Document ID: SEC-2006-1371-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-10-24T04:00Z

[Federal Register: October 24, 2006 (Volume 71, Number 205)]
[Notices]               
[Page 62338-62343]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc06-98]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54615; File No. SR-NYSE-2006-37]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 
Thereto Relating to Exchange Rule 86 (Automated Bond System[supreg])

October 17, 2006.
    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 May 16, 2006, 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 prepared by the Exchange. The 
Exchange filed Amendment Nos. 1 and 2 to the proposed rule change on 
August 4, 2006 \3\ and October 10, 2006,\4\ respectively. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
    \4\ Amendment No. 2 replaced and superseded Amendment No. 1 in 
its entirety.
---------------------------------------------------------------------------

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

    NYSE seeks to replace Exchange Rule 86 to implement changes to the 
Automated Bond System (``ABS[supreg]''), which would be re-named ``NYSE 
BondsSM.'' The text of the proposed rule change is available 
on the NYSE's Web site (http://www.nyse.com), at the NYSE's principal 

office, 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 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 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 purpose of the proposed rule change is to replace current 
Exchange Rule 86 with a new rule that would accommodate and promote 
increased bond market activity and greater transparency in bond trading 
on the Exchange. The new rule would continue to enumerate the NYSE's 
primary rule relating to bond trading as Exchange Rule 86. The 
automated system in which bonds would trade would be re-named ``NYSE 
Bonds.'' Other Exchange rules that relate to trading of bonds in NYSE 
Bonds would be amended to conform to new Exchange Rule 86.
    Users \5\ of NYSE Bonds would have the ability to buy and sell 
bonds through the NYSE Bonds automated execution facility. To obtain 
authorized access to NYSE Bonds, a member organization of the Exchange 
would have to enter into a service agreement with the Exchange thereby 
subscribing to NYSE Bonds. Non-members who wish to trade on NYSE Bonds 
would have to do so through a written sponsorship agreement with a 
subscribing member organization of the Exchange.
---------------------------------------------------------------------------

    \5\ In the proposed rules, ``User'' means any Subscriber, 
Sponsoring Member Organization, Sponsored Participant, or Authorized 
Trader that is authorized to obtain access to NYSE Bonds. See 
proposed NYSE Rule 86(b)(2)(M).
---------------------------------------------------------------------------

Bonds To Be Traded on NYSE Bonds

    Debt securities that currently trade on ABS would also trade on 
NYSE Bonds. Such debt securities include, but are not limited to the 
following: Corporate bonds (including convertible bonds), international 
bank bonds, foreign government bonds, U.S. government bonds, government 
agency bonds, municipal bonds, and debt-based structured products. In a 
separate filing, the Exchange has requested that the Commission provide 
relief pursuant to Section 36 of the Act \6\ to provide an exemption 
from the provisions of Section 12(a) of the Act \7\ to permit NYSE 
member organizations to trade bonds that are not registered under 
Section 12(b) of the Act,\8\ but are issued by NYSE-listed companies 
and their wholly owned subsidiaries and that meet other conditions.\9\ 
Should this exemption be granted, trading in bonds covered by the 
exemption would occur via the NYSE Bonds system.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78mm.
    \7\ 15 U.S.C. 78l(a).
    \8\ 15 U.S.C. 78l(b).
    \9\ See Securities Exchange Act Release No. 51998 (July 8, 
2005), 70 FR 40748 (July 14, 2005) (File No. S7-06-05).
---------------------------------------------------------------------------

    Any security traded on NYSE Bonds would be referred to as a 
``bond'' for purposes of Exchange Rule 86. Any security traded on NYSE 
Bonds would have to be listed, or otherwise admitted to dealing, on the 
Exchange. Today, the majority of NYSE bond volume is in corporate debt, 
with approximately 94% in non-convertible bonds, including certain 
debt-based structured products, and approximately 6% in convertible 
bonds.

NYSE Bonds Trading Rules

    The proposed rules designate the types of orders that could be 
entered into NYSE Bonds and the minimum unit of trading for bonds 
traded through the system. Initially, Users of NYSE Bonds would be 
allowed to enter limit orders (``NYSE Bonds Limit Orders'') and reserve 
orders (``NYSE Bonds Reserve Orders''). A NYSE Bonds Reserve Order 
would be a limit order, a portion of which would be displayed and a 
portion of which would remain as undisplayed or reserve size. As the 
technology of the NYSE Bonds system continues to be implemented, all 
order types that are currently available in ABS also could be available 
in NYSE Bonds. Such order types may include ``Next Day,'' ``Cash,'' 
``Day,'' \10\ and ``Good 'til

[[Page 62339]]

Cancelled'' (``GTC'').\11\ The Exchange would notify its member 
organizations when additional order types became available for use.
---------------------------------------------------------------------------

    \10\ ``NYSE Bonds Day Orders'' would have to be designated for 
specific trading sessions or, by default, such orders would 
participate only in the Core Bond Auction and the Core Bond Trading 
Session.
    \11\ ``NYSE Bonds Good 'Til Cancelled Orders'' would be 
permitted to participate only in the Core Bond Auction and the Core 
Bond Trading Session.
---------------------------------------------------------------------------

    The minimum unit of trading in NYSE Bonds would be one bond. This 
minimum unit of trading would apply to both the displayed and 
undisplayed portion of a NYSE Bonds Reserve Order. A bond is usually 
traded in denominations of $1,000 (i.e., the original principal amount 
of a bond is usually $1,000). A unit of trading in bonds other than 
$1,000 could be designated by the Exchange for specific issues of bonds 
denominated in U.S. dollars or foreign currencies. Bonds with less than 
$1,000 original principal amount could trade on NYSE Bonds, provided 
the User first aggregated the bonds into denominations of $1,000. Bids 
or offers for less than $1,000 would have to specify the original 
principal amount of the bond. The maximum size for any bond order would 
be 1,000,000 bonds. NYSE Bonds would accept and display bids and offers 
in bonds priced to three decimal places.
    The Exchange would place parameters on priced orders that crossed 
the market by establishing price collar thresholds. The Exchange 
believes that these thresholds would help avoid executions at erroneous 
prices. Initially, these collars would be set at one percentage point 
of par value outside the Exchange best bid and offer. The Exchange 
could modify the price collar thresholds from time to time, upon prior 
notice to NYSE Bonds Users. The Exchange would reject an order sent to 
NYSE Bonds if the limit price of an incoming order to buy were one 
percentage point of par value higher than the price of the then-current 
best offer displayed on NYSE Bonds, or if the limit price of an 
incoming order to sell were one percentage point of par value lower 
than the then-current price of the NYSE Bonds' best bid.
    NYSE Bonds would be an electronic order-driven matching system. 
NYSE Bonds orders submitted by Users would be displayed, matched, and 
executed on a price/time priority basis. Orders that were marketable at 
the time of entry would be matched and executed. An order would be 
marketable when it entered the NYSE Bonds system if contra side 
interest were available at that price or a better price. Orders that 
were not marketable at the time of entry would post to the NYSE Bonds 
order ``book.'' Orders that were marketable beyond the price collar 
threshold would be rejected by the system.
    If an order were entered capable of trading at a better price than 
the then-best priced contra-side order on the NYSE Bonds book, the 
system would match the incoming order against the resting order at the 
resting order's price, thereby providing price improvement to the 
incoming order. For example, assume the NYSE Bonds market in the 
relevant bond is 101 bid, offered at 102 (1,000 x 1,000). A NYSE Bonds 
Limit Order to buy 1,000 bonds comes in priced at 103. The order would 
be executed at 102, providing 1 point of price improvement to the 
incoming order. With the same market, assume a NYSE Bonds Limit Order 
to buy 1,000 bonds at 104 comes into the NYSE Bonds system. The order 
would be rejected as it would violate the price collar threshold of one 
percentage point of par value.
    As previously discussed, NYSE Bonds would accept limit and reserve 
orders. Undisplayed reserve interest in NYSE Bonds would always yield 
to displayed orders at a particular price. Most orders matched on NYSE 
Bonds would be locked-in trades and would be submitted to a registered 
clearing agency with accrued interest calculated according to the 
defined eligibility characteristics of the particular bond.\12\ Such 
accrued interest would be distributed to the seller. Settlement of 
corporate bond trades would be ``regular way,'' i.e., three-day 
settlement.
---------------------------------------------------------------------------

