6354 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See letter from Kathleen M. Boege, Associate 

General Counsel, CHX, to Nancy J. Sanow, Assistant 

Director, Division of Market Regulation, 

Commission, dated November 25, 2003 

(‘‘Amendment No. 1’’). In Amendment No. 1, the 

Exchange expanded its discussion regarding the 

consequences of the proposed rule change, and also 

clarified that the proposed rule change was filed 

pursuant to Section 19(b)(2) of the Act. 15 U.S.C. 

78s(b)(2).

4See Securities Exchange Act Release No. 48982 

(December 23, 2003), 68 FR 75674.

5 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f).

6 15 U.S.C. 78f(b)(5).

7 15 U.S.C. 78s(b)(2).

8 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See letter from Mary Yeager, Assistant Secretary, 

NYSE, to Nancy J. Sanow, Assistant Director, 

Division of Market Regulation (‘‘Division’’), 

Commission, dated March 10, 2003 (‘‘Amendment 

No. 1’’).

4See letter from Darla C. Stuckey, Corporate 

Secretary, NYSE to Nancy J. Sanow, Assistant 

Director, Division, Commission, dated May 20, 2003 

(‘‘Amendment No. 2’’).

5See Securities Exchange Act Release No. 47961 

(June 2, 2003), 68 FR 34453.

6See letter from Mary Yeager, Assistant Secretary, 

NYSE, to Nancy J. Sanow, Assistant Director, 

Division, Commission, dated June 10, 2003 

(‘‘Amendment No. 3’’). In Amendment No. 3, the 

Exchange added the phrase ‘‘or rejected’’ to a 

sentence within NYSE Rule 91.10 to clarify that 

transactions that are not rejected are deemed to be 

accepted for the purposes of NYSE Rule 91.10. This 

sentence now reads that ‘‘[t]ransactions which are 

not then confirmed or rejected in accordance with 

the procedures above are deemed to have been 

accepted.’’ This is a technical amendment and is 

not subject to notice and comment.

7See letter from Darla C. Stuckey, Corporate 

Secretary, NYSE, to Nancy J. Sanow, Assistant 

Director, Division, Commission, dated January 29, 

2004 (‘‘Amendment No. 4’’). In Amendment No. 4, 

the Exchange provided the Commission with 

examples of different scenarios for confirming 

principal transactions under NYSE Rule 91.10. This 

is a technical amendment and is not subject to 

notice and comment.

8See In the Matter of New York Stock Exchange, 

Inc., 70 S.E.C. Docket 106, Securities Exchange Act 

Release No. 41574 (June 29, 1999), Administrative 

Proceeding File No. 3–9925.

of 1934 (‘‘Act’’),1 and Rule 19b–4 

thereunder,2 a proposed rule change 

that would delete an interpretation of 

CHX Article XX, Rule 7 that prohibits 

specialists from disseminating 

automatically-generated quotations that 

are more than $.10 away from the 

Intermarket Trading System best bid or 

offer. On November 26, 2003, CHX filed 

Amendment No. 1 to the proposed rule 

change.3 The Federal Register

published the proposed rule change, as 

amended, for comment on December 31, 

2003.4 The Commission received no 

comments on the proposal.

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.5 In particular, the 

Commission believes that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,6 which requires, 

among other things, that an exchange’s 

rules be designed 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. The CHX has 

represented that, following the 

securities industry’s transition to 

decimal pricing, the consolidated 

quotations in the national securities 

markets flicker significantly throughout 

the trading day. Consequently, the 

quotations generated by CHX’s autoquote functionality flicker significantly 

during the trading day, resulting in 

significant, costly quotation traffic. 

Given that the Consolidated Quotation 

Association is now charging 

participants based on their capacity 

requirements, CHX wants to eliminate 

any unnecessary use of capacity. The 

Commission notes that, since automatic 

executions are required to be executed 

at the national best bid or offer in effect 

at the time the order is received or 

better, the proposed change should not 

have any negative effect on execution 

prices.

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,7 that the 

proposed rule change, as amended, (SR–

CHX–2003–17) be, and it hereby is, 

approved.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.8

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2807 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49183; File No. SR–NYSE–

2002–32] 

Self-Regulatory Organizations; New 

York Stock Exchange, Inc.; Order 

Approving Proposed Rule Change and 

Amendment Nos. 1, 2, 3, and 4 To 

Incorporate Interpretive Material to 

Several NYSE Rules 

February 4, 2004. 

I. Introduction 

On August 12, 2002, the New York 

Stock Exchange (‘‘NYSE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘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 

incorporate interpretive material to 

several existing NYSE Rules. On March 

11, 2003, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.3 On May 21, 2003, the 

Exchange filed Amendment No. 2 to the 

proposed rule change.4

On June 9, 2003, the proposed rule 

change, as amended by Amendment 

Nos. 1 and 2, was published for 

comment in the Federal Register.5 The 

Commission received no comments on 

the proposed rule change, as amended. 

