Document ID: SEC-2007-1700-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, LLC
Posted Date: 2007-12-13T05:00Z

[Federal Register: December 13, 2007 (Volume 72, Number 239)]
[Notices]               
[Page 70915-70918]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13de07-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56920; File No. SR-NYSE-2007-111]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Add Rule 48 Permitting the Exchange to Declare an Extreme Market 
Volatility Condition

December 6, 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 December 5, 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 and 
II below, which Items have been substantially prepared by the NYSE. The 
NYSE has designated the proposed rule change as a ``non-controversial'' 
rule change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposed rule change 
effective upon filing with 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).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE is proposing to add NYSE Rule 48 to permit the Exchange to 
declare an extreme market volatility condition and suspend certain NYSE 
requirements relating to the opening of securities at the Exchange. The 
text of the proposed rule change is available on http://www.nyse.com, 

at 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

[[Page 70916]]

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
    The Exchange is proposing to add NYSE Rule 48 to provide the 
Exchange with the ability to suspend the requirement to disseminate 
price indications and obtain Floor Official approval prior to the 
opening when extremely high market volatility could negatively affect 
the operation of the market by causing Floor-wide delays in the opening 
of securities on the Exchange. The Exchange believes that this rule 
change is necessary to ensure the fair and orderly operation of the 
Exchange market.
    Background. NYSE Rule 123D(1) states that specialists are 
responsible for ensuring that registered securities open as close to 
the scheduled opening of trading on the Exchange as possible and that 
the opening be fair and orderly. When arranging the opening price of a 
security, specialists must make a professional assessment of market 
conditions at the time, including considering the balance of supply and 
demand as reflected by orders in the market, any price disparity from 
the prior close, and such other market conditions that would affect the 
opening price of a security.
    While the specialist has ultimate responsibility under the rule for 
opening a security, in certain situations arising out of unusual market 
conditions, specialists must obtain prior Floor Official approval of 
the price at which they will open trading in the security. For example, 
the rule provides that specialists should consult with a Floor Official 
as soon as it becomes apparent that an unusual trading situation 
exists. The rule further provides that a specialist should consult with 
a Floor Governor if it is anticipated that the opening price may be at 
a significant disparity from the prior close.
    In the event of a large pre-opening order imbalance or before a 
stock opens at a large price change, specialists must publicly 
disseminate a price indication at least once (and possibly more than 
once, depending on pre-opening interest) before opening a security. For 
securities priced under $10, such indications are mandatory if the 
price change is one dollar or more; for securities between $10 and 
$99.99, indications are required for price movements of the lesser of 
10% or three dollars; and for securities over $100, indications are 
required for price movements of five dollars or more. NYSE Rule 123D(1) 
requires supervision and approval by a Floor Official for all such 
indications.
    In addition to these requirements, NYSE Rule 79A.30 requires 
specialists to obtain prior Floor Official approval if a security is 
going to open at one or more dollars away from the closing price at the 
Exchange when the closing price was under $20 a share, or two dollars 
or more away from the closing price at the Exchange when the closing 
price was $20 per share or more.
    Proposed New Rule 48. The requirements described above are designed 
to ensure that in unusual situations, there is an impartial 
professional assessment of the proposed opening price and that advice 
for specialists is available when a significant disparity in supply and 
demand exists. The Exchange continues to believe that these 
requirements are, in most cases, desirable and enhance the fair and 
orderly operation of the market.
    Recently, the equities markets world-wide have experienced 
unprecedented levels of volatility, which has caused unprecedented 
levels of pre-opening interest and volatility in the United States 
markets around the opening of the markets. When these extreme levels of 
volatility occur Floor-wide, the pre-opening requirements described 
above, instead of facilitating the fair and orderly operation of the 
markets, can have the paradoxical effect of impeding the fair and 
orderly operation of the market. For example, Exchange systems 
currently are programmed such that only NYSE operations staff can 
publish the mandatory pre-opening indications to the Consolidated Tape. 
On a regular trading day, when such notices occur in only a subset of 
its listed securities, the Exchange has sufficient resources to ensure 
the timely publication of such notices. But on days when the Exchange 
experiences extremely high Floor-wide market volatility that would 
stress the Exchange's staffing resources, the Exchange wants to ensure 
that openings are not delayed due to difficulties in timely publishing 
the mandatory indications.
    Similarly, as noted above, in unusual market situations, Floor 
Officials, and in certain circumstances, Senior Floor Officials, Floor 
Governors, and Executive Floor Governors, need to be involved on a 
security-by-security basis before a stock can open at the Exchange. In 
the event of an extreme, Floor-wide market volatility condition, the 
Exchange is concerned that Floor Officials would not be able to timely 
review each security that faces an unusual market condition. In such 
case, the operation of the Exchange could be significantly impaired and 
investors adversely impacted because securities cannot be opened on a 
timely basis.
    For example, on Friday, August 17, 2007, due to a confluence of 
factors, including the impact of the sub-prime mortgage crisis on 
market volatility and the Federal Reserve Board's announcement that it 
had approved a 50 basis point reduction in the primary credit rate, the 
securities markets experienced an extreme level of market volatility 
that affected securities across industry lines. At the Exchange, 
because of the overwhelming imbalance of pre-opening orders and price 
variations from the prior day's close, specialists were required to 
disseminate price indications and consult with and obtain prior Floor 
Official approval before opening trading in large numbers of stocks. 
Because of the number of securities impacted by that extreme market 
volatility, this process could not be completed for approximately 300 
securities before the scheduled opening of trading. As a result, the 
Exchange experienced Floor-wide delays in the opening of securities 
that impaired the ability of the Exchange to operate efficiently. This 
Floor-wide delay also impacted those customers that had already 
submitted orders to the Exchange for execution and who had to wait 
until trading opened before such orders could be executed.
    As proposed, in the event of extremely high market volatility that 
would have a Floor-wide impact on the ability of specialists to arrange 
for the timely opening of trading at the Exchange under the normal 
rules, NYSE Rule 48 would permit a qualified Exchange officer to 
declare an extreme market volatility condition. For purposes of the 
rule, a ``qualified Exchange officer'' means the Chief Executive 
Officer of NYSE Euronext, Inc. or his or her designee, or the Chief 
Executive Officer of NYSE Regulation, Inc., or his or her designee. 
While either may declare the extreme market volatility condition, each 
must make a reasonable effort to consult with the other prior to taking 
such action.
    The proposed rule is intended to be invoked only in those 
situations where the potential for extreme market volatility would 
likely impair Floor-

