Federal Register / Vol. 72, No. 59 / Wednesday, March 28, 2007 / Notices 14631 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 3See Securities Exchange Act Release No. 54615 

(October 17, 2006), 71 FR 62338. 4See Letters from Mary C.M. Kuan, Vice 

President and Assistant General Counsel, Securities 

Industry and Financial Markets Association 

(‘‘SIFMA’’) to Nancy Morris, Secretary, 

Commission, dated November 14, 2006 (‘‘SIFMA 

Letter’’) and from Ron L. Klein, Chairman and CEO, 

General Associates, Inc., dated December 13, 2006 

(‘‘Klein Letter’’). 5For a discussion of Amendment No. 3, see 

Section V, infra. Amendment No. 3 replaced and 

superseded Amendment No. 2 in its entirety. 6See Letter from Mary Yeager, Assistant 

Secretary, NYSE, to Nancy M. Morris, Secretary, 

Commission, dated March 16, 2007 (‘‘NYSE 

Response Letter’’). 

7The NYSE Arca Marketplace is the successor to 

the Archipelago Exchange. See Securities Exchange 

Act Release No. 53615 (April 7, 2006), 71 FR 19226 

(April 13, 2006) (SR–PCX–2006–24). 

8Such debt securities include, but are not limited 

to the following: corporate bonds (including 

convertible bonds), international bank bonds, 

foreign government bonds, U.S. government bonds, 

government agency bonds, municipal bonds, and 

debt-based structured products. Any security that 

would trade on NYSE Bonds is referred to as a 

‘‘bond’’ for the purposes of NYSE rules. 

9 15 U.S.C. 78c(a)(12). 

10See Securities Exchange Act Release No. 54766 

(November 16, 2006), 71 FR 67657 (November 22, 

2006) (File No. S7–06–05) (permitting NYSE 

member organizations to trade bonds on the 

Exchange that are not registered under Section 12(b) 

of the Exchange Act, but are issued by NYSE-listed 

companies or their wholly owned subsidiaries and 

that meet other conditions); Securities Exchange 

Act Release No. 54767 (November 16, 2006), 71 FR 

67680 (November 22, 2006) (SR–NYSE–2004–69) 

(collectively, the ‘‘Unlisted Corporate Bonds 

Orders’’). 

11See proposed NYSE Rule 86(j)(3)(B). 

12See proposed NYSE Rule 86(e). 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form http://www.sec.gov/ 

rules/sro.shtml; or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–ISE–2007–20 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ISE–2007–20. 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 (http://www.sec.gov/ 

rules/sro.shtml). 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 also will be 

available for inspection and copying at 

the principal office of the ISE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–ISE–2007–20 and should be 

submitted on or before April 18, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–5588 Filed 3–27–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55496; File No. SR–NYSE–

2006–37] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Amendment No. 3 to and 

Order Granting Accelerated Approval 

of Proposed Rule Change, as 

Amended, Relating to the 

Establishment of NYSE Bonds 

March 20, 2007. 

I. Introduction 

On May 16, 2006, the New York Stock 

Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 thereunder,2 to 

establish a new bond trading platform, 

NYSE Bonds, to replace its existing 

bond trading system, the Automated 

Bond System (‘‘ABS’’). The Exchange 

filed Amendments No. 1 and 2 to the 

proposed rule change on August 4, 2006 

and October 10, 2006, respectively. The 

proposed rule change, as amended, was 

published for comment in the Federal 

Register on October 24, 2006.3 The 

Commission received two comments on 

the proposal.4 On March 15, 2007, the 

Exchange filed Amendment No. 3 to the 

proposal.5 On March 16, 2007, the 

NYSE submitted a response to the 

comment letters.6 This order provides 

notice of Amendment No. 3 to the 

proposed rule change and approves the 

proposed rule change as amended on an 

accelerated basis. 

II. Description of the Proposal 

NYSE proposes to amend its Rule 86 

to replace its existing bond trading 

system, ABS, with a bond trading 

platform based on technology used to 

operate the NYSE Arca Marketplace.7

The new name of the NYSE bond 

trading platform would be ‘‘NYSE 

Bonds.’’ NYSE also proposes to amend 

other Exchange rules to conform to 

revised NYSE Rule 86. 

Any security traded on NYSE Bonds 

would have to be listed, or otherwise 

admitted to dealing, on the Exchange. 

