30256 Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices

11 Id.

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See letter from James E. Buck, Senior Vice

President and Secretary, NYSE, to Nancy Sanow,

Assistant Director Division of Market Regulation,

Commission, dated May 21, 2001 (‘‘Amendment

No. 1’’). In Amendment No. 1, the NYSE amended

the proposed rule text to reflect the correct wording

of current NYSE Rule 36,

4See Securities Exchange Act Release No. 43658

(December 1, 2000), 65 FR 77408 (December 11,

2000).

5See Securities Exchange Act Release No. 44272

(May 5, 2001).

6As discussed above, the NYSE has proposed to

eliminate the separate capital requirement with

respect to ETF specialists. See also Securities

Exchange Act Release No. 44175 (April 11, 2001),

66 FR 19825 (April 17, 2001).

7Currently, NYSE Rule 36.30 allows specialists to

have telephone lines to the floor of an options or

futures exchange for the purpose of entering

hedging orders.

of publication of notice of the filing in

the Federal Register. The Commission

believes that granting accelerated

approval of the proposal will allow

Nasdaq to expenditiously implement

the permanent reduction in market data

fees, on a retroactive basis, without any

unnecessary delay and should confer a

benefit upon those firms that provide

real-time data to their customers and

subscribers. The Commission also notes

that it did not receive any comments on

the pilot program. Accordingly, the

Commission does not believe that the

current filing raises any regulatory

issues not raised by the previous filing.

It is therefore ordered, pursuant to

Section 19(b)(2) 11 of the Act, that the

proposed rule change, as amended, (SR–

NASD–2001–32) is approved on an

accelerated basis.

For the Commission, by the Division of

market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14030 Filed 6–4–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44352; File No. SR–NYSE–

2001–08]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the New

York Stock Exchange, Inc. Amending

Its Rules To Provide for the Trading of

Exchange-Traded Funds on an

Unlisted Trading Privileges Basis

May 25, 2001.

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 April 25,

2001, the New York Stock Exchange,

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

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule changes is described

in Items I, II, and III below, which Items

have been prepared by the Exchange.

On May 22, 2001, the NYSE filed

Amendment No. 1 to the proposed rule

change.3 The Commission is publishing

this notice to solicit comments on the

proposed rule change, as amended, from

interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend the

following NYSE rules and policies to

accommodate the trading of certain

exchange-trade funds (‘‘ETFs’’) on an

unlisted trading privileges (‘‘UTP’’)

basis: NYSE Rule 98, NYSE Rule 36,

paragraph (1) of the Guidelines to NYSE

Rule 105, NYSE Rule 111, NYSE Rule

13, NYSE Rules 104.20 and 104.21, and

the NYSE’s Market-On-Close/Limit-AtThe-Close and Pre-Opening Price

Indications Policies.

The text of the proposed rule change

is available upon request from the Office

of the Secretary, the NYSE or the

Commission.

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

placed 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

As part of its overall business strategy,

the Exchange believes that it

appropriate to trade ETFs on the NYSE

Floor. In December 2000, the Exchange

began trading an ETF on the S&P Global

100 (symbol IOO).4 The Exchange

intends to trade additional ETFs listed

by other ETF sponsors, on a UTP basis,

that are currently listed and trading on

other markets. These ETFs may include

the NASDAQ 100 Trust (symbol QQQ),

Standard and Poor’s Depositary Receipts

(symbol SPY) and the Dow Industries

DIAMONDS (symbol DIA). It should be

noted the UTP ETFs will trade at a post

separate from any other type of security

trading on the Exchange.

Summary of Proposed Rule and Policy

Changes

NYSE Rule 98

Exchange Rule 98 provides that

affiliates of a specialist organization can

receive an exemption from certain rules

applicable to specialists (principally

impacting proprietary trading and

investment banking), providing that

they establish a system of information

barriers between themselves and the

affiliated specialist. One of the

conditions for the NYSE Rule 98

exemption is that the specialist

organization be capitalized separately

and apart from any affiliate. The

Exchange is proposing to delete this

requirement in the case of a specialist

organization that is registered solely in

ETFs. The Exchange believes that the

question of adequacy of capital can be

appropriately addressed by the special

allocation committee 5 in allocating the

ETF. However, a specialist organization

that is registered only in ETF’s will

remain subject to the minimum capital

requirements specified in NYSE Rule

104.20.

