CODE 8010-01-M