Document ID: SEC-2007-1061-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, LLC
Posted Date: 2007-08-03T04:00Z

[Federal Register: August 3, 2007 (Volume 72, Number 149)]
[Notices]               
[Page 43310-43312]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03au07-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56169; File No. SR-NYSE-2007-69]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to an Information Memorandum That Reflects the Changes to 
Disciplinary Proceedings at NYSE Regulation, Inc. as a Result of the 
Regulatory Consolidation With the National Association of Securities 
Dealers, Inc.

July 30, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 26, 2007, 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 
NYSE. The NYSE has designated the proposed rule change as constituting 
a stated policy, practice, or interpretation with respect to the 
meaning, administration, or enforcement of an existing rule of the 
self-regulatory organization under section 19(b)(3)(A)(i) of the Act 
\3\ and Rule 19b-4(f)(1) thereunder,\4\ which renders the proposal

[[Page 43311]]

effective upon receipt of this filing by the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    This filing consists of an NYSE Regulation, Inc. (``NYSE 
Regulation'') Information Memo that reflects the changes to 
disciplinary proceedings at NYSE Regulation as a result of the 
regulatory consolidation with the National Association of Securities 
Dealers, Inc (``NASD''). The text of the proposed rule change, 
including the Information Memo, is available on the NYSE's Web site 
(http://www.nyse.com), at the principal office of the NYSE, 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 NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE 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
    On November 28, 2006, NYSE Regulation and NASD announced a plan to 
consolidate their member regulation operations into a combined 
organization, which will be known as the Financial Industry Regulatory 
Authority (``FINRA''). FINRA will be the sole U.S. private-sector 
provider of member firm regulation for securities firms that conduct 
business with the public (the ``Transaction''). The purpose of this 
filing is to submit to the Commission an Information Memo concerning 
changes to disciplinary proceedings at NYSE Regulation because of the 
Transaction.
    As explained in the Information Memo, FINRA will incorporate 
certain NYSE rules that pertain to member conduct, including rules 
relating to financial and operational standards of member 
organizations, books and records, and other non-trading functions of 
firms (``NYSE Member Firm Rules'').\5\ However, NASD will not be 
incorporating NYSE Rules 475, 476, and 476A, which are the Exchange's 
rules that govern disciplinary procedures at the Exchange (the ``NYSE 
Disciplinary Rules'').
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    \5\ NASD's incorporation of the NYSE Member Firm Rules is the 
subject of SR-NASD-2007-054. See Securities Exchange Act Release No. 
56147 (July 26, 2007). Pursuant to Section 17(d) of the Act and Rule 
17d-2 thereunder, FINRA and NYSE Regulation have agreed on a plan to 
allocate regulatory responsibility relating to the NYSE Member Firm 
Rules to FINRA (the ``17d-2 Agreement''). See Securities Exchange 
Act Release No. 56148 (July 26, 2007) (File No. 4-544).
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    In particular, in connection with the Transaction, certain staff 
and functions of NYSE Regulation's Division of Enforcement will 
transfer to FINRA, which will assume responsibility for all 
investigations and disciplinary proceedings relating to violations of 
NYSE Member Firm Rules by NYSE member organizations and members. 
However, whether FINRA will conduct existing NYSE Regulation 
Enforcement actions pursuant to FINRA Code of Procedure or the NYSE 
Disciplinary Rules will depend on the status of the investigation as of 
the closing date.\6\
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    \6\ In connection with the Transaction, the Exchange has filed 
with the Commission a proposed rule filing to amend NYSE Rule 2 to 
require FINRA membership as a prerequisite to becoming an NYSE 
member organization. See SR-NYSE-2007-67. In addition, NASD has 
filed with the Commission amendments to its membership requirements 
to provide for a waive-in process to approve current NYSE member 
organizations that are not also NASD members (``NYSE-only member 
organizations'') as FINRA members. See SR-NASD-2007-56. If these two 
filings are approved and NYSE-only member organizations are then 
approved as FINRA members, FINRA will be responsible for 
disciplinary proceedings described herein pursuant to the 17d-2 
Agreement. In that interim period before the two filings are 
approved, FINRA will have authority to conduct disciplinary 
proceedings relating to the NYSE Member Firm Rules pursuant to a 
Regulatory Services Agreement among FINRA, NYSE Regulation, and the 
NYSE (the ``RSA'').
    Prior to the date that an NYSE-only member organization is 
approved as a FINRA member, it will continue to be subject to NYSE 
Regulation disciplinary procedures. Accordingly, whether NYSE 
Regulation or FINRA procedures will govern disciplinary proceedings 
will be based on the date that the NYSE-only member organization is 
approved as a FINRA member, and not on the closing date.
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    The Information Memo advises NYSE members and member organizations 
how NYSE Regulation disciplinary actions will be handled following the 
close of the Transaction. In particular, the Information Memo explains 
how the status of the investigation as of the closing date will govern 
which procedures will apply to a particular investigation, as follows:
    If NYSE Regulation asserted jurisdiction over an individual or 
member organization pursuant to NYSE Rule 477 before the closing date 
of the Transaction, for those investigations relating to NYSE Member 
Firm Rules, depending on the date of termination from the industry, 
FINRA may have jurisdiction after the closing date of the Transaction 
to continue any investigation noticed in such letter and to bring a 
disciplinary proceeding at the conclusion of such investigation if it 
is deemed appropriate. If FINRA does not have jurisdiction, FINRA may 
continue to investigate such matters, but any resulting disciplinary 
proceedings will be subject to the NYSE Disciplinary Rules.\7\
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    \7\ FINRA will have the authority to conduct such disciplinary 
proceedings pursuant to the RSA.
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    The applicable disciplinary rules and forum for any disciplinary 
proceedings that may result from a current NYSE Regulation 
investigation will depend on whether NYSE Regulation has already filed 
a Charge Memorandum or Stipulation of Facts and Consent to Penalty 
(``Stipulation and Consent'') as of the closing date of the 
Transaction.
    If NYSE Regulation has filed a Charge Memorandum or Stipulation and 
Consent as of the date of the closing, such matter (including any later 
appeals) will be adjudicated in accordance with the NYSE Disciplinary 
Rules and before the NYSE Hearing Board. Pursuant to the RSA, NYSE 
Regulation staff who will be transferring to FINRA may continue to 
participate in such proceedings.
    If NYSE Regulation has not filed a Charge Memorandum or Stipulation 
and Consent as of the date of the closing in connection with an 
investigation relating to NYSE Member Firm Rules, the matter (including 
any later appeals) would be adjudicated by FINRA, pursuant to the FINRA 
(currently NASD) Code of Procedure, which includes FINRA's Acceptance, 
Waiver, and Consent process.
    NYSE Hearing Board decisions that have been, or could be, appealed 
under NYSE Rule 476 will be addressed pursuant to the current NYSE 
disciplinary rules. Matters initiated by FINRA pursuant to its Code of 
Procedure following the closing date, even if initiated as the result 
of an investigation that began at NYSE Regulation, would be appealed in 
accordance with FINRA's rules and procedures for such appeals.
    The applicable rule and forum for summary proceedings that are 
currently adjudicated pursuant to NYSE Rule 475 will depend on whether 
NYSE Regulation has notified the person or entity in writing of the 
summary action before the date of closing. If the