NYSE has represented that all debt 

securities currently trading on ABS 

would be transferred to NYSE Bonds.8

Additional debt securities that meet the 

listing standards in NYSE Listed 

Company Manual Sections 102.03, 

103.05, 703.19, or 703.21, or that are 

deemed ‘‘exempted securities’’ under 

Section 3(a)(12) of the Exchange Act,9

could trade on NYSE Bonds. In 

addition, NYSE intends to trade 

unregistered corporate bonds pursuant 

to an exemption from Section 12(a) of 

the Exchange Act and a related rule 

change recently approved by the 

Commission.10

NYSE Bonds would be an electronic 

order-driven matching system. Initially, 

the System would allow limit orders 

and reserve orders. Visible interest 

would be executed on a price/time 

priority basis. However, undisplayed 

reserve interest in NYSE Bonds would 

always yield to displayed interest at a 

particular price.11 Outside of an auction 

(described below), orders marketable at 

the time of entry would be matched and 

executed, except if the price exceeded 

the ‘‘price collar’’ established for the 

bond at the time of entry. An order that 

is priced beyond the price collar 

threshold would be rejected by the 

system; an order that is not marketable 

at the time of entry would post to the 

NYSE Bonds order ‘‘book.’’ 12 If an order 

were entered at a better price than the 

then-best priced contra-side order on 

the NYSE Bonds book, the system 

would match the incoming order against 


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13A User submitting an order priced in a 

denomination less than $1,000 would be required 

to specify the original principal amount of the 

bond. See proposed Rule 86(d). 

14See proposed NYSE Rule 86(b)(2)(M) (defining 

‘‘User’’ as any Subscriber, Sponsored Participant, or 

Authorized Trader that is authorized to obtain 

access to NYSE Bonds). 

15See proposed NYSE Rule 86(i). 

16See proposed NYSE Rule (b)(2)(G). 

17See proposed NYSE Rule 86(b)(2)(F) (defining 

‘‘Imbalance ’’ as the number of buy or sell orders 

that cannot be matched with other orders at the IMP 

at any given time). 

18See proposed NYSE Rule 86(l) (prescribing 

procedures NYSE Bonds Bond Auctions). 

19The staff of the Division of Market Regulation 

of the Commission previously has stated that it 

would not recommend that the Commission take 

enforcement action if short sales in exchange-listed 

bonds and debentures are effected without 

complying with Rule 10a–1 under the Exchange 

Act, 17 CFR 240.10a–1. See Securities Exchange Act 

Release No. 30772 (June 3, 1992), 57 FR 24415 (June 

9, 1992) (File No. S7–13–92) (‘‘Bond Short Sale NoAction Position’’). The Exchange deems this 

determination by the Commission Staff to apply to 

Exchange Rule 440B (Short Sales). 

20See proposed NYSE Rule 86(k). 

21See proposed NYSE Rule 86(o)(a). 

22See proposed NYSE Rule 86(b)(2)(K). 

23See proposed NYSE Rule 86(b)(2)(J). 

24See proposed NYSE Rule 86(o)(b)(2)(B)(i). 

25See proposed NYSE Rule 86(o)(b)(2)(C). 

26See proposed NYSE Rule 86(b)(2)(L). 

the booked order at the booked order’s 

price, thereby providing price 

improvement to the incoming order. 

Bonds generally would be traded in 

denominations of $1,000.13

NYSE Bonds would have three 

trading sessions: (1) The Opening Bond 

Trading Session (4 a.m. until 9:30 a.m. 

Eastern Time (‘‘ET’’)); (2) the Core Bond 

Trading Session (9:30 a.m. until 4 p.m. 

ET); and (3) the Late Bond Trading 

Session (4 p.m. until 8 p.m. ET). A 

User 14 entering an order into NYSE 

Bonds would be required to designate 

the time in force of the order. A day 

order, if not executed, would expire at 

the end of any of the three daily trading 

sessions for which it was designated. A 

good-‘til-cancelled order would remain 

in effect until it was either cancelled or 

executed, but would be available for 

execution only during the Core Bond 

Trading Session. Unless the User 

indicated otherwise, the system’s 

default assumption would be that all 

orders are day orders. 

At the commencement of both the 

Opening Bond Trading Session and the 

Core Bond Trading Session, the 

Exchange would conduct a bond 

auction. Users would be able to submit 

orders for execution Opening Bond 

Auction and the Core Bond Auction 

beginning at 3:30 a.m. ET. Orders 

designated for the Opening Bond 

Trading Session would queue until 4 

a.m. ET, at which time the Opening 

Bond Auction would take place and 

orders designated for the Core Bond 

Trading Session would queue until 9:30 

a.m. ET, at which time the Core Bond 

Auction would take place.15 During a 

bond auction, the system would attempt 

to match and execute orders at the 

Indicative Match Price (‘‘IMP’’). The 

IMP is defined as: (1) The price at which 

the maximum volume of bonds are 

executable; (2) if there are two or more 

prices at which the maximum volume of 

bonds are executable, the price that is 

closest to the closing price in that bond 

on the previous trading day, or if the 

bond did not trade on the previous day, 

the price that is closest to the closing 

price on the last day that the bond 

traded; (3) if bond orders to buy and 

bond orders to sell are not marketable, 

the highest priced bid; or (4) if there 

were no bids but only offers, the lowest 

offer price.16 Beginning at 3:30 a.m. ET 

and various times thereafter, the IMP of 

the Opening Bond Auction and/or the 

Core Bond Auction and any 

Imbalance 17 associated therewith 

would be disseminated by the 

Exchange. 

