Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to amend NYSE Rule 104.10 (Dealings by Specialists) to provide that customers may limit the ability of specialists to trade along with their orders or to invoke precedence based on size when the specialist is liquidating a position in a specialty security for its dealer account. Exchange Rule 123 (Records of Orders) is also proposed to be amended to require a record of any such request to the specialist to yield.
The text of the proposed rule change is below. Proposed new language is italicized; proposed deletions are in brackets.
(6)(i) Transactions on the Exchange by a specialist for his own account in liquidating or decreasing his position in a specialty stock are to be effected in a reasonable and orderly manner in relation to the condition of the general market, the market in the particular stock and the adequacy of the specialist's positions to the immediate and reasonably anticipated needs of the round-lot and the odd-lot market and in this connection:
(B) the specialist should maintain a fair and orderly market during liquidation and, after reliquifying, should re-enter the market to offset imbalances between supply and demand. The selling of stock on a direct minus tick or a zero minus tick, or the purchasing of stock on a direct plus tick or a zero plus tick should be effected in conjunction with the specialist's re-entry in the market on the opposite side of the market from the liquidating transaction where the imbalance of supply and demand indicates that immediately succeeding transactions may result in a lower price (following the specialist's sale of stock on a direct minus tick or a zero minus tick) or a higher price (following the specialist's
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 and is set forth in sections A, B, and C below.
The Exchange proposes to amend Exchange Rules 104.10(6)(i) (Dealings by Specialists) and 123 (Records of Orders) to provide that customers may limit the ability of specialists to trade along with their orders or to invoke precedence based on size when the specialist is liquidating a position in a specialty security for its dealer account.
It is well established that specialists must always yield to customer orders on the book when trading in their specialty securities for their dealer accounts. However, when liquidating a position in a specialty security for its dealer account, a specialist is permitted to trade along with customer orders represented in the crowd and is entitled to invoke precedence based on size. The proposed amendment to NYSE Rule 104.10(6)(i) will give the crowd broker the right to require that the specialist yield to his or her customer's order. The proposed amendment will create more similarity in the way orders on the book and in the crowd are handled and will help diminish the perception that specialists have an advantage in trading for their dealer accounts.
NYSE Rule 104 requires that specialists' proprietary dealings be reasonably necessary to permit the specialist to maintain a fair and orderly market. Specialist dealer transactions when liquidating a position must meet this standard. In addition, specialists are required to obtain Floor Official approval for any liquidations that are conducted on a direct plus or minus tick. Thus, specialists' transactions when liquidating proprietary positions are subject to specific affirmative market-making standards and review. Nevertheless, there may be circumstances in which a customer will wish to preclude a specialist from participating with a specific trade. The proposed rule change will provide the mechanism for the customer to effect this restriction.
Specifically, Exchange Rule 104.10(6)(i) will be amended to include new paragraph (C) to provide that transactions by a specialist for his or her dealer account in liquidating or decreasing a position in a specialty security must yield to a customer's order in the crowd upon the request of the member representing such order, where such request has been documented as a term of the order, to the extent of the volume of such order included in the quote prior to the transaction. The customer's order will then participate in the transaction to the extent that priority, parity and precedence rules permit.
Exchange Rule 123 will be amended to add new paragraph (g) to provide that a request to a specialist to yield to a customer order is a condition of that order and must be documented in accordance with applicable books and records requirements (Exchange Rules 123 and 410; Rules 17(a)-3 and (a)-4
The Exchange believes that the basis under the Act for this proposed rule change is the requirement under section 6(b)(5)
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.
The Exchange has neither solicited nor received written comments on the proposed rule change.
Within 35 days of the date of publication of this notice in the
(A) By order approve the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
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. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an e-mail to
* Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
All submissions should refer to File Number SR-NYSE-2004-06. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (