Document ID: SEC-2007-0995-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-07-24T04:00Z

[Federal Register: July 24, 2007 (Volume 72, Number 141)]
[
Notices]               
[Page 40351-40353]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy07-144]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56088; File No. SR-NYSE-2007-63]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Rule 92(d)(6), Limitations on Members' Trading Because of 
Customers' Orders

July 18, 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 July 13, 2007, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Exchange has designated the proposed rule change as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule 
change effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 92 to permit specialists 
to trade between the hours of 6 p.m. and 9:15 a.m. Eastern Time 
(``ET'') in any security in which the specialist is registered, 
notwithstanding any open customer orders on the Display Book. The text 
of the proposed rule change is available on NYSE's Web site (http://
www.nyse.com
), at NYSE, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, 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 Exchange proposes to amend NYSE Rule 92 to permit specialists 
to trade for their dealer accounts after hours notwithstanding that 
they have unexecuted customer orders in their possession that could be 
executed at the same prices as the specialists' trades. The proposed 
amendment would both minimize trading risks for specialists and 
harmonize NYSE Rule 92 with NASD's Manning Rule.\5\
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    \5 \ See NASD Rule 2111 and IM-2110-2.
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    NYSE Rule 92 generally prohibits members or member organizations 
from entering proprietary orders ahead of, or along with, customer 
orders that are executable at the same price as the proprietary order. 
Because the rule is not limited to market hours, it prohibits, subject 
to certain exceptions, specialists from trading after hours in any 
security in which they are registered while they are holding unexecuted 
customer orders on their Book, which they have knowledge of, that could 
be executed at the same price as the specialist's proposed trade (e.g., 
good-til-cancelled orders). At present, under NYSE rules, specialists 
remain responsible for orders that have been left on the Book after the 
trading and crossing sessions have closed even though they cannot 
execute those orders until the next Exchange trading session begins. 
Accordingly, if a specialist had such an order on the Book, any after-
hours trading by the specialist in such security could violate Rule 
92.\6\
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    \6 \ Specialists could trade and offer any better-priced 
executions to their customers, but as a practical matter, because 
specialists may have to give up executions of transactions that were 
intended to hedge the specialist's trading risks, this limitation 
effectively prevents the specialist from engaging in hedging 
transactions in most securities.
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    Because of the specialist's agency obligation to the Book after 
trading at NYSE has closed, the Rule 92 limit on specialist's after-
hours trading can increase the specialist's trading risks, particularly 
where specialists are trading for the purpose of hedging their risk 
and/or bringing their dealer or investment account positions into 
parity with trading in away markets. To correct this, the Exchange 
proposes amending Rule 92 to permit specialists to trade for the dealer 
account after hours, notwithstanding unexecuted interest that is left 
on the specialist's Book.
    The proposed change, in addition to properly allocating the 
obligation to protect customer orders after hours, also has the effect 
of harmonizing NYSE Rule 92 to its NASD counterpart, the Manning Rule. 
The Manning Rule generally prohibits NASD member firms that are holding 
a customer limit or market order from trading for that member's market 
making proprietary account at a price that would satisfy the customer's 
limit or market order without executing the customer's order.\7\ 
Notably, however, the Manning

[[Page 40352]]

Rule only applies between 9:30 a.m. and 4 p.m. ET, and in some cases to 
6:30 p.m. ET, meaning that after hours, NASD market makers may trade 
for their dealer accounts without regard to customer orders in their 
possession.
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    \7 \ See NASD IM 2110-2 and Rule 2111. As originally approved, 
the Manning Rule applied only to trading during regular trading 
hours. In 1999, when NASD expanded the operation of certain Nasdaq 
transactions and the quotation and reporting systems and facilities 
to 6:30 p.m. ET, the Commission approved the extension of the 
Manning Rule to any trading between 9:30 a.m. and 6:30 p.m. ET for 
certain orders. See Securities Exchange Act Release No. 42003 
(October 13, 1999), 64 FR 56554 (October 20, 1999) (SR-NASD-99-57).
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    The proposed amendment would add a new subsection (6) to the 
exemptions listed in Rule 92(d) that would adopt a similarly restricted 
time frame on the rule's prohibitions on specialist trading while in 
possession of an unexecuted customer order. Similar to the Manning 
Rule, the Exchange proposes beginning the exemption period for 
specialists after both the regular trading and the crossing sessions at 
the Exchange have ended. On a regular trading day, therefore, the 
exemption period would begin at 6:30 p.m. ET. If the regular NYSE 
trading session closes earlier than 4 p.m. ET, the exemption period 
would begin two-and-one-half hours after the close of the trading 
session. This window of time not only provides that the trading-ahead 
provisions of Rule 92 would continue to apply during any period while 
Exchange facilities are operating and customer orders are subject to 
execution through such systems, but also provides brokers time to meet 
any obligations to customers to withdraw any open orders that may have 
previously been submitted to the Exchange. Accordingly, while the 
specialist has responsibility for orders on the Book, brokers are on 
notice that after 6:30 p.m. ET, specialists would be able to trade 
notwithstanding those orders and therefore the broker should consider 
his or her best execution obligations to the customer when determining 
whether to leave an order at the Exchange after trading has closed.\8\
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    \8\ The Exchange notes that as agent for their customers, 
brokers can, and should be expected to, take affirmative steps to 
protect their customers' orders after hours by trading on behalf of 
those orders in the after market if appropriate trading 
opportunities exist. Similarly, sophisticated customers can protect 
their own interests after hours as effectively as any agent by 
trading themselves in the after markets.
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    The Exchange further proposes ending the exemption period 15 
minutes before the opening of a security at the Exchange, which, except 
for StreetTRACKS Gold Shares, would be 9:15 a.m. ET. This is a slight 
difference from the Manning Rule, which is only applicable as of the 
commencement of trading. The Exchange proposes this difference because 
of the specialist's access to pre-opening orders submitted to NYSE, 
which may give the specialist unique knowledge of the pricing trend for 
a security. The 15-minute time frame reflects the fact that at 
approximately 9:15 a.m. ET (8:05 a.m. ET for Gold Shares) there 
generally begins to be a sufficient influx of orders such that a 
meaningful trend might be discernible; prior to that time, there is 
commensurately less order flow and meaningful trends are less 
discernible.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \9\ that an Exchange have rules that 
are designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and 
Rule 19b-4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give 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 the five-day pre-filing requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \12\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it would allow specialists to better manage the trading risks 
that accompany their market making function, and harmonize Rule 92 with 
NASD's Manning Rule. For these reasons, the Commission designates that 
the proposed rule change become operative immediately.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml.
); or
     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSE-2007-63 on the subject line.

Paper Comments

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

    All submissions should refer to File Number SR-NYSE-2007-63. 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 40353]]

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 the 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-2007-63 and should be 
submitted on or before August 14, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-14249 Filed 7-23-07; 8:45 am]

BILLING CODE 8010-01-P