A single order to sell coupled with a 

single order to buy would be sufficient 

to establish a bond auction, provided 

the orders were marketable.18 If no 

marketable orders were entered into the 

system prior to the commencement of a 

bond auction, the auction would not 

occur, and the existing orders would be 

available only for ordinary trading in 

the designated bond trading session(s). 

Orders that were designated for a 

particular bond trading session and 

eligible to participate in the related 

bond auction, but not executed in such 

bond auction, would also be available 

for ordinary trading in the trading 

session. Orders designated for but not 

executed in the Opening Bond Trading 

Session would be eligible to be matched 

and executed in the Core Bond Auction 

at the IMP. Orders eligible for the 

Opening Bond Auction or the Core 

Bond Auction could be cancelled at any 

point until two minutes prior to the 

commencement of the respective bond 

auction. 

To post an order on NYSE Bonds, a 

User would be required to enter the 

following information: CUSIP number; 

quantity; order type (i.e., limit or 

reserve); price (up to three decimals); 

account type indicator (‘‘P’’ for 

principle or ‘‘A’’ for agent); time in 

force; and whether the order is buy, sell, 

or sell/short.19 An order could not be 

modified but could be cancelled at any 

time before it is executed, except that a 

User could not cancel an order eligible 

for execution in a regularly scheduled 

bond auction inside of two minutes 

prior to the beginning of the bond 

auction. 

The proposal contemplates the 

halting, suspension, and closing of bond 

trading on NYSE Bonds (a ‘‘Bond Halt’’) 

in certain circumstances.20 During a 

Bond Halt, orders could enter the 

system and queue according to price/ 

time priority but would not execute. 

When the Bond Halt is concluded, 

trading would resume with a Bond Halt 

Auction, at which time orders would 

match and execute at the IMP under 

similar terms to the other bond auctions. 

Like the other bond auctions, no 

executions would occur unless 

marketable orders were available prior 

to the commencement of the Bond Halt 

Auction. Orders eligible for execution in 

the Bond Halt Auction could be 

cancelled at any point prior to the 

beginning of the Bond Halt Auction. At 

the conclusion of the Bond Halt 

Auction, ordinary trading would resume 

in the trading session in progress at the 

conclusion of the halt. 

A member organization wishing to 

trade on NYSE Bonds (‘‘Subscriber’’) 

would be required to enter into a 

written agreement with the Exchange.21

A non-member (‘‘Sponsored 

Participant’’) 22 could gain access to 

NYSE Bonds only by entering into a 

written agreement with a Subscriber 

(i.e., a ‘‘Sponsoring Member 

Organization’’) 23 and the Exchange. In 

the sponsorship agreement, the 

Sponsoring Member Organization 

would acknowledge, among other 

things, that any order entered by the 

Sponsored Participant and any 

execution resulting from such order 

would be binding in all respects on the 

Sponsoring Member Organization.24

The Sponsoring Member Organization 

would be responsible for any and all 

actions taken by its Sponsored 

Participant. The Sponsored Participant, 

in turn, would agree, among other 

things, to comply with the rules of the 

Exchange and the rules and procedures 

with regard to NYSE Bonds, as if it were 

a member of the Exchange.25 The 

Sponsored Participant also would be 

required to: (1) Take reasonable security 

precautions to prevent unauthorized 

access to NYSE Bonds; (2) establish and 

maintain an up-to-date list of persons 

permitted to access NYSE Bonds on 

behalf of the Sponsored Participant (i.e., 

‘‘Authorized Traders’’) 26; and (3) 

provide that list to the Sponsoring 

Member Organization. Moreover, the 

Sponsoring Member Organization 

would be required to undertake certain 

responsibilities related to a Sponsored 


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27See proposed NYSE Rule 86(o)(b)(4). 

28See proposed NYSE Rule 86(b)(2)(H). 

29See proposed NYSE Rule 86(m)(1). 

30Such factors include execution price(s); volume 

and volatility of a bond; news released for the issuer 

or the bond and/or the related security; the 

existence of trading halts; corporate action(s); 

general market conditions; rating of the bond; 

interest and or coupon rate; maturity date; yield 

curves; last sale, if available within a reasonable 

time frame; executions inconsistent with the trading 

pattern of a bond; current day’s trading high/low; 

recent day’s and week’s trading high/low; 

executions outside the 52 week high/low; effect of 

a single large order creating several prints at various 

prices; and quotes and executions of other market 

centers. See proposed NYSE Rule 86(m)(2)(E). 