    \12\ The Exchange submits completed trades to one of the 
subsidiaries of the Depository Trust Clearing Corporation (``DTCC'') 
for clearance and settlement. The National Securities Clearing 
Corporation (``NSCC''), a subsidiary of DTCC, provides clearance and 
settlement services for government agency, corporate, and municipal 
bonds that trade on ABS. While the Government Securities Division of 
the Fixed Income Clearing Corporation (``FICC''), another subsidiary 
of DTCC, provides clearance and settlement services for transactions 
in U.S. government bonds, the Exchange does not currently have an 
agreement with FICC for such settlement and clearance. Presently, 
U.S. government bonds that trade on ABS are traded ex-clearing 
(i.e., the parties to the transaction arrange for manual clearing 
and settlement). The Exchange plans to submit trades on a locked-in 
basis to FICC for clearance and settlement in 2007. Until such time 
as the Exchange has such an agreement with the FICC, the U.S. 
government bonds that trade on NYSE Bonds would continue to trade 
ex-clearing as they do today on ABS. Trades that would not be 
locked-in would be those in bonds that are not set up for the 
Exchange's registered clearing agency, or bonds having a face value 
other than $1,000.
---------------------------------------------------------------------------

Bond Trading Sessions

    NYSE Bonds would have three trading sessions during which ordinary 
trading would occur: (1) The Opening Bond Trading Session (4 a.m. until 
9:30 a.m. e.t.); (2) the Core Bond Trading Session, which would likely 
have the greatest market activity (9:30 a.m. until 4 p.m. e.t.); and 
(3) the Late Bond Trading Session (4 p.m. until 8 p.m. e.t.). Orders 
for one or more of these sessions could be entered in NYSE Bonds 
beginning at 3:30 a.m. e.t., and the orders would queue until the 
beginning of the designated Bond Trading Session(s). Users entering 
orders into NYSE Bonds would be required to designate for each such 
order the trading session(s) for which the order would be available for 
execution. If an order were not designated for any particular trading 
session the order would, by default, be available for execution only in 
the Core Bond Auction and the Core Bond Trading Session.\13\
---------------------------------------------------------------------------

    \13\ ``NYSE GTC Orders'' could execute only in the Core Bond 
Auction and the Core Bond Trading Session.
---------------------------------------------------------------------------

    Orders could be designated only for Bond Trading Sessions--not Bond 
Auctions. Therefore, while orders could be designated and ``available'' 
only for Trading Sessions, they would be ``eligible'' for execution in 
the Auctions that would launch the designated Trading Session provided 
the orders were entered before the related Auction commenced. If orders 
were designated for either the Opening Bond Trading Session or the Core 
Bond Trading Session and were entered after commencement of the related 
Auction, the order would be available only for ordinary trading in the 
designated Bond Trading Session. The Late Bond Trading Session would 
not commence with a Bond Auction. An order designated for execution in 
any Trading Session could be cancelled at any time as long as the order 
had not been executed, except that a User could cancel an order 
eligible for execution in a Bond Auction at any time until two minutes 
prior to the beginning of the particular Auction.

Bond Auctions

    At the commencement of both the Opening Bond Trading Session and 
the Core Bond Trading Session, there would be a single-priced execution 
called a Bond Auction. The Opening Bond Trading Session would begin 
with the Opening Bond Auction. The Core Bond Trading Session would 
begin with the Core Bond Auction. During these Bond Auctions, all 
marketable orders received by NYSE Bonds as of that time and, if so 
designated for the related Bond Trading Session, would be matched and 
executed at the Indicative Match Price (``IMP'').
    The IMP would be defined as: (1) The price at which the maximum 
volume of

[[Page 62340]]

bonds are executable; (2) if there are two or more prices at which the 
maximum volume of bonds are executable, the price that is closest to 
the closing price of that bond on the previous trading day, or if the 
bond did not trade on the previous day, the price that is closest to 
the closing price on the last day that the bond traded; or (3) if bond 
orders to buy and bond orders to sell are not marketable, the highest 
priced bid. The lowest priced offer would not become the IMP as the 
system would accept only one price for the IMP, and by default, that 
would be the highest priced bid. The price collar threshold would act 
as a determining factor for those orders that would either enter the 
system or be rejected by the system.
    One initial order on a single side (i.e., only a buy order or only 
a sell order) could establish the IMP, but, unless marketable orders 
were entered into the NYSE Bonds system at appropriate times, no 
execution, and hence no Bond Auction, would take place. A Bond Auction 
would be an execution at the IMP. Therefore, to have a Bond Auction, at 
least one marketable bond order to buy or sell would have to be 
available to execute against contra-side interest. When the price of an 
order to buy is equal to or greater than the price of an order to sell, 
an Auction execution would occur. Beginning 30 minutes prior to the 
Opening Bond Trading Session and various times thereafter, the IMP for 
the Opening Bond Auction and any Imbalance \14\ associated with it 
would be published by the Exchange.
---------------------------------------------------------------------------

