[Federal Register Volume 73, Number 25 (Wednesday, February 6, 2008)]
[Notices]
[Pages 7022-7024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-2075]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57236; File No. SR-NYSE-2008-03]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change to Rescind Rule 97 (Limitation 
on Member's Trading Because of Block Positioning)

January 30, 2008.
    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 January 11, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE proposes to rescind NYSE Rule 97 (Limitation on Member's 
Trading Because of Block Positioning). The text of the proposed rule 
change is available at NYSE, the Commission's Public Reference Room, 
and http://www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE included statements 
concerning the purpose of, and basis for, 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
    Through this filing, the Exchange seeks to rescind Exchange Rule 
97. Exchange Rule 97 prevents a member organization that holds a long 
position in a security that resulted from a block transaction with a 
customer from

[[Page 7023]]

effecting, within twenty minutes of the close of trading on the 
Exchange, a purchase on a ``plus'' tick in that security at a price 
higher than the lowest price at which any block was acquired in a 
previous transaction on that day, if the person responsible for the 
entry of such order to purchase the security had knowledge of the block 
position.
    The Exchange has from time to time reviewed the applicability of 
the rule and made amendments in an attempt to maintain the rule's 
relevance as the nature of trading has significantly evolved over the 
years. Notwithstanding those efforts, the Exchange believes that the 
practical application of the rule in today's market no longer addresses 
the concerns that prompted its implementation. The Exchange therefore 
proposes to rescind Exchange Rule 97 in its entirety.

Background

    Exchange Rule 97 focuses on the trading of member organizations 
while they hold positions in a security as a result of a block 
transaction with customer(s). The rule was originally adopted to 
address concerns that a member organization might engage in 
manipulative practices by attempting to ``mark-up'' the price of a 
stock to enable the position acquired in the course of block 
positioning to be liquidated at a profit, or to maintain the market at 
the price at which the position was acquired.
    In 2002, the rule was amended to narrow the scope of the 
prohibitions solely to transactions executed within the last twenty 
minutes of the trading day, and to provide exceptions to the rule for 
member organizations that establish information barriers and for 
certain hedging transactions.\3\ The rationale behind the rule change 
was to limit the rule's ``tick'' restriction to the most sensitive part 
of the trading day (where it was thought that manipulation was most 
likely to occur so that the member firm could unwind its position at 
the opening of trading the next day).
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    \3\ See Securities Exchange Act Release No. 46566 (September 27, 
2002), 67 FR 62278 (October 4, 2002) (SR-NYSE-2001-24).
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    The implementation of Regulation NMS in March 2007 necessitated an 
additional amendment to the rule in July 2007 to create an exemption to 
resolve a conflict between compliance with Rule 97 and Regulation 
NMS.\4\ Specifically, if during the last 20 minutes of trading a member 
organization facilitates a customer order that trades through protected 
bids or offers, and in compliance with Rules 600(b)(30)(ii) and 
611(b)(6) of Regulation NMS,\5\ the member organization simultaneously 
routes proprietary intermarket sweep orders to execute against the full 
displayed size of any protected quotation in that security (``ISO 
facilitation''), the ISO facilitation could violate Rule 97 if the ISO 
orders would trade on a plus tick, at a price above the lowest 
facilitation price. In essence, the implementation of Regulation NMS 
required firms to choose between violating Regulation NMS or violating 
Rule 97. The exemption to Rule 97 was added so that when facilitating a 
customer order that would otherwise require a member organization to 
either violate Rule 97 or trade through protected quotations, member 
organizations can comply with their Regulation NMS obligations without 
also violating Rule 97.\6\
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    \4\ See Securities Exchange Act Release No. 56024 (July 6, 
2007), 72 FR 38643 (July 13, 2007) (SR-NYSE-2007-61).
    \5\ 17 CFR 242.600(b)(30)(ii) and 17 CFR 242.611(b)(6).
    \6\ This exemption would be available only when: (1) The firm 
has acquired a proprietary position as a result of a previous block 
facilitation for a customer; (2) the facilitation trade during the 
last 20 minutes of trading would cause the firm to trade through a 
better priced offer on another market, such that the firm is 
obligated by Regulation NMS Rule 611 to send proprietary ISOs when 
it facilitates the customer's order; (3) the customer has declined 
better-priced ISO executions; and (4) the better-priced offers in 
away markets are such that NYSE Rule 97 would prohibit the firm from 
sending a proprietary buy order. See NYSE Information Memo 07-67 
(July 6, 2007).
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Rescision of Rule 97

    NYSE states that this proposed rescision of the rule highlights the 
extent to which trading has changed and how the operation of Rule 97 
hinders the ability of member organizations to legitimately conduct 
their business and facilitate their customers' orders. Today, 
compliance with Regulation NMS means that the liquidation of a block 
position typically occurs on many different market centers. 
Additionally, the Exchange believes that, in active and volatile market 
conditions, incremental movements of a penny or more occur almost 
instantaneously, lessening the ability to influence the closing price 
of a security.
    Rule 97 was established at a time when the majority of block 
transactions were executed on the Exchange. However, in the present 
competitive trading environment, there are now many other venues 
available for market participants to effect block position transactions 
without the strictures of such a rule. The Exchange believes that, in 
order to encourage consistency throughout the industry with respect to 
the execution of block positions and to encourage market participants 
to continue to effect their block transactions on the Exchange, Rule 97 
should be rescinded. NYSE represents that NYSE Regulation, Inc. will 
continue to surveil in NYSE-listed securities for possible manipulative 
activity, including marking the close, which could be in violation of 
federal securities laws or Exchange Rules, including Rule 10b-5 under 
the Act,\7\ section 9(a) of the Act,\8\ and Exchange Rules 476(a) and 
435.\9\
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    \7\ 17 CFR 240.10b-5.
    \8\ 15. U.S.C. 78i(a).
    \9\ See e-mail from Gillian Rowe, Senior Counsel, NYSE, to 
Jennifer Dodd, Special Counsel, Division of Trading and Markets, 
Commission, dated January 29, 2008.
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2. Statutory Basis
    NYSE believes that the proposed rule change is consistent with 
Section 6(b) of the Act,\10\ in general, and the requirement in Section 
6(b)(5) of the Act,\11\ in particular, that the rules of an exchange 
are, among other things, 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. NYSE asserts that the 
proposed rule change also is designed to support the principles of 
section 11A(a)(1)\12\ in that it seeks to assure economically efficient 
execution of securities transactions, and make it practicable for 
brokers to execute investors' orders in the best market.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78k-1(a)(1).
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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

    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

[[Page 7024]]

longer period to be appropriate and publishes its reasons for so 
finding, or (ii) as to which NYSE 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#7002051c155d131f1d1d151e0403300315135e171f06"><span class="__cf_email__" data-cfemail="f486819891d9979b9999919a8087b4879197da939b82">[email protected]</span></a>. Please include 
File Number SR-NYSE-2008-03 on the subject line.

Paper Comments

    <bullet> 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-2008-03. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal offices of the Exchange. 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-2008-03 and should be 
submitted on or before February 27, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-2075 Filed 2-5-08; 8:45 am]
BILLING CODE 8011-01-P


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