31The CEE Panel would be comprised of the 

Chief Executive Officer of NYSE Regulation or a 

designee, and representatives from two Subscribers 

to NYSE Bonds. The Exchange would designate at 

least ten Subscribers to NYSE Bonds to act as 

representatives to be called upon to serve on the 

CEE Panel, as needed. In no case would a CEE Panel 

include a person related to a party to the trade in 

question. To the extent reasonably possible, the 

Exchange would call upon the designated 

representatives to participate on a CEE Panel on an 

equally frequent basis. See proposed NYSE Rule 

86(m)(4)(A) and (B). 

32See proposed NYSE Rule 86(m)(5). 

33The Exchange submits completed trades to one 

of the subsidiaries of the Depository Trust Clearing 

Corporation (‘‘DTCC’’) for clearance and settlement. 

The National Securities Clearing Corporation 

(‘‘NSCC’’), a subsidiary of DTCC, provides clearance 

and settlement services for government agency, 

corporate, and municipal bonds that trade on ABS. 

While the Government Securities Division of the 

Fixed Income Clearing Corporation (‘‘FICC’’), 

another subsidiary of DTCC, provides clearance and 

settlement services for transactions in U.S. 

government bonds, the Exchange does not currently 

have an agreement with FICC for such settlement 

and clearance. Presently, U.S. government bonds 

that trade on ABS are traded ex-clearing (i.e., the 

parties to the transaction arrange for manual 

clearing and settlement). The Exchange plans to 

submit trades on a locked-in basis to FICC for 

clearance and settlement in 2007. Until such time 

as the Exchange has established such an agreement 

with the FICC, the U.S. government bonds that 

trade on NYSE Bonds would continue to trade exclearing as they do today on ABS. Trades that 

would not be locked-in would be those in bonds 

that are not set up for the Exchange’s registered 

clearing agency, or bonds having a face value other 

than $1,000. 

Participant’s Authorized Traders, 

including: (1) Maintaining a list of 

Authorized Traders; (2) establishing 

procedures to ensure that Authorized 

Traders comply with Exchange rules 

and to ensure the safety of and access 

to the equipment used to access NYSE 

Bonds; and (3) suspending an 

individual’s status as an Authorized 

Trader when such individual’s action 

has caused the Sponsoring Member 

Organization to fail to comply with 

Exchange rules.27

The proposed NYSE Bonds rules also 

include provisions for the handling of a 

‘‘Clearly Erroneous Execution,’’ defined 

as an execution involving an obvious 

error in any term of an order 

participating in such execution, such as 

price, unit of trading, or identification of 

the bond.28 Subject to the approval of 

the Exchange, a Clearly Erroneous 

Execution could be nullified if no party 

to the trade objects.29 The Exchange also 

has proposed to establish procedures for 

reviewing a transaction if one of the 

parties does not agree to the 

cancellation. A User could request a 

review via telephone, facsimile, or 

e-mail. Upon receipt of such request, the 

Exchange would notify the counterparty 

as soon as practicable. Any request for 

review would generally be required to 

be submitted within 30 minutes of the 

trade; however, the Exchange could 

consider a request after 30 minutes on 

a case-by-case basis in a manner that 

promotes a fair and orderly market and 

does not unfairly discriminate against 

Users of NYSE Bonds. Each party to the 

transaction would be required to 

provide, within 30 minutes of the 

request for review, any supporting 

written information as may be 

reasonably requested by the Exchange to 

aid in the resolution of the matter. 

Unless both parties to the disputed 

transaction agreed to withdraw the 

initial request for review, an Officer of 

the Exchange or a designee (the 

‘‘Reviewer’’) would review the 

transaction and determine whether it 

were clearly erroneous, with a view 

towards maintaining a fair and orderly 

market and the protection of investors 

and the public interest. In Amendment 

No. 3, the Exchange proposed factors 

that the Reviewer could consider in the 

determination of a Clearly Erroneous 

Execution.30 If the Reviewer determines 

that the transaction in dispute is 

erroneous, the transaction would be 

declared null and void, or one or more 

of the terms of the transaction would be 

modified. The parties would be 

promptly notified of the determination. 

A request for review of the initial 

determination by the Clearly Erroneous 

Execution Panel (‘‘CEE Panel’’) 31 may 

be made within 30 minutes after the 

party making the appeal is given notice 

of the determination. However, the CEE 

Panel would not review a determination 

of the Reviewer if the Reviewer 

determined that the number of affected 

transactions was such that immediate 

finality would be necessary to maintain 

a fair and orderly market and to protect 

investors and the public interest. All 

determinations by the CEE Panel would 

constitute final action by the Exchange. 