On June 11, 2003, the NYSE filed 

Amendment No. 3 to the proposed rule 

change.6 On January 29, 2004, the NYSE 

filed Amendment No. 4 to the proposed 

rule change.7 This order approves the 

proposed rule change, as amended.

II. Description of the Proposed Rule 

Change 

The NYSE filed the proposed rule 

change to codify long-standing 

interpretive material to several NYSE 

rules and to respond to 

recommendations made by an 

independent consultant retained by the 

NYSE.8

A. NYSE Rule 72 

NYSE Rule 72 delineates the basic 

rule governing the priority and 

precedence of bids and offers at the 

same price on the Exchange. NYSE Rule 

72(b) provides that certain types of 

agency cross transactions at a given 

price receive priority over pre-existing 

bids or offers at that price. The 

Exchange proposes to add a sentence to 

NYSE Rule 72(b) to clarify that a broker 

whose cross is broken up because 

another member has provided price 

improvement must follow the crossing 

procedures of NYSE Rule 76 before 

completing the balance of the cross.

The Exchange is also proposing to add 

an example to NYSE Rule 72(b) to 

illustrate its interpretation that a sale 

‘‘clears the floor,’’ meaning all bids and 

offers not satisfied in a given transaction 

are deemed to be simultaneously reentered and on parity with each other. 

B. NYSE Rule 75

The Exchange is proposing to codify 

formally in NYSE Rule 75 its longstanding practice that Floor disputes 

involving $10,000 or more, or 

questioned trades, can be referred for 

resolution to a panel of three Floor 

Governors, Senior Floor Officials, or 

Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 6355

9See Amendment No. 3, supra note 6.

10See Amendment No. 4, supra note 7. The 

Exchange also confirmed that the scenarios 

provided by the Exchange regarding principal 

trades by a specialist would also apply to members 

involved in a principal transaction with any 

Exchange member. Telephone conversation 

between Donald Siemer, Director of Rule 

Development, Market Surveillance Division, NYSE, 

and Terri Evans, Assistant Director, Division, 

Commission on February 3, 2004.

Executive Floor Officials, or any 

combination thereof if the parties to the 

dispute so agree. The proposed rule 

change further provides that members 

may, as an alternative, resolve such 

disputes through the arbitration 

procedures established under the 

Exchange’s Constitution and Rules. 

C. NYSE Rule 91

NYSE Rule 91.10 addresses the 

procedures a member follows to confirm 

a transaction involving another member 

who has elected to take or supply for his 

own account the securities named in an 

order entrusted to him. The Exchange is 

proposing to amend NYSE Rule 91.10 to 

make clear in the rule that only a 

member may confirm a transaction in 

the situations covered by the rule. The 

Exchange is also proposing to add a 

sentence to the Rule to clarify that 

transactions that are not confirmed or 

rejected are deemed to have been 

accepted.9 In addition, the Exchange 

proposes to amend NYSE Rule 91.10 to 

provide that a member receiving a 

report of execution of a transaction 

where another member acted as 

principal triggers the member’s 

unconditional right to reject the trade as 

soon as practicable, given the prevailing 

circumstances. Furthermore, the 

Exchange is amending NYSE Rule 91.10 

to clarify that disputes as to whether 

there was sufficient time to reject the 

trade would be resolved under NYSE 

Rule 75.

The Exchange provided several 

examples of situations involving 

confirmation of a principal trade by a 

specialist 10 and whether the member 

took timely action. Under Rule 91.10, 

three different scenarios can occur in 

situations involving confirmation of a 

principal trade by a specialist. First, the 

broker can determine to take no action, 

in which case the transaction with the 

specialist would be deemed confirmed/

accepted under NYSE Rule 91.10 since 

‘‘transactions which are not then 

confirmed or rejected * * * are deemed 

to have been accepted.’’ Second, the 

broker could determine to go to the 

specialist’s post as soon as practicable 

under the prevailing circumstances to 

confirm the transaction by initialing the 

memorandum record of the specialist 

which shows the details of the trade and 

to return it to the specialist. Third, the 

broker could determine to go to the 

specialist’s post as soon as practicable 

under the prevailing circumstances to 

reject the trade.

