Document ID: SEC-2007-0188-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-02-07T05:00Z

[Federal Register: February 7, 2007 (Volume 72, Number 25)]
[Notices]               
[Page 5783-5786]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe07-165]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55215; File No. SR-NYSEArca-2006-51]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change and Amendment No. 1 Thereto Relating to 
Amendments to Registration Rules of NYSE Arca, Inc.

January 31, 2007.
    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 November 14, 2006, NYSE Arca, Inc. (``NYSE Arca'' 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 Exchange 
filed Amendment No. 1 to the proposed rule change on January 12, 2007. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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

    The Exchange proposes to amend certain NYSE Arca Rules governing 
registration of OTP Holders \3\ and employees of Option Trading Permit 
(``OTP'') Firms \4\ in order to: (i) Clarify registration procedures 
and make them consistent with the procedures of other self-regulatory 
organizations (``SROs''), and (ii) include an additional registration 
category in connection with the Exchange's new options trading 
platform, OX.\5\ The text of the proposed rule change is available at 
NYSE Arca, the Commission's Public Reference Room, and 
http://www.nysearca.com/regulation/filings.asp.

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    \3\ See NYSE Arca Rule 1.1(q).
    \4\ See NYSE Arca Rule 1.1(r).
    \5\ See Securities Exchange Act Release No. 54238 (July 28, 
2006), 71 FR 44758 (August 7, 2006) (SR-NYSEArca-2006-13).
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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

[[Page 5784]]

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
    The Exchange proposes to amend NYSE Arca Rules 2.5, 2.23, 6.33, 
6.34A and 9.27 (referred to herein as Rules 2.5, 2.23, 6.33, 6.34A and 
9.27) in order to clarify registration procedures and ongoing 
compliance obligations for OTP Holders and OTP Firms and their 
registered persons. Further, the Exchange proposes to amend these rules 
so that they are consistent with industry practices and with the 
operation of the Central Registration Depository (``CRD'') system 
maintained by the National Association of Securities Dealers, Inc. 
(``NASD''). The proposed rule changes are similar to the rules of other 
SROs.\6\
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    \6\ See NASD Rules 1070(d) and 1120(a) and (b) and New York 
Stock Exchange LLC (``NYSE'') Rule 345A and Supplementary Material 
.15(1)(b) to NYSE Rule 345.
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Registration Category

    The Exchange proposes to amend Rule 2.5(b)(10)(A) to include the 
registration category, Market Maker Authorized Trader,\7\ for 
individuals who perform market making activity on behalf of an OTP Firm 
on the OX trading facility. This registration category is new at this 
time because Market Maker Authorized Traders did not exist at NYSE Arca 
until the adoption of the OX trading rules in July 2006.\8\ These 
individuals will be required to maintain registration requirements 
similar to existing Market Makers on the Exchange.
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    \7\ See NYSE Arca Rule 6.1A(9).
    \8\ See note 5, supra.
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Exceptions to Required Registration Examinations

    The Exchange proposes to further amend Rule 2.5(b)(10)(A) to 
include certain exceptions to the registration examination 
requirements. Currently, similar, but not identical, exceptions are 
included as circumstances under which the Exchange will consider a 
waiver of the registration examination requirements under Rule 2.5(c), 
as described below. The Exchange believes that the added exceptions are 
clear cases when registration requirements need not apply, and does not 
believe that it is necessary to consider similar circumstances on a 
case-by-case basis as required under the waiver provisions in Rule 
2.5(c).

Consideration of Requests for Waivers of Examination Requirements

    The Exchange proposes to amend Rule 2.5(c), which governs requests 
from OTP Firm applicants to waive applicable examinations requirements 
prescribed by the Exchange. Specifically, the Exchange proposes to add 
new waiver standards under which the Exchange has discretion to grant 
waivers so that the Exchange's practices are generally consistent with 
the criterion set forth in NASD Rule 1070(d) and Supplementary Material 
.15(1)(b) to NYSE Rule 345 and to make other clarifications.
    In connection with changing the waiver standards, the Exchange also 
proposes to delete the remainder of Rule 2.5(c), which sets forth 
specific listed instances when the Exchange will waive required 
examinations. The purpose for deleting this language is because the 
Exchange proposes: (i) Waiver standards under which the Exchange has 
discretion to grant waivers rather than specific listed circumstances, 
which is consistent with the other SROs as noted above, and (ii) to 
make certain of these specific instances actual exceptions to the 
registration examination requirements in Rule 2.5(b)(10)(A), rather 
than circumstances under which the Exchange will consider a waiver. As 
explained above, the Exchange believes that such circumstances are 
clear cases when registration requirements need not apply, and does not 
believe that it is necessary to consider such circumstances on a case-
by-case basis as required under the waiver provisions in Rule 2.5(c).

Filing of Registration Documentation With the Exchange

    The Exchange proposes to amend Rule 2.23, which governs 
registration procedures for employees of OTP Firms. Specifically, the 
Exchange proposes to amend the rule to provide manual registration 
procedures for registration categories (e.g., floor clerk) for which 
CRD does not provide electronic registration.\9\
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    \9\ In 2005, NYSE Arca (formerly Pacific Exchange, Inc.) became 
a participant of the CRD system for maintenance of certain 
registration categories with the Exchange. As part of this 
implementation, applicable rules of the Exchange were amended to 
address filing appropriate registration documentation electronically 
with the CRD system for employees of ETP Holders. These amended 
rules, however, inadvertently omitted certain registration 
procedures for positions not available on the CRD system.
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Continuing Education Requirements