    \14\ See proposed NYSE Rule 86(b)(2)(F) (defining ``Imbalance'' 
as the number of buy or sell NYSE Bonds orders that cannot be 
matched with other orders at the Indicative Match Price at any given 
time).
---------------------------------------------------------------------------

    A User could cancel an order eligible for execution in either Bond 
Auction at any time until two minutes prior to the beginning of the 
particular Auction. The matching and execution of orders in an Auction 
would be instantaneous. The sequence of Bond Auctions and Bond Trading 
Sessions on NYSE Bonds would provide a seamless, continuous trading day 
that would begin at 3:30 a.m. e.t. and would continue until 8 p.m. e.t.

NYSE Bonds Order Entry and Execution

    To post an order in a particular bond on NYSE Bonds, a User would 
be required to enter certain basic information including: cusip number, 
order quantity, order type (i.e., NYSE Bonds Limit Order or NYSE Bonds 
Reserve Order); price (up to three decimals); account type indicator 
(``P'' for principle or ``A'' for agent); time in force (i.e., Opening 
Bond Trading Session, Core Bond Trading Session, and/or Late Bond 
Trading Session and GTC); and whether the order is buy, sell, or sell/
short. The staff of the Division of Market Regulation of the Commission 
has stated that it would not recommend that the Commission take 
enforcement action if short sales in exchange-listed bonds and 
debentures are effected without complying with Rule 10a-1 under the 
Act.\15\ By this filing, the Exchange seeks continued effect of this 
ruling.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 30772 (June 3, 
1992), 57 FR 24415 (June 9, 1992) (File No. S7-13-92). The Exchange 
deems this determination by the Commission Staff to apply to 
Exchange Rule 440B (Short Sales).
---------------------------------------------------------------------------