NYSE Rule 105

Currently, Guideline (1) to NYSE Rule

105 prohibits affiliates of specialist

units from acting as a primary market

maker in the option on a specialty

security. The NYSE proposes to permit

an affiliate of a NYSE ETF specialist to

act in any market making capacity with

respect to options on an ETF as long as

NYSE rule 98 information barriers are

established.6 the Exchange believes that,

because ETFs are derivatively priced,

the conflicts of interest with respect to

market making in both the underlying

security and its corresponding option

are not present. The Exchange also

proposes to permit an affiliate of the

EFT specialist to act in a market making

capacity (but not as a specialist) in the

EFT itself on another market center so

long as NYSE Rule 98 information

barriers are established.

NYSE Rules 36.30 and 111

NYSE Rule 36.30 governs the

establishment of telephone or electronic

communications between the

Exchange’s trading floor and any other

location.7 The Exchange proposes to

Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices 30257

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

9 15 U.S.C. 78f(b)(5). 10 17 CFR 200.30–2(a)(12).

permit ETF specialists to use

communication devices at the Post to

enter proprietary orders in the ETF, or

in component securities of the ETF and

would permit the ETF specialist to

obtain market information with respect

to ETFs, options, futures, and

component securities.

The Exchange proposes to amend

NYSE Rule 111 to permit the NYSE ETF

specialist to initiate an order at the post

in component stocks of the ETF for

hedging purposes. The Exchange

believes this will put Exchange ETF

specialists on an equal footing with

market makers in ETFs on other market

centers.

NYSE Rule 13

NYSE Rule 13 currently provides that

stop and stop limit orders in an ETF can

be elected by a bid (in the case of an

order to buy) or an offer (in the case of

an order to sell), provided that the

specialist obtains the prior approval of

a Floor Governor or two Floor Officials.

The Exchange proposes to delete this

prior approval requirement, because it

believes that such a requirement may

prove cumbersome and impractical in

markets in which bids and offers are

changing to reflect the relationship

between ETFs and their component

securities, and stop orders, which can

only be elected by transactions, may

receive inferior prices.

NYSE Rules 104.20 and 104.21—Capital

Requirement

NYSE Rules 104.20 and 104.21 are

proposed to be amended to provide a

capital requirement of $500,000 per

ETF. A specialist registered only in an

ETF would be subject to the $1,000,000

minimum capital requirement of NYSE

Rule 104.20. The Exchange believes at

the present time that these requirements

are reasonable but reserves the right to

revisit these requirements in terms of

actual experience.

NYSE’S Market-On-Close/Limit-At-TheClose Policy

The Exchange proposes that orders in

ETFs will not be subject to the

Exchange’s Market-On-Close (‘‘MOC’’)/

Limit-At-The-Close (‘‘LOC’’) policy

concerning order entry limitations,

cancellation of orders during a

regulatory halt, imbalance publications,

and any other limitations or procedures

with respect to MOC/LOC procedures. A

MOC/LOC order in an ETF would be

permitted to be entered at any time

without regard to the limitations of the

Exchange’s MOC/LOC policies. In

addition, the closing price of an ETF

will not be subject to publication of

imbalances under the Exchange’s MOC/

LOC policy. Furthermore, ETFs will

trade until 4:15 p.m.

Similarly, the Exchange proposes that

its policies regarding mandatory

dissemination of pre-opening price

indications (other than ITS pre-opening

notifications) in the case of significant

order imbalances and potentially large

price dislocation from the prior close

will not apply to ETFs. Both the MOC/

LOC procedures and the mandatory preopening price indications policy are

intended to solicit offsetting contra side

interest to minimize price dislocation.

This rationale does not apply in the case

of ETFs, which will be priced in relation

to the values of the underlying

component securities, regardless of the

extent of an order imbalance.

The Exchange will inform its

members and member organizations of

these proposed changes to its policies

by publication of an Information Memo.

2. Statutory Basis

The Exchange believes the proposed

rule change, as amended, is consistent

with Section 6(b) of the Act 8 in general,

and furthers the objectives of Section

6(b)(5) of the Act 9 in particular, because

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.

More specifically, the Exchange

believes that trading ETFs on a UTP

basis will provide investors with

increased flexibility in satisfying their

investment needs because they will be

able to purchase and sell a security that

replicates the performance of a broad

portfolio of stocks at negotiated prices

throughout the business day.

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 the

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 Exchange consents,

the Commission will:

(A) By order approve such 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, as amended, 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–2001–08 and should be

submitted June 20, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14027 Filed 6–4–01; 8:45 am]

BILLING CODE 8010–01–M