Document ID: SEC-2009-1099-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Extending the Operative Date of NYSE Rule 92(c)(3) From July 31, 2009 to December 31, 2009
Posted Date: 2009-08-05T04:00Z

[Federal Register: August 5, 2009 (Volume 74, Number 149)]
[Notices]               
[Page 39126-39128]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05au09-126]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60396; File No. SR-NYSE-2009-73]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Extending the Operative Date of NYSE Rule 92(c)(3) From July 31, 2009 
to December 31, 2009

July 30, 2009.

    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 24, 2009, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Exchange filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) thereunder,\5\ 
which renders it effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the operative date of NYSE Rule 
92(c)(3) from July 31, 2009 to December 31, 2009. The text of the 
proposed rule change is available at the Exchange, 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, 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 those 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 parts 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 extend the delayed operative date of 
NYSE Rule 92(c)(3) from July 31, 2009 to December 31, 2009. The 
Exchange believes that this extension will provide the time necessary 
for the Exchange and the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') to harmonize their respective rules concerning customer 
order protection to achieve a standardized industry practice.
Background
    On July 5, 2007, the Commission approved amendments to NYSE Rule 92 
to permit riskless principal trading at the Exchange.\6\ These 
amendments were filed in part to begin the harmonization process 
between Rule 92 and FINRA's Manning Rule.\7\ In connection with those 
amendments, the Exchange implemented for an operative date of January 
16, 2008, NYSE Rule 92(c)(3), which permits Exchange member 
organizations to submit riskless principal orders to the Exchange, but 
requires them to submit to a designated Exchange database a report of 
the execution of the facilitated order. That rule also requires members 
to submit to that same database sufficient information to provide an 
electronic link of the execution of the facilitated order to all of the 
underlying orders.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 34-56017 (July 5, 
2007), 72 FR 38110 (July 12, 2007), SR-NYSE-2007-21.
    \7\ See NASD Rule 2111 and IM-2110-2.
---------------------------------------------------------------------------

    For purposes of NYSE Rule 92(c)(3), the Exchange informed member 
organizations that when executing riskless principal transactions, 
firms must submit order execution reports to the Exchange's Front End 
Systemic Capture (``FESC'') database linking the execution of the 
riskless principal order on the Exchange to the specific underlying 
orders. The information provided must be sufficient for both member 
firms and the Exchange to reconstruct in a time-sequenced manner all 
orders, including allocations to the underlying orders, with respect to 
which a member organization is claiming the riskless principal 
exception.
    Because the rule change required both the Exchange and member 
organizations to make certain changes to their trading and order 
management systems, the NYSE filed for immediate effectiveness to delay 
to May 14, 2008 the operative date of the NYSE Rule 92(c)(3) 
requirements, including submitting end-of-day allocation reports for 
riskless principal transactions and using the riskless principal 
account type indicator.\8\ The Exchange filed for additional extensions 
of the operative date of Rule 92(c)(3), the most recent of which was an 
extension to July 31, 2009.\9\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 56968 (Dec. 14, 
2007), 72 FR 72432 (Dec. 20, 2007), SR-NYSE-2007-114.
    \9\ See Securities Exchange Act Release Nos. 57682 (Apr. 17, 
2008), 73 FR 22193 (Apr. 24, 2008) (SR-NYSE-2008-29) and 59621 (Mar. 
23, 2009), 74 FR 14179 (Mar. 30, 2009) (SR-NYSE-2009-30).
---------------------------------------------------------------------------

Request for Extension \10\
    FINRA and the Exchange have been working diligently on fully 
harmonizing their respective rules, including reviewing the 
possibilities for a uniform reporting standard for riskless principal 
transactions. However, because of the complexity of the existing 
customer order protection rules, including the need for input from 
industry participants as well as Commission

[[Page 39127]]

approval, the Exchange and FINRA will not have harmonized their 
respective customer order protection rules by the current July 31, 2009 
date for the implementation of the FESC riskless principal reporting.
---------------------------------------------------------------------------

    \10\ NYSE Amex LLC has filed a companion rule filing to conform 
its Equities Rules to the changes proposed in this filing. See SR-
NYSEAmex-2009-48, formally submitted July 24, 2009.
---------------------------------------------------------------------------