    Currently, employees of OTP Firms who wish to initiate and maintain 
registration with the Exchange must follow two separate rules--Rules 
2.23 and 9.27. Rule 2.23 sets forth initial registration requirements, 
whereas Rule 9.27 sets forth the continuing education requirements that 
must be satisfied to maintain registration with the Exchange.
    In order to simplify compliance for employees of OTP Firms, the 
Exchange proposes to provide continuing registration requirements in 
the same rule as initial registration requirements. Specifically, the 
Exchange proposes to add continuing education requirements to new Rule 
2.23(d) and certain definitions and clarifications with respect thereto 
to new Commentary .01-.06 to Rule 2.23.
    The continuing education requirements in proposed new Rule 2.23(d) 
and related Commentary .01-.06 to Rule 2.23 are substantially similar 
to those contained in current Rule 9.27(c) and (d) and related 
Commentary .01-.06 to Rule 9.27(c) and (d), except that the Exchange 
has made certain clarifications so that the continuing education 
requirements and related definitions and clarifications are more 
closely aligned with NASD Rule 1120 and NYSE Rule 345A and other clean-
up changes, as set forth in detail below.
    Specifically, the Exchange proposes in Rule 2.23(d)(1) that the 
content of the Regulatory Element of the program shall be consistent 
with the standards set forth by the Exchange and other SROs, rather 
than just determined by the Exchange as is set forth in the current 
Rule 9.27(c). In addition, the Exchange proposes to add language in 
Rule 2.23(d)(2)(B)(i) providing that if an OTP Firm's or an OTP 
Holder's analysis establishes the need for supervisory training for 
persons with supervisory responsibilities, such training must be 
included in the OTP Firm's or OTP Holder's training plan. Such language 
is not included in the current Rule 9.27(d)(2)(A).
    The Exchange has not proposed for inclusion NASD's continuing 
education requirements applicable to research analysts because the 
Exchange does not provide for research analyst registration. 
Additionally, unlike current NASD Rule 1120(a)(6), the Exchange is not 
proposing to permit OTP Firms or OTP Holders to self-administer the 
Regulatory Element of continuing education, as the Exchange does not 
have the resources or capability to offer an approval process or 
monitoring of such self-administered programs. OTP Firms and OTP 
Holders will be

[[Page 5785]]

responsible for ensuring continuing education information related to 
their associated persons is received by the firm in a timely manner 
and, as such, shall designate a person or persons to receive applicable 
information via electronic mail directly from the CRD system. OTP Firms 
and OTP Holders will not be required to submit to the Exchange the 
names of such designated persons, as is required by the current NASD 
rule. This is based on the fact that the Exchange does not have a 
contact management system comparable to that of NASD.
    With respect to the proposed new Commentary to Rule 2.23, the 
Exchange proposes to add a definition of ``registered person'' to 
Commentary .01 to Rule 2.23 as is currently set forth in Commentary .01 
to Rule 9.27(c) and (d), except that the definition that the Exchange 
is proposing does not include the carve-out for ``any such person whose 
activities are limited solely to the transaction of business on the 
facilities of the Exchange,'' but rather includes a carve-out for 
``such persons who are not subject to the registration requirements for 
traders as set forth in Rule 2.5(b)(10)(A).'' In addition, the Exchange 
proposes in Commentary .03 to Rule 2.23 to correct a mistake in the 
language in Commentary .03 to Rule 9.27(c) and (d) to provide that 
reassociated registered persons shall participate in the Regulatory 
Element at intervals based on their initial base date, rather than 
their new base date. Lastly, the Exchange proposes in Commentary .06 to 
Rule 2.23 to change the reference of ``any registered member who is an 
OTP Holder,'' which is currently in Commentary .06 to Rule 9.27(c) and 
(d), to ``any registered person who is associated with an OTP Firm or 
OTP Holder'' in order to be consistent with the language of other SROs.
    In connection with the addition of proposed new Rule 2.23(d) and 
Commentary .01-.06 to Rule 2.23 as set forth above, the Exchange 
proposes to delete the specific continuing education requirements in 
Rule 9.27(c) and (d) and the related Commentary .01-.06 to Rule 9.27(c) 
and (d). The purpose for deleting the continuing education requirements 
in Rule 9.27(c) and (d) is to avoid needless repetition and risk of 
inconsistencies. The Exchange proposes to include cross-reference 
language in Rule 9.27(c) that provides that registered persons shall 
follow the continuing education requirements set forth in Rule 2.23(d).
    In addition, the Exchange proposes to delete current Rule 2.23(i) 
with respect to transition to the CRD system because registration with 
CRD is already provided for in Rule 2.23(a).
Orientation Program for Certain Market Makers and Market Maker 
Authorized Traders
    The Exchange proposes to amend Rules 6.33 and 6.34A(b)(2) to 
provide that Market Maker and Market Maker Authorized Trader applicants 
to the Exchange who have previously successfully completed the required 
examination and have been absent from registration with the Exchange in 
such capacity for six months or more will be required to complete an 
orientation program prescribed by the Exchange.
    The Exchange proposes these rule changes because it believes that 
Market Makers and Market Maker Authorized Traders that have been absent 
from the Exchange for six months or more should be required to take a 
program to reacquaint them with the requirements of the Exchange due to 
the length of time that they have been absent from the Exchange.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\10\ in general, and furthers the objectives of 
Section 6(b)(5) \11\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \10\ 15 U.S.C. 78f(b).
    \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

    Written comments on the proposed rule change were neither solicited 
nor received.

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 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-NYSEArca-2006-51 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-NYSEArca-2006-51. 
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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of NYSE Arca. 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

[[Page 5786]]

Number SR-NYSEArca-2006-51 and should be submitted on or before 
February 28, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1999 Filed 2-6-07; 8:45 am]

BILLING CODE 8010-01-P