In addition, the proposal would allow 

the Exchange to review transactions 

affected by a system disruption, system 

malfunction, or equipment changeover 

to decide if any such transactions were 

erroneous.32 In the event of any system 

disruption, system malfunction, or 

equipment changeover in the use or 

operation of any electronic 

communications and trading facilities of 

the Exchange, an Officer of the 

Exchange or a designee, on his or her 

own initiative, could review a 

transaction arising out of the use or 

operation of such facilities during such 

period and declare it unchanged, nullify 

it, or modify the terms of the trade. 

Absent extraordinary circumstances, 

any such action of the Exchange would 

need to be taken within 30 minutes of 

detection of the system disruption, 

system malfunction, equipment 

changeover, or an erroneous transaction 

resulting from such system problem. If 

an erroneous transaction occurred as a 

result of a system problem and the 

Exchange determines to revise the trade, 

the counterparties to the erroneous 

transaction would be notified of the 

action as soon as practicable. A User 

aggrieved by such action could appeal 

such action to the CEE Panel in 

accordance with the provisions 

described above. 

Most orders matched on NYSE Bonds 

would be locked-in trades and would be 

submitted to a registered clearing 

agency with accrued interest calculated 

according to the defined eligibility 

characteristics of the particular bond.33

Settlement of corporate bond trades 

would be ‘‘regular way,’’ i.e., three-day 

settlement. At a later date, the Exchange 

intends to publish a real-time bond data 

feed, and intends to make such data 

available for purchase by nonsubscribing market participants, thirdparty data vendors, and other interested 

parties who agree to the Exchange’s 

terms. In addition to disseminating the 

NYSE Bonds order book, the data feed 

would also include the last sale price 

and size as executions occur. The 

Exchange also proposed several 

technical changes to other NYSE rules 

to remove certain obsolete references 

and otherwise conform the terms of 

certain other rules to revised NYSE Rule 

86. 

III. Summary of Comments and NYSE’s 

Response 

As noted above, the Commission 

received two comment letters on the 

proposal. The Klein Letter expressed 

support for the NYSE’s proposal. The 

other commenter, SIFMA, expressed 

some support for NYSE’s proposal but 

also raised certain concerns. The 

Exchange responded to the concerns 

raised in the SIFMA Letter. 

SIFMA questioned whether the 

Exchange’s plans to assess a fee for the 

market data generated by NYSE Bonds 

would confer an unfair competitive 


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34See SIFMA Letter at 2–3. 

35 Id. 

36See NYSE Response Letter at 2. 

37See SIFMA Letter at 3–4. 

38See Securities Exchange Act Release No. 54678 

(November 16, 2006), 71 FR 67673 (November 22, 

2006) (SR–NASD–2006–110). 

39See NYSE Response Letter at 3. 

40See SIFMA Letter at 4. 

41See proposed NYSE Rule 86(m)(2)(E). 

42 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

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

43 15 U.S.C. 78f(b)(5). 

44However, the Commission notes that the 

Exchange did not in this filing propose any fee 

changes in connection with the NYSE Bonds 

system. Therefore, the Commission in this order is 

not making any findings regarding any fee that the 

Exchange charges or may in the future propose to 

charge in connection with the use of the NYSE 

Bonds system. 

45See NYSE Arca Equities, Inc. (‘‘NYSE Arca 

Equities’’) Rule 7.29(b); Securities Exchange Act 

Release No. 44983 (October 25, 2001), 66 FR 55225 

(November 1, 2001) (SR–PCX–00–25) (establishing 

sponsored participant provision for equity trading 

on the NYSE Arca Marketplace). 

46See, e.g., NYSE Arca Equities Rule 1.1(r)(A) 

(NYSE Arca Market Order Auction and Closing 

Auction), Securities Exchange Act Release No. 

52361 (August 30, 2005), 70 FR 53704 (September 

9, 2005) (SR–PCX–2005–58); Nasdaq Rule 

4752(d)(2)(E) (Nasdaq Opening Process), Securities 

Exchange Act Release No. 50405 (September 16, 

2004), 69 FR 57118 (September 23, 2004) (SR–

NASD–2004–071); and Nasdaq Rule 4754(b)(2)(E) 

(Nasdaq Closing Cross), Securities Exchange Act 

Release No. 49406 (March 11, 2004), 69 FR 12879 

(March 18, 2004) (SR–NASD–2003–173). 

47 15 U.S.C. 78k(a). 

48 17 CFR 240.11a1–4(T). 

49The Commission notes that, to the extent that 

any security trading on NYSE Bonds is an NMS 

security, see 17 CFR 242.600(b)(46), the 

Commission is not making any finding herein as to 

whether NYSE Bonds is compliant with the 

requirements of Regulation NMS under the 

Exchange Act. 

50 15 U.S.C. 78k(b). 