    The Exchange notes that it has agreed with FINRA to pursue efforts 
to harmonize customer order protection rules. As authorized by their 
respective Boards, FINRA and NYSE Regulation, Inc. (``NYSE 
Regulation'') have each published a Regulatory Notice/Information Memo 
that solicits comments from their respective member participants on the 
proposed harmonized approach to customer order protection.\11\ Because 
industry participants need to code their trading systems to comply with 
customer order protection rules, the Exchange believes that industry 
input is vital to ensuring that the approach to customer order 
protection both meets regulatory needs of protecting customer orders, 
but is also feasible technologically.
---------------------------------------------------------------------------

    \11\ See NYSE Regulation Information Memo 09-13 (March 12, 
2009); FINRA Regulatory Notice 09-15 (March 12, 2009).
---------------------------------------------------------------------------

    Both FINRA and NYSE Regulation have received comments from the 
public on the Regulatory Notice and Information Memo, including 
comments from industry forums such as SIFMA and FIF. The comments have 
generally supported efforts to harmonize the FINRA and NYSE rules. 
Among issues raised in the comment letters, however, is the concern 
that FINRA and NYSE have a harmonized approach for reporting riskless 
principal transactions. In addition, commenters note the need for an 
implementation period to develop any technology that would be needed to 
comply with the proposed reporting standard. FINRA and NYSE Regulation 
continue to work together to develop such a harmonized approach to 
reporting riskless principal trades.
    The Exchange continues to believe that pending full harmonization 
of the respective customer order protection rules, it would be 
premature to require firms to meet the current Rule 92(c)(3) FESC 
reporting requirements.\12\ Indeed, having differing reporting 
standards for riskless principal orders would be inconsistent with the 
overall goal of the harmonization process.
---------------------------------------------------------------------------

    \12\ The Exchange notes that it would also need to make 
technological changes to implement the proposed FESC reporting 
solution for Rule 92(c)(3).
---------------------------------------------------------------------------

    Accordingly, to provide the Exchange and FINRA the time necessary 
to develop a harmonized rule set that would apply across their 
respective marketplaces, including a harmonized approach to riskless 
principal trade reporting, the Exchange is proposing to delay the 
operative date for NYSE Rule 92(c)(3) from July 31, 2009 to December 
31, 2009.
    Pending the harmonization of the two rules, the Exchange will 
continue to require that, as of the date each member organization 
implements riskless principal routing, the member organization have in 
place systems and controls that allow them to easily match and tie 
riskless principal execution on the Exchange to the underlying orders 
and that they be able to provide this information to the Exchange upon 
request. To make clear that this requirement continues, the Exchange 
proposes to amend supplementary material .95 to Rule 92 to specifically 
provide that the Rule 92(c)(3) reporting requirements are suspended 
until December 31, 2009 and that member organizations are required to 
have in place such systems and controls relating to their riskless 
principal executions on the Exchange. Moreover, the Exchange will 
coordinate with FINRA to examine for compliance with the rule 
requirements for those firms that engage in riskless principal trading 
under Rule 92(c).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\13\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\14\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, 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. The Exchange 
believes the proposed extension provides the Exchange and FINRA the 
time necessary to develop a harmonized rule concerning customer order 
protection that will enable member organizations to participate in the 
national market system without unnecessary impediments.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing 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 from the date on which it was 
filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \15\ 
and Rule 19b-4(f)(6) thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to 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. The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    The Exchange has requested the Commission to waive the 30-day 
operative delay so that the Exchange can extend the operative date of 
NYSE Rule 92(c)(3) without interruption. The Commission hereby grants 
the Exchange's request and believes such waiver is consistent with the 
protection of investors and the public interest.\17\ Accordingly, the 
Commission designates the proposed rule change operative upon filing 
with the Commission.
---------------------------------------------------------------------------

    \17\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the 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 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act.

[[Page 39128]]

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-2009-73 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2009-73. 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 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 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-2009-73 and should be submitted on or before August 26, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-18666 Filed 8-4-09; 8:45 am]

BILLING CODE 8010-01-P