[[Page 70917]]

wide operations at the Exchange by impeding the fair and orderly 
opening of securities. Accordingly, the proposed rule sets forth a 
number of factors that the qualified Exchange officer would have to 
consider before declaring such a condition, including: volatility 
during the previous day's trading session; trading in foreign markets 
before the open; substantial activity in the futures market before the 
open; the volume of pre-opening indications of interest; evidence of 
pre-opening significant order imbalances across the market; government 
announcements; news and corporate events; and any such other market 
conditions that could impact Floor-wide trading conditions.
    Once the qualified Exchange officer has reviewed such factors and 
determined that an extreme market volatility condition exists, the 
qualified Exchange officer must make reasonable efforts to consult with 
Commission staff before making such a declaration. The qualified 
Exchange officer must also document the basis for making such a 
declaration. If the qualified Exchange officer is unable to reach 
Commission staff before the opening, he or she may declare such a 
condition, but must, as promptly as practicable in the circumstances, 
inform Commission staff of such declaration, and the basis for making 
such declaration.
    Because the declaration of an extreme market volatility condition 
concerns the opening of securities at the Exchange, the proposed rule 
further provides that such condition must be declared before the 
scheduled opening of securities at the Exchange. Moreover, such 
declaration would be in effect only for the opening of that trading 
session (or reopenings during the same trading day following the 
imposition of a mandatory halt pursuant to NYSE Rule 80B). Should 
market conditions that led to the declaration continue on subsequent 
days, the Exchange would have to review on a day-by-day basis the 
factors necessitating such a declaration and on each day make a 
reasonable effort to consult with Commission staff as described above.
    The Exchange notes that even when the dissemination and Floor 
Official (including Senior Floor Official and above) approval 
requirements are suspended, specialists would remain responsible for 
the fair and orderly opening of securities. Exchange rules already 
provide that when Floor Official approval is sought for certain 
actions, the specialist remains ultimately responsible for arranging 
the opening of securities at the Exchange. This obligation would remain 
unchanged. Even in the absence of price indications and a Floor 
Official's independent, impartial review of the opening, specialists 
will still be charged with ensuring that an opening price reflects 
market conditions and all participants have had a reasonable 
opportunity to participate. In the event of an extreme market 
volatility condition, the Exchange represents that it will review 
actions by the specialist at the opening to ensure that they have met 
their affirmative market maintenance obligations with respect to 
arranging a fair and orderly opening of securities at the Exchange.
    The Exchange notes also that, if proposed Rule 48 were invoked, it 
would not affect situations where the opening of a security was delayed 
for reasons unrelated to extreme market volatility, such as where there 
is material news pending that justifies a regulatory halt under NYSE 
Rule 123D. In such cases, notwithstanding the invocation of proposed 
Rule 48, the specialist in the affected security would be expected to 
follow regular procedures for opening the security (that is, as if 
proposed Rule 48 had not been invoked).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirement under section 6(b)(5) \5\ of the Act that an 
Exchange have rules that are 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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    \5\ 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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this 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) \6\ of the Act and Rule 19b-4(f)(6) thereunder.\7\ 
As required under Rule 19b-4(f)(6)(iii),\8\ the Exchange provided the 
Commission with 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 the filing of 
the proposed rule change.
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    \6\ 15 U.S.C. 78s(b)(3)(A). 6
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under Rule 19b-4(f)(6) \9\ normally 
may not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \10\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The NYSE requests that the 
Commission waive the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii).\11\ The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because such waiver would allow the Exchange to 
immediately implement proposed Rule 48, allowing the Exchange to 
utilize these new procedures to open trading in a security in a timely 
manner in extreme market volatility conditions that may occur within 30 
days after the filing of this proposed rule change.\12\ Accordingly, 
the Commission designates that the proposed rule change effective and 
operative upon filing with the Commission.
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    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ Id. 11
    \12\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 70918]]

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-2007-111 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-2007-111. 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-2007-111 and should be 
submitted on or before January 3, 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. E7-24083 Filed 12-12-07; 8:45 am]

BILLING CODE 8011-01-P