51 17 CFR 240.11b–1. 

advantage as the exclusive processor of 

quote and trade data of NYSE Bonds, 

which it believed may lead to 

unreasonable prices for such data.34 In 

addition, SIFMA raised concern 

regarding the Exchange’s intention to 

limit the use and redistribution of its 

market data.35 NYSE responded that 

SIFMA’s concerns were premature in 

that the Exchange has not yet filed a 

proposal with the Commission under 

Rule 19b–4 under the Exchange Act to 

modify the fees that it charges for NYSE 

Bonds data.36

SIFMA also expressed concerns 

relating to the jurisdiction of NASD for 

transactions on NYSE Bonds.37

Specifically, SIFMA requested clarity on 

whether Users of NYSE Bonds would 

have any trade reporting obligations to 

NASD for bonds that trade on NYSE 

pursuant to Exchange Rules 1400 and 

1401. SIFMA also raised a more general 

concern that NASD may assert 

jurisdiction over trading activities 

effected on a national securities 

exchange, including NYSE Bonds. 

NYSE argued that the concerns were 

without merit because NASD recently 

established a two-year pilot program 38

that exempted unlisted bonds trading on 

the NYSE subject to the Exchange’s 

trade reporting requirements from 

TRACE reporting requirements.39

Moreover, NYSE clarified that NYSE 

Regulation will undertake primary 

responsibility for regulating NYSE 

Bonds and that NASD will retain 

responsibility for regulating the overthe-counter corporate bond market. 

Finally, SIFMA expressed concern 

about the lack of definitive quantitative 

standards in the proposed trade 

nullification rule for NYSE Bonds.40

The Exchange included in Amendment 

No. 3 relevant factors that may be 

considered when the Exchange 

determines whether an execution is 

clearly erroneous.41

IV. Discussion 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations promulgated 

thereunder applicable to a national 

securities exchange.42 Specifically, the 

Commission finds that approval of the 

proposal is consistent with Section 

6(b)(5) of the Exchange Act 43 in that it 

is designed to facilitate transactions in 

securities; to prevent fraudulent and 

manipulative acts and practices; 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. 

NYSE Bonds will replace ABS as the 

facility for trading bonds on the 

Exchange. The Commission believes 

that an exchange’s determination to 

implement new trading technology is 

generally consistent with the Exchange 

Act. As described above, the proposal 

includes provisions regarding order 

entry, priority, trading sessions and 

auctions, manner of execution, clearing, 

trade halt procedures, and trade 

nullification. The Commission finds 

that these provisions are reasonably 

designed to promote the efficient 

functioning of NYSE Bonds and are 

generally consistent with the Exchange 

Act.44 Other aspects of the proposal are 

described in more detail below. 

Sponsored Access to NYSE Bonds 

Only members that enter into a 

service agreement with the Exchange 

may access NYSE Bonds. In addition, 

the Exchange would permit a nonmember that enters into an agreement 

with a subscribing member and the 

Exchange to access NYSE Bonds as a 

‘‘Sponsored Participant.’’ These 

sponsored access provisions are 

substantially similar to those that have 

been adopted by other national 

securities exchanges and previously 

approved by the Commission.45

Price Collars 

The Exchange would reject an 

incoming order that is otherwise 

marketable if the price of the order 

violated the price collar for that bond. 

The Commission believes that the 

proposed price collars are reasonably 

designed to protect investors and 

promote the public interest by 

preventing executions that are 

substantially away from the prevailing 

market price. These provisions are 

similar to others employed by NYSE 

Arca and Nasdaq, which previously 

have been approved by the 

Commission.46

Applicability of Section 11(a) and (b) of 

the Exchange Act 

Section 11(a) of the Exchange Act 47

prohibits a member of a national 

securities exchange from effecting 

transactions on that exchange for its 

own account, the account of an 

associated person, or an account over 

which it or its associated person 

exercises investment discretion, unless 

an exception applies. The Commission 

notes that this general prohibition 

would not generally impact trading on 

NYSE Bonds because Rule 11a1–4(T) 

under the Exchange Act 48 deems 

transactions in bonds on a national 

securities exchange for a member’s own 

account to be consistent with Section 

11(a). However, for those securities 

trading on NYSE Bonds for which this 

exemption may not be available, such as 

certain structured products, the 

Exchange has represented that 

transactions effected on NYSE Bonds 

meet the requirements of Rule 11a2–

2(T) under the Exchange Act.49

Similarly, the Commission notes that 

Section 11(b) of the Exchange Act 50 and 

Rule 11b–1 thereunder,51 which pertain 

to specialists and market-makers, would 

not be implicated because there would 

be no specialists or market makers on 

NYSE Bonds. 


