Document ID: SEC-2005-0188-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.
Posted Date: 2005-11-03T05:00Z

[Federal Register: November 3, 2005 (Volume 70, Number 212)]
[Notices]               
[Page 66879-66881]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03no05-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52688; File No. SR-NYSE-2005-66]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Amend Rule 460 (Specialists Participating in Contests)

October 27, 2005.
    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 September 29, 2005, the New York Stock Exchange, Inc. (``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 NYSE. On October 
25, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ 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.
    \3\ In Amendment No. 1, the Exchange made clarifying changes to 
the text of the proposed rule change and non-substantive changes to 
the purpose section.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change is an amendment to NYSE Rule 460 
(Specialists Participating in Contests). The text of the proposed rule 
change is set forth below. Additions are in italics.
* * * * *
Rule 460. Specialists Participating in Contests
    (a) No member or his member organization or any other member, 
allied member, or approved person or officer or employee of the member 
organization shall participate in a proxy contest or a company if such 
member specializes in the stock of that company.
Specialists as Directors
    (b) No member or his member organization or any other member, 
allied member, or approved person in such member organization or 
officer or employee of the member organization shall be a director of a 
company if such member specializes in the stock of that company.
* * * Supplementary Material: * *
    .10 Control relationships--Business transactions--Finder's Fees--No 
specialist or his member organization or any other member, allied 
member or approved person in such member organization or officer or 
employee thereof, individually or in the aggregate shall acquire 
directly or indirectly the beneficial ownership of more than 10% of the 
outstanding shares of any equity security in which the specialist is 
registered, unless such security is (i) a convertible or derivative 
security, American Depositary Receipt, Global Depositary Receipt, or 
similar instrument, the conversion of which into common stock of the 
issuer would not result in a position in the common stock exceeding the 
10% threshold; (ii) an investment company unit or Trust Issued Receipt, 
the redemption of which would not result in a position, directly or 
indirectly, in any equity security in which the specialist is 
registered exceeding the 10% threshold; or (iii) a security such as a 
currency warrant which trades in relationship to the value of that 
underlying currency or a security such as an index warrant which trades 
in relationship to the value of that underlying index. With respect to 
the securities specified in (iii), the specialist must obtain the 
permission of the Exchange to exceed the 10% threshold, and in no event 
may the specialist acquire directly or indirectly the beneficial 
ownership of more than 25% of the issue. This provision applies 
regardless of whether the beneficial ownership is acquired for 
investment, trading, or any other purpose. If the beneficial ownership 
of any or all of such persons reaches or exceeds 5% of the outstanding 
shares of any such security, the specialist or his organization shall 
promptly report this fact to the Market Surveillance Division. Any such 
person shall, at the request of the Market Surveillance Division, 
promptly take appropriate action either to dispose of such beneficial 
ownership or reduce or eliminate his interest in the specialist 
organization, as may be acceptable to the Exchange. No specialist or 
his member organization or any other member, allied member or approved 
person in such member organization or officer or employee thereof shall 
engage in any business transaction (including loans, etc.) with any 
company in whose stock the specialist is registered, or accept a 
finder's fee from such company; provided, however, that a specialist 
registered in a security issued by an investment company may purchase 
and redeem the listed security, or securities

[[Page 66880]]

that can be subdivided or converted into the listed security, from the 
issuer as appropriate to facilitate the maintenance of a fair and 
orderly market in the subject security. This prohibition on business 
transactions shall not apply, however, to the receipt of routine 
business services, goods, materials, or insurance, on terms that would 
be generally available.
    .11 Definition of an Investment Company Unit--The term ``Investment 
Company Unit'' in paragraph .10 above shall be the same as that in 
Section 703.16 of the Listed Company Manual.
    .12 Definition of a Trust Issued Receipt--The term ``Trust Issued 
Receipt'' in paragraph .10 above shall be the same as that in Rule 
1200.
    .20 The restrictions in paragraphs (a) and .10 above shall not 
apply, except as provided herein, to an approved person entitled to an 
exemption from this Rule pursuant to Rule 98. The restriction on 
acquisition of 10% or more of the outstanding shares of any equity 
security in which an associated specialist is registered, as provided 
in Rule 460.10, shall apply to such approved person separate and 
distinct from the restriction as applied to any or all other persons 
specified in Rule 460.10, and positions of the approved person shall 
not be aggregated with the positions of any one or more other persons 
specified in Rule 460.10. The same principle applies with respect to 
the reporting of positions specified in Rule 460.10. An approved person 
entitled to an exemption from this Rule may engage in business 
transactions with a company in whose stock an associated specialist is 
registered, may accept a finder's fee from such company, and may act as 
an underwriter in any capacity for a distribution of securities issued 
by such company.
    .25 The restrictions in paragraph .10 above relating to business 
transactions between a specialist or his member organization or any 
other member, allied member or approved person in such member 
organization or officer or employee thereof shall not apply to 
Investment Company Units (as defined in paragraph 703.16 of the 
Exchange's Listed Company Manual), Trust Issued Receipts (defined in 
NYSE Rule 1200), and derivative instruments based on one or more 
securities, currencies or commodities (collectively referred to as 
Exchange-Traded Funds or ``ETFs''), if the following conditions are 
met:
    (i) The specialist or his member organization or any other member, 
allied member or approved person in such member organization or officer 
or employee thereof only enters into the business transaction with the 
sponsor of the ETF and the sponsor is not involved in the day-to-day 
administration of the ETF; and
    (ii) Any fee or other compensation in connection with the business 
transaction paid to the specialist or his member organization or any 
other member, allied member or approved person in such member 
organization or officer or employee thereof must not be dependent on 
the trading price or daily trading volume of the ETF; and
    (iii) The specialist or his member organization or any other 
member, allied member or approved person in such member organization or 
officer or employee thereof must notify and provide a full description 
to the Exchange of any business transaction or relationship, except 
those of a routine and generally available nature as described in 
paragraph .10 above, it may have with any sponsor of an ETF that he or 
it is registered as specialist in.
    (Remainder of rule unchanged.)
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NYSE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NYSE Rule 460.10, in part, restricts a specialist or his member 
organization or any other member, allied member or approved person in 
such member organization or officer or employee thereof, not entitled 
to a NYSE Rule 98 exemption, from engaging in:

    ``Any business transaction (including loans, etc.) with any 
company in whose stock the specialist is registered * * * This 
prohibition on business transactions shall not apply, however, to 
the receipt of routine business services, goods, materials, or 
insurance, on terms that would be generally available.''

    The rule is intended to ensure that specialists and their 
affiliates do not enter into a material business relationship with an 
issuer in whose security the specialist is registered, such that the 
specialist's or affiliate's status may create conflicts of interest 
with respect to the specialist's affirmative and negative obligations 
to maintain a fair and orderly market in the security.
    Currently, NYSE Rule 460.20 provides exemptions from NYSE Rule 
460(a) and .10 to an approved person entitled to a NYSE Rule 98 
exemption with respect to business transactions with issuers. This is 
because the functional separation required by NYSE Rule 98 eliminates 
the conflict of interest concern. The Exchange proposes to add an 
exemption, in a new section, .25, from the restriction on business 
transactions between a specialist or his member organization or any 
other member, allied member or approved person in such member 
organization or officer or employee thereof and the sponsor of any 
Exchange Traded Funds (``ETFs'') in which the specialist is registered.
    For purposes of the proposed rule, ETFs are Investment Company 
Units (defined in paragraph 703.16 of the Exchange's Listed Company 
Manual), Trust Issued Receipts, such as HOLDRs (defined in NYSE Rule 
1200), and derivative instruments based on one or more securities, 
currencies or commodities. Since ETFs are based on derivatives or 
indices representing multiple securities, or a single commodity or 
currency, and the specialist registered to that ETF is not a market 
maker in any of the underlying component securities, commodities or 
currencies,\4\ the Exchange believes that any potential for conflicts 
which might have an undue influence or impact on the ETF trading price 
is removed. The ETF trading price is generally only a reflection of the 
price changes of the different base vehicle or vehicles trading 
elsewhere and perhaps trading on a different exchange or market.
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    \4\ Exchange member organizations registered as specialists in 
ETFs are separate member organizations from those registered as 
specialists in underlying equities. (NYSE Rule 103B.VIII). The word 
``underlying'' and the rule citation appearing in the preceding 
sentence were added by telephone conference between David Matta, 
Principal Rule Counsel, N, and David L. Orlic, Attorney, Division of 
Market Regulation, Commission, on October 27, 2005.
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    The proposed rule would allow business transactions between a 
specialist or his member organization or any other member, allied 
member or approved person in such member organization or officer or 
employee thereof and the sponsor of the ETF. Generally, the sponsor of 
an ETF is responsible for establishing the trust that issues the ETF 
shares, the registration of the ETF shares with the

[[Page 66881]]

Commission, and the filing of required periodic reports. The trustee is 
responsible for the day-to-day administration of the trust, including 
keeping the trust's operational records. While the sponsor generally 
oversees the performance of the trustee and the trust's principal 
service providers, it does not exercise day-to-day oversight over the 
trustee or such service providers.
    The amended rule will provide that any fee or other compensation 
paid in connection with the business transaction to a specialist or his 
member organization or any other member, allied member or approved 
person in such member organization or officer or employee thereof not 
have any relationship to the trading price or daily trading volume of 
the ETF. This will further diminish any potential ability for a 
specialist or his member organization or any other member, allied 
member or approved person in such member organization or officer or 
employee thereof to unduly influence trading for its own benefit, and 
further diminish any incentive for any such person to compromise its 
specialist obligations in maintaining fair and orderly markets. It is 
also designed to prevent the ETF sponsor from unduly influencing its 
specialist or his member organization or any other member, allied 
member or approved person in such member organization or officer or 
employee thereof.
    Finally, a specialist or his member organization or any other 
member, allied member or approved person in such member organization or 
officer or employee thereof must notify and provide a full description 
to the Exchange of any business transaction or relationship, except 
those of a routine and generally available nature as described in NYSE 
Rule 460.10, it may have with any sponsor of an ETF in which it is 
registered as a specialist.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) \5\ of the Act, in general, and Section 6(b)(5) \6\ of the Act, in 
particular, in that it is designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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).
    \6\ 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 did not solicit or receive any written comments with 
respect to 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 the self-regulatory organization consents, the Commission will:
    A. by order approve the 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-NYSE-2005-66 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NYSE-2005-66. 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 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-2005-66 and should be submitted on or before 
November 25, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-6091 Filed 11-2-05; 8:45 am]

BILLING CODE 8010-01-P