What is reasonable for a floor broker 

in taking timely action under NYSE 

Rule 91.10 depends on his location on 

the trading floor in relation to where the 

specialist’s post is located, how busy he 

is, how timely the customer was in 

relaying his instructions to confirm/

reject/do nothing, as well as prevailing 

market conditions. Any disagreement 

about whether a member or member 

organization took timely action in 

rejecting a trade or about whether a 

transaction was properly deemed to 

have been accepted under NYSE Rule 

91.10 would be resolved in accordance 

with NYSE Rule 75, which gives the 

final determination to a Floor Official. If 

called upon to resolve such a dispute, 

a Floor Official would be expected to 

weigh the factors noted above. Any 

resolution of the dispute would, of 

necessity, depend on the unique facts of 

each particular situation. A Floor broker 

who received a report of execution 

within one minute of a trade, was 

located in close proximity to the trading 

post, and who took no action upon 

receiving the execution report, might, in 

the judgment of a Floor Official, be 

precluded from rejecting a trade after a 

period that could be as brief as several 

minutes, if the Floor Official concluded 

that the broker had not acted as soon as 

practicable under the circumstances. 

Conversely, a broker who did not 

receive an execution report until 10 or 

15 minutes after the trade, and was 

actively executing orders in another 

trading room, might be deemed to have 

acted as soon as practicable in rejecting 

a trade after a period of a half hour or 

more, depending on the Floor Official’s 

assessment of the reasonableness of the 

broker’s actions.

The Exchange is also proposing to 

amend NYSE Rule 91.20 to replace the 

term ‘‘should’’ with ‘‘must,’’ to reflect 

the mandatory nature of the procedures 

outlined, pertaining to principal 

transactions effected against orders in a 

specialist’s possession. 

The Exchange proposes to add NYSE 

Rule 91.50 regarding the rejection of 

specialist’s principal transactions. The 

proposed rule states that if there is a 

continued pattern of rejections of a 

specialist’s principal transactions, a 

Floor Official may be called upon to 

require the broker to review his actions. 

If a customer gives a continued pattern 

of rejection instructions to a Floor 

broker to reject any trade where the 

specialist acted as principal, a Floor 

Official would be able to review the 

appropriateness of the continued 

pattern of rejections by the broker, to 

make sure he is representing his 

customer as fiduciary and not giving the 

specialist, in effect, a kind of 

conditional order that is not recognized 

under Exchange rules. If a continued 

pattern of rejections does occur because 

the customer will not accept executions 

with the specialist as contra party, the 

Floor broker should represent the order 

himself or herself to ensure appropriate 

representation of the order in 

accordance with the broker’s fiduciary 

responsibility to the customer. The 

proposed NYSE Rule 91.50 clarifies, 

however, that neither the Floor 

Official’s review of a broker’s actions, 

nor the characterization of an order as 

a conditional order compromises the 

unconditional right of a broker to reject 

any trade where the specialist trades as 

principal. The proposed rule further 

provides that a broker’s exercise of his 

right to reject a trade will not trigger a 

disciplinary action against the broker. 

D. NYSE Rule 95

The Exchange is proposing to add 

material to NYSE Rule 95(a) making 

clear that members may not create an 

order or a material term of an order, but 

must receive an order from off the Floor 

which includes all the material terms of 

an order, regardless of how familiar they 

are with a customer’s strategy. 

E. NYSE Rule 115A 

NYSE Rule 115A provides, among 

other matters, procedures for members 

to confirm transactions on openings. 

The Exchange is proposing to add to 

NYSE Rule 115A an intra-rule crossreference to make clear that while a 

broker should confirm a transaction as 

promptly as possible, the specialist is 

not responsible for losses 30 minutes 

after the opening. 

F. NYSE Rule 116

The Exchange is proposing three 

changes to NYSE Rule 116. First, the 

Exchange proposes to amend NYSE 

Rule 116.20 to state directly a 

prohibition against a Floor broker 

‘‘stopping’’ stock. Second, the Exchange 

is proposing to amend NYSE Rule 

116.30(3)(a) to make clear that a 

specialist should ‘‘stop’’ an order in a 

minimum variation market only when 

there is an imbalance in the quotation 

suggesting the likelihood of price 

improvement for the ‘‘stopped’’ order. 

And third, the Exchange is proposing to 

add to NYSE Rule 116.40 a crossreference to NYSE Rule 123C, which 

codifies the Exchange’s procedures 

regarding execution of market-on-close 

and limit-on-close orders. 

6356 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

11The Commission has considered the proposed 

rules’ impact on efficiency, competition and capital 

formation. 15 U.S.C. 78c(f).

12 15 U.S.C. 78f(b)(5).

13See supra note 8.

14The Commission notes that Exchange members 

should assure that any agency issues are addressed 

by their respective customer agreements.

15 15 U.S.C. 78s(b)(2).

16 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Amendment No. 1 replaces the originally filed 

Form 19b–4 in its entirety.

4See Securities Exchange Act Release No. 48928 

(December 16, 2003), 68 Fr 75010 (December 29, 

2003).