    NYSE Bonds would accept orders beginning at 3:30 a.m. e.t., and 
orders could be entered throughout the trading day. Orders designated 
for the Opening Bond Trading Session that are entered into the system 
before 4 a.m. e.t. also would be eligible for the Opening Bond Auction. 
At 4 a.m. e.t., orders designated for the Opening Bond Trading Session 
would first be matched and executed in the Opening Bond Auction at the 
IMP. During this instantaneous Auction, the orders would be matched 
based on price/time priority. At various times during the period from 
3:30 a.m. to 4 a.m., the IMP of the Opening Bond Auction, and any 
Imbalance associated therewith, would be published via a data feed. The 
data feed would provide Imbalance information in real time, and it 
would be available to Users, third-party data vendors, and other 
interested parties who agree to terms established by the Exchange. An 
Imbalance would be published any time one occurred, including when new 
orders are entered into NYSE Bonds that might affect the relevant 
Auction.
    Orders designated for a specific Trading Session automatically 
would be included in the Bond Auction that launches the designated 
Trading Session. The Opening Bond Auction would launch the Opening Bond 
Trading Session, and the Core Bond Auction would launch the Core Bond 
Trading Session. Therefore, an order designated for the Opening Bond 
Trading Session would be ``available'' to participate in the Opening 
Bond Trading Session, and if such order were entered into the system 
before 4 a.m. e.t., it also would be ``eligible'' for participation in 
the Opening Bond Auction. Similarly, an order designated for and thus 
``available'' for the Core Bond Trading Session would be included in 
the Core Bond Auction if entered before the Core Bond Auction occurs at 
9:30 a.m. e.t.
    An order designated for more than one Bond Trading Session would 
potentially straddle both Bond Auctions depending on the time the order 
is entered. As described above, an order designated for the Opening 
Bond Trading Session would first have an opportunity to match and 
execute in the Opening Bond Auction at the IMP. If such order does not 
execute in the Opening Bond Auction, either because the Auction did not 
occur or because the order did not match with interest on the contra 
side, the order would then have a second opportunity to participate in 
ordinary trading in the Opening Bond Trading Session, which would last 
from 4 a.m. until 9:30 a.m. e.t. Thereafter, if the same order does not 
trade in the Opening Bond Trading Session, it would have a third 
opportunity to trade in the Core Bond Auction at the IMP, which would 
occur at 9:30 a.m. e.t. If the same order does not trade in the Core 
Bond Auction, it would be cancelled unless it is designated for either 
of the next two trading sessions (i.e., the Core Bond Trading Session 
(9:30 a.m. until 4 p.m. e.t.) and the Late Bond Trading Session (4 p.m. 
until 8 p.m. e.t.). Therefore, if the same order is designated for the 
Core Bond Trading Session and the Late Bond Trading Session, it would 
get a fourth and perhaps a fifth opportunity to trade during the 
trading day, if not cancelled. Thus, the designation of a bond order in 
NYSE Bonds would determine the order's eligibility to participate in 
either or both of the Bond Auctions and its availability to participate 
in additional Bond Trading Sessions.
    NYSE Bonds would accept orders for the Core Bond Auction and Core 
Bond Trading Session from 3:30 a.m. e.t. until 9:30 a.m. e.t. Such 
orders would queue until 9:30 a.m. e.t. when the Core Bond Auction 
takes place. Like the Opening Bond Auction, marketable orders would be 
instantaneously matched and executed at the IMP in the Core Bond 
Auction. Those orders would be matched based on price/time priority. 
Like the Opening Bond Auction, at various times during the period from 
3:30 a.m. to 9:30 a.m. e.t., the IMP of the Core Bond Auction, and any 
Imbalance associated therewith, would be published via a data feed. As 
discussed above, an order designated for execution in the Core Bond 
Trading Session could be cancelled at any time as long as it had not 
been executed, except that a User could not cancel an order eligible 
for execution in the Core Bond Auction inside of two minutes prior to 
the beginning of the Core Bond Auction.
    An order designated for the Late Bond Trading Session would be 
eligible for

[[Page 62341]]

ordinary trading in the Late Bond Trading Session beginning at 4 p.m. 
and lasting until 8 p.m e.t. If the order does not trade in the Late 
Bond Trading Session, it would be cancelled. No Bond Auction would 
occur at the beginning of the Late Bond Trading Session. An order that 
is not designated for a particular trading session would be available 
only for the Core Bond Trading Session and the Core Bond Auction.

Clearly Erroneous Executions

    The NYSE Bonds rules would define a ``clearly erroneous execution'' 
to be one where there is an obvious error in any term, such as price, 
unit of trading, or identification of the bond.\16\ A User that 
receives an erroneous execution could request the Exchange review the 
transaction. A clearly erroneous execution would be determined by 
Exchange personnel. The request for review would have to be made via 
telephone, facsimile, or email and would have to be submitted within 30 
minutes of the trade in question. The other party (or parties) to the 
trade would be notified of the request for review. Thereafter, an 
Officer of the Exchange or a designee would review the transaction and 
would make a determination as to whether there was a ``clearly 
erroneous execution.'' The reviewer could make this determination with 
or without supporting documentation from any party to the transaction. 
The Exchange would be able to review a request that is submitted more 
than 30 minutes after the transaction. This review would be determined 
on a case-by-case basis in a manner that promotes a fair and orderly 
market and does not unfairly discriminate against Users of NYSE Bonds.
---------------------------------------------------------------------------

    \16\ See proposed NYSE Rule 86(b)(2)(H) and (j)(1).
---------------------------------------------------------------------------

    If the reviewer determined that the execution was not clearly 
erroneous, no corrective action would be taken in relation to the 
transaction. If the reviewer determined that the transaction were 
clearly erroneous, the transaction could be deemed null and void or 
equitably modified. If one party did not agree with the determination, 
that party could request further review or an appeal by a panel of 
reviewers that includes Exchange personnel and representatives of two 
NYSE Bonds subscribers who are not associated with the parties to the 
trade in question. Depending on the outcome of the appeal, the 
transaction would either remain unchanged or be deemed null and void. 
An appeal would not result in a new modification of the terms of the 
transaction, as this result would be available only at the initial 
review of the transaction.