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52See Bond Short Sale No-Action Position, supra 

note 19 (footnote omitted) (stating that, ‘‘From and 

after the date of this release until the Commission 

takes final action on the proposed amendment to 

Rule 10a–1(b), the staff of the Division will not 

recommend that the Commission take enforcement 

action under Rule 10a–1 if short sales in exchangelisted bonds and debentures are effected without 

complying with the Rule’’). 

53See id. (noting that convertible bonds are 

defined as ‘‘equity securities’’ in the Exchange Act 

and that ‘‘Exchange Act Section 3(a)(11), 15 U.S.C. 

78c(a)(11), defines the term ‘equity security’ to 

include ‘any stock or similar security, or any 

security convertible, with or without consideration, 

into such a security * * *.’ Short selling of 

convertible bonds * * * may have an impact on the 

price of related exchange-traded equity securities’’). 

54 15 U.S.C. 78s(b)(2). 55See NYSE Arca Equities Rule 7.29. 

Applicability of Rule 10a–1 Under the 

Exchange Act 

In its filing, NYSE states that: ‘‘The 

staff of the Division of Market 

Regulation of the Securities and 

Exchange Commission has stated that it 

would not recommend that the 

Commission take enforcement action if 

short sales in exchange-listed bonds and 

debentures are effected without 

complying with SEC Rule 10a–1.’’ 52 By 

this filing, the Exchange seeks 

continued effect of this position. The 

staff maintains this position. However, 

the Commission notes that the staff’s 

position does not apply to convertible 

bonds.53 Accordingly, convertible bonds 

would continue to be excluded from 

applicability of this position. 

V. Accelerated Approval 

Pursuant to Section 19(b)(2) of the 

Exchange Act,54 the Commission may 

not approve any proposed rule change 

prior to the 30th day after the date of 

publication of notice of the filing 

thereof, unless the Commission finds 

good cause for so doing and publishes 

its reasons for so finding. In 

Amendment No. 3, the Exchange, 

among other things: 

• Revised proposed NYSE Rule 86(b) 

to indicate that, if other NYSE rules 

relating to bonds conflict with the 

provisions of proposed NYSE Rule 86, 

Rule 86 would control; 

• Eliminated references to the 

‘‘Floor’’ of the Exchange to make clear 

that NYSE Bonds is a fully electronic 

trading platform; 

• Noted that dealers trading 

municipal bonds must report such 

transactions to the Municipal Securities 

Rulemaking Board (‘‘MSRB’’) in 

accordance with MSRB Rule G–14; 

• Revised proposed NYSE Rule 

86(b)(2)(E) to indicate that, unless 

otherwise designated, an order will be 

treated as a day order; 

• Revised proposed NYSE Rule 

86(b)(2)(G) to indicate that, if no bids 

are submitted to a Bond Auction, the 

Indicative Match Price will be the 

lowest offer price; 

• Revised proposed NYSE Rule 86(e) 

to clarify that the price collars will only 

apply during ordinary trading and not 

during the queuing of bond orders or 

during bond auctions; 

• Revised proposed NYSE Rule 86(h) 

to clarify that orders designated only for 

the Opening Bond Trading Session that 

do not execute in the Opening Bond 

Auction or Opening Bond Trading 

Session will be eligible to participate in 

the Core Bond Auction and would be 

cancelled if not executed in the Core 

Bond Auction; 

• Modified proposed NYSE Rule 86(i) 

to clarify that orders may be entered 

into NYSE Bonds until 8 p.m. ET and 

to otherwise clarify the operation of the 

three proposed bond trading sessions; 

• Revised proposed NYSE Rule 86(l) 

to indicate that, beginning at 3:30 a.m. 

ET, the IMP for the Opening Bond 

Auction and the Core Bond Auction, 

and any associated Imbalance, will be 

published by the Exchange. In addition, 

the changes to proposed NYSE Rule 

86(l) further explain the functionalities 

of the Bond Auctions; 

• Clarified in proposed NYSE Rule 

86(m) the possible outcomes after 

review of potentially erroneous 

transactions by the Reviewer and by the 

Clearly Erroneous Execution Panel. In 

addition, the Exchange added factors 

that may be considered in the 

determination of a Clearly Erroneous 

Execution; 

• Revised proposed NYSE Rule 

86(n)(2)(G) to indicate that orders that 

are eligible for execution in the Bond 

Halt Auction may be cancelled at any 

time; 

• Revised portions of proposed NYSE 

Rule 86(o) related to a sponsored access 

to NYSE Bonds to conform substantially 

to related provisions of other national 

securities exchanges, including NYSE 

Arca; 55

• Represented that transactions 

effected on NYSE Bonds meet the 

requirements of Rule 11a2–2(T) under 

the Exchange Act and included an 

accompanying discussion; 

• Represented that NYSE Regulation 

can effectively regulate NYSE Bonds; 

and 

• Made other minor clarifying and 

technical changes to the proposal. 