5 In approving this proposed rule change, the 

Commission notes that it has considered its impact 

on efficiency, competition, and capital formation. 

15 U.S.C. 78c(f).

6 15 U.S.C. 78f.

7 15 U.S.C. 78f(b).

8See e.g., NASD Rules 4611 and 4612.

9See note 4, supra.

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.11

Specifically, the Commission believes 

the proposed rule change, as amended, 

is consistent with section 6(b)(5) of the 

Act,12 which requires among other 

things, that the rules of the Exchange are 

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 in general to protect 

investors and the public interest.

The Commission believes that the 

proposed rule change codifies current 

practices on the Exchange and existing 

interpretations of NYSE rules and is 

responsive to recommendations made 

by an independent consultant retained 

by the Exchange.13 The Commission 

also believes that the proposed rule 

change should clarify Exchange 

members’ rights and obligations under 

certain rules such as a broker having to 

recross a clean agency cross when there 

has been price improvement, a 

member’s ability to resolve certain 

disputes involving a monetary 

difference of $10,000 or more by a panel 

or through arbitration, a member’s 

requirement to receive all material terms 

of an order from the member’s customer 

off the floor of the Exchange, a 

specialist’s responsibility for losses 

incurred by other members because of 

an opening transaction, and the 

conditions for stopping stock.

Moreover, the Commission believes 

the proposed rule change will clarify the 

process by which a member can confirm 

or reject a transaction involving another 

member who has elected to take or 

supply for his own account the security 

named in an order entrusted to him.14

The Commission notes that several of 

the changes to NYSE Rule 91 codify the 

NYSE’s prior interpretation of this rule. 

As a result, the Commission believes 

that codification of these interpretations 

will add greater transparency to the 

NYSE’s rules. Further, the Commission 

notes that the proposed changes to 

NYSE Rule 91 aim to maintain a degree 

of flexibility in the rule to accommodate 

various situations occurring during the 

trading day.

With respect to the changes proposed 

for NYSE Rule 91.50, the Commission 

notes that a Floor Official’s review of a 

broker’s continued pattern of rejections 

of a specialist’s principal transactions in 

no way compromises the unconditional 

right of a broker to reject any trade 

where the specialist trades as principal. 

Furthermore, the Commission notes that 

the proposed rule provides that no 

disciplinary process would be triggered 

by the broker exercising his or her right 

to reject a trade. 

IV. Conclusion 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,15 that the 

proposed rule change (SR–NYSE–2002–

32), as amended, is approved.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.16

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2825 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49176; File No. SR–PCX–

2003–59] 

Self-Regulatory Organizations; Pacific 

Exchange, Inc.; Order Granting 

Approval to a Proposed Rule Change 

and Amendment No. 1 Thereto by the 

Pacific Exchange, Inc. To Amend Its 

Rules Governing Market-Maker 

Obligations on the Archipelago 

Exchange 

February 3, 2004. 

On October 21, 2003, the Pacific 

Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’), 

through its wholly-owned subsidiary 

PCX Equities, Inc. (‘‘PCXE’’), filed with 

the Securities and Exchange 

Commission (‘‘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 rules governing 

Market Maker obligations on the 

Archipelago Exchange (‘‘ArcaEx’’), the 

equities trading facility of PCXE. The 

PCX filed Amendment No. 1 to the 

proposal on December 2, 2003.3 The 

proposed rule change, as amended, was 

published for comment in the Federal 

Register on December 29, 2003.4 The 

Commission received no comment 

letters on the proposal. This order 

approves the proposed rule change, as 

amended.

The Commission finds that the 

proposed rule change, as amended, is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange 5 and, in particular, 

the requirements of Section 6 of the 

Act 6 and the rules and regulations 

thereunder. Specifically, the 

Commission believes that the proposed 

rule change is consistent with Section 

6(b),7 which, among other things, 

requires that the PCX’s rules be 

designed to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, 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. The 

Commission notes that the PCX’s 

restrictions on Market Makers requiring 

them to become odd-lot dealers and to 

maintain cleanup orders in the 

securities in which they maintain a 

market currently impose a competitive 

barrier vis-a`-vis other market centers in 

attracting Market Maker participation on 

ArcaEx because competing market 

centers do not impose such 

requirements.8 The Commission notes 

that the Exchange believes that 

eliminating the aforementioned 

requirements will facilitate additional 

Market Maker participation on ArcaEx 

and will further enhance order 

interaction, provide greater depth in 

liquidity, and foster price competition. 

Moreover, the Exchange believes that 

the elimination of such requirements 

will place ArcaEx on a level playing 

field with other market centers and 

allow ArcaEx to fairly compete for 

Market Maker,9 and that the impact on 

the system from removing these 

requirements for Market Makers would 

be minimal on the ArcaEx.