NYSE Bonds System Disruption or Malfunction or Equipment Changeover

    The proposed rule further provides that, in the event of any system 
disruption, malfunction, or equipment changeover in the NYSE Bonds 
trading facility, an Officer of the Exchange or a designee, without the 
need for a request for review, would review transactions affected by a 
system disruption, malfunction, or equipment changeover and decide if 
any transactions are erroneous. In such situations, the Officer of the 
Exchange or the designee could declare the transaction to be unchanged, 
null and void, or modified as appropriate. The rule also provides that, 
absent extraordinary circumstances, any such action of the Exchange 
Officer or a designee shall be taken within 30 minutes of detection of 
the system disruption, malfunction, or equipment changeover, or an 
erroneous transaction resulting from such system problem. If an 
erroneous transaction occured as a result of a system disruption, 
system malfunction, or equipment changeover, each party to the 
erroneous transaction would be notified of the situation and the 
specific action as soon as practicable. Thereafter, the User aggrieved 
by the action could appeal such action.\17\
---------------------------------------------------------------------------

    \17\ See proposed NYSE Rule 86(j).
---------------------------------------------------------------------------

Halting, Suspending, and Closing of Bond Trading on the Exchange

    The proposed rule provides for the halting, suspension, and closing 
of bond trading on NYSE Bonds when: (1) In the Exchange's regulatory 
capacity, it is necessary or appropriate to maintain a fair and orderly 
market, to protect investors, or is in the public interest, due to 
extraordinary circumstances or unusual market conditions; (2) in the 
case of an individual bond, the related stock has been halted, 
suspended, or closed on the Exchange or the primary listing Exchange 
for regulatory purposes; (3) in the case of an individual bond, that 
bond has been halted, suspended, or closed on the primary listing 
Exchange for regulatory purposes; (4) news reports have a material 
impact on an individual bond, its issuer, or related stock of its 
issuer; and (5) the authority under which a bond trades on the Exchange 
or on its primary market is revoked (i.e., the bond is delisted).
    When bond trading is halted under any of the circumstance described 
above, a halt message at the beginning and end of the halt would be 
disseminated to all NYSE Bonds Users. This trading halt would be 
referred to as a ``Bond Halt.'' During the Bond Halt, orders could 
enter the system and queue according to price/time priority. The IMP, 
and any Imbalance associated with such halt, would be published as soon 
as the Bond Halt commenced and would continue to be published until the 
conclusion of the halt. When the Bond Halt is concluded, trading would 
resume with a Bond Halt Auction, which would include matching and 
execution of orders at the IMP. The IMP would be determined during the 
Bond Halt. At the conclusion of the Bond Halt Auction, ordinary trading 
would resume in the Bond Trading Session (``Opening,'' ``Core,'' or 
``Late'') that is in progress at the conclusion of the halt. Bond halts 
would be implemented to maintain a fair and orderly market and to 
dampen volatility.

Dissemination of Trading Information

    The Exchange would publish a real-time bond data feed to NYSE Bonds 
Users that would reflect all orders in time sequence in the NYSE Bonds 
order ``book.'' Because NYSE Bonds would be a purely order-driven 
system, the Exchange would not disseminate any information on a 
particular bond if there are no orders posted in the ``book'' for such 
bond. In addition to the NYSE Bonds order ``book,'' the data feed also 
would include the last sale price (with corresponding number of bonds) 
as executions occur. The NYSE Bonds data feed would be available for 
purchase by non-subscribing market participants, third-party data 
vendors, and other interested parties who agree to the Exchange's 
terms.

Member Organization and Non-Member Access to the NYSE Bonds System

    Only member organizations of the Exchange would be able to enter 
into written service agreements with the Exchange specifically 
providing for authorized access to NYSE Bonds (i.e., a ``NYSE Bonds 
Service Agreement''). A non-member who wished to trade bonds on NYSE 
Bonds could do so as a ``Sponsored Participant'' of a subscribing 
member organization (``Sponsoring Member Organization''). The 
Sponsoring Member Organization's service agreement with the Exchange 
would have to include the name of the Sponsored Participant and to 
identify such entity as the Sponsored Participant.
    The proposed rule requires the Sponsoring Member Organization and 
the Sponsored Participant to maintain a written ``sponsorship 
agreement.'' The