The Commission believes that these 

changes do not raise any significant or 

novel regulatory issues. Accordingly, 

the Commission hereby finds good 

cause for approving the proposed rule 

change, as modified by Amendment No. 

3, prior to the 30th day after publishing 

notice of the amended proposal in the 

Federal Register. 

VI. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning Amendment No. 

3, including whether Amendment No. 3 

is consistent with the Exchange Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2006–37 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2006–37. 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 (http://www.sec.gov/ 

rules/sro.shtml). 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 the filing also will be 

available for inspection and copying at 

the principal office of NYSE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSE–2006–37 and should 

be submitted on or before April 18, 

2007. 


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14636 Federal Register / Vol. 72, No. 59 / Wednesday, March 28, 2007 / Notices 

56 15 U.S.C. 78s(b)(2). 

57 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4(f)(6). 

5See Securities Exchange Act Release No. 54989 

(December 21, 2006), 71 FR 78506 (December 29, 

2006) (approving File No. SR-Phlx-2006–34). 

6Currently, the Thomson spot prices are based on 

the bid/ask prices supplied to its agent Tenfore 

System Ltd. (‘‘Tenfore’’) by contributors reporting to 

Tenfore. Tenfore contributors comprise 19 different 

banks, brokers and FX real time dealing portals. 

Contributors provide bid/ask prices to Tenfore 

which, in turn, forwards them to Thomson upon 

receipt. Thomson forwards those bid/ask prices to 

Phlx upon receipt from Tenfore. At any given time 

the Thomson spot rate consists of the most current 

bid/ask prices provided by any contributor to 

Tenfore and forwarded by Tenfore to Thomson. 

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

8 15 U.S.C. 78f(b)(5). 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f)(6). 

11 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission written 

notice of its intent to file the proposed rule change, 

along with a brief description and text of the 

proposed rule change, at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. Phlx has satisfied the five-day prefiling requirement. 

12 Id. 

VII. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,56

that the proposed rule change (SR–

NYSE–2006–37), as amended, be, and it 

hereby is, approved on an accelerated 

basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.57

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–5610 Filed 3–27–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55513; File No. SR–Phlx–

2007–28] 

Self-Regulatory Organizations; 

Philadelphia Stock Exchange, Inc.; 

Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change Relating to the Dissemination 

of Currency Spot Values 

March 22, 2007. 

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 March 22, 

2007, the Philadelphia Stock Exchange, 

Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. The 

Exchange filed the proposed rule change 

as a ‘‘non-controversial’’ proposed rule 

change pursuant to Section 19(b)(3)(A) 3

of the Act and Rule 19b–4(f)(6) 

thereunder,4 which renders the proposal 

effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Phlx proposes to disseminate a 

modified spot rate for its U.S. dollarsettled foreign currency options 

(‘‘FCOs’’). The text of the proposed rule 

change is available on the Phlx’s Web 

site (http://www.phlx.com), at the 

principal office of Phlx, and at the 

Commission’s Public Reference Room. 

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 

The purpose of the proposed rule 

change is to permit the Exchange to 

disseminate over the facilities of the 

Consolidated Tape Association a 

modified spot rate for U.S. dollar-settled 

FCOs on the British pound and the euro, 

which the Exchange has listed since 

January 8, 2007.5

The modified spot rate will be 

calculated by the Exchange, based on 

spot prices (bids and asks) it receives 

from Thomson Financial LLC 

(‘‘Thomson’’).6 For each currency, the 

Exchange will determine the midpoint 

between the bid and the ask and will 

modify that rate by multiplying it by 

100. For example, if 1.3200 U.S. dollars 

buys 1 euro, a modifier of 100 would be 

used so that the modified spot rate 

would become 132.00. If 1.3358 U.S. 

dollars buys 1 euro, the modified spot 

rate, using the same 100 modifier, 

would become 133.58. This proposed 

rule change is merely for purposes of 

dissemination of the modified spot rate 

over the facilities of the Consolidated 

Tape Association and does not amend 

or affect the Exchange’s existing rules 

governing U.S. dollar-settled FCOs. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 7 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 8

in particular, in that it is designed 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, by 

providing investors in U.S. dollarsettled FCOs the ability to more easily 

track the value of the underlying 

currencies in the spot market and 

therefore make informed trading 

decisions. 

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 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the proposed rule change 

does not: (i) Significantly affect the 

protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days after the date of 

filing (or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest), the proposed rule 

change has become effective pursuant to 

Section 19(b)(3)(A) of the Act 9 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.10

A proposed rule change filed under 

Rule 19b–4(f)(6) normally may not 

become operative prior to 30 days after 

the date of filing.11 However, Rule 19b–

4(f)(6)(iii) 12 permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 


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