[[Page 43312]]

notification in writing has occurred before the date of closing, the 
matter will be adjudicated pursuant to NYSE Disciplinary Rules. If no 
such notification has occurred, the matter will be addressed by FINRA, 
pursuant to FINRA rules.
    Minor violations of Member Firm Rules that are currently 
adjudicated under NYSE Rule 476A (Imposition of Fines for Minor 
Violation(s) of Rules) (also known as summary fines) will be handled as 
follows: If a summary fine notice relating to any violation, including 
violations of Member Firm Rules, is issued before the date of closing, 
the matter will be adjudicated pursuant to NYSE rules. With respect to 
matters arising after the date of closing, NASD expects to file a rule 
change to modify its Minor Rule Violation Plan (``MRVP'') to include 
the NYSE Member Firm Rules that, as of the date of such filing, are 
listed in NYSE Rule 476A. If the Commission approves that filing, after 
the closing, FINRA will be authorized to impose fines under FINRA's 
MRVP for minor violations by dual members of the NYSE Member Firm Rules 
enumerated in FINRA's MRVP.\8\
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    \8\ Pending approval of SR-NASD-2007-55, FINRA will have the 
authority to impose MRVP fines that relate to the NYSE Member Firm 
Rules pursuant to the RSA.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of section 6 \9\ of the Act \10\ in general and 
furthers the objectives of section 6(b)(5) \11\ 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.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78a.
    \11\ 15 U.S.C. 78f(b)(5).
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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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(1) \13\ thereunder 
because it constitutes a stated policy, practice or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule. At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(1).
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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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSE-2007-69 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-2007-69. 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 office of the 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-2007-69 and should be 
submitted on or before August 24, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-15096 Filed 8-2-07; 8:45 am]

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