[[Page 62342]]

sponsorship agreement would have to be agreed to by both the Sponsoring 
Member Organization and the Sponsored Participant. The proposed 
sponsorship agreement would have to include the following provisions:
    (A) Sponsoring Member Organization must acknowledge and agree that:
    (i) All orders entered by a Sponsored Participant and any person 
acting on behalf of or in the name of such Sponsored Participant and 
any executions occurring as a result of such orders are binding in all 
respects on the Sponsoring Member Organization;
    (ii) Sponsoring Member Organization is responsible for any and all 
actions taken by such Sponsored Participant and any person acting on 
behalf of or in the name of such Sponsored Participant; and
    (iii) Sponsoring Member Organization must provide the Exchange with 
a Notice of Consent acknowledging its responsibility for the orders, 
executions, and actions of its Sponsored Participant at issue.
    (B) Sponsored Participant must have written policies and procedures 
in place that comply with the Exchange's bylaws, rules, and procedures 
and with the rules of the Commission with regard to the Exchange, as if 
Sponsored Participant were a Member Organization of the Exchange.
    (C) Sponsored Participant must maintain, keep current, and provide 
to the Sponsoring Member Organization a list of Authorized Traders who 
may obtain access to NYSE Bonds on behalf of the Sponsored Participant.
    (D) Sponsored Participant must provide training to its Authorized 
Traders regarding the Sponsored Participant's obligations under this 
rule, other rules of the Exchange, and the rules of the Commission, and 
assure that these Authorized Traders receive appropriate training prior 
to any use or access to NYSE Bonds.
    (E) Sponsored Participant must not permit anyone other than 
Authorized Traders to use or obtain access to NYSE Bonds.
    (F) Sponsored Participant must have in place and must enforce 
written policies and procedures that provide reasonable security 
precautions to prevent unauthorized use or access to NYSE Bonds, 
including unauthorized entry of information into NYSE Bonds or the 
information and data made available therein. Sponsored Participant 
understands and agrees that Sponsored Participant is responsible for 
any and all orders, trades, and other messages and instructions 
entered, transmitted, or received under identifiers, passwords, and 
security codes of Authorized Traders, and for the trading and other 
consequences thereof.
    (G) Sponsored Participant acknowledges its responsibility to 
establish adequate written procedures and controls that permit it to 
effectively monitor its employees', agents', and customers' use and 
access to the Exchange for compliance with the terms of this agreement 
and all relevant rules of the Exchange and the Commission.
    (H) Sponsored Participant shall pay when due all amounts, if any, 
payable to Sponsoring Member Organization, the Exchange, NYSE Bonds, or 
any other third parties that arise from the Sponsored Participants 
access to and use of NYSE Bonds. Such amounts include, but are not 
limited to, applicable exchange and regulatory fees.

Reports and Recordkeeping

    Users of NYSE Bonds would have to comply with all relevant rules of 
the Exchange and the Commission in relation to reports and 
recordkeeping of transactions on NYSE Bonds, including Exchange Rules 
342 and 440 and Rules 17a-3 and 17a-4 under the Act.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 240.17a-3 and 240.17a-4.
---------------------------------------------------------------------------

Applicability of Section 11(a) and (b) of the Act

    Section 11(a) of the Act \19\ prohibits a member of a national 
securities exchange from effecting transactions on that exchange for 
its own account, the account of an associated person, or an account 
over which it or its associated person exercises investment discretion, 
unless an exception applies. This general prohibition would not impact 
trading on NYSE Bonds because Rule 11a1-4(T) under the Act \20\ deems 
transactions in bonds on a national securities exchange for a member's 
own account to be consistent with Section 11(a). Similarly, Section 
11(b) of the Act \21\ and Rule 11b-1 thereunder,\22\ which pertain to 
specialists and market-makers, would not be implicated because there 
would be no specialists or market makers on NYSE Bonds.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78k(a).
    \20\ 17 CFR 240.11a1-4(T).
    \21\ 15 U.S.C. 78k(b).
    \22\ 17 CFR 240.11b-1.
---------------------------------------------------------------------------

2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \23\ 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.
---------------------------------------------------------------------------

    \23\ 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 would 
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 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, as amended, 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-2006-37 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-2006-37. 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

[[Page 62343]]

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 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-2006-37 and should be 
submitted on or before November 14, 2006.
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-17745 Filed 10-23-06; 8:45 am]

BILLING CODE 8011-01-P