Document ID: SEC-2007-0598-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-04-25T04:00Z

[Federal Register: April 25, 2007 (Volume 72, Number 79)]
[Notices]               
[Page 20573-20576]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ap07-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55646; File No. SR-NYSE-2007-02]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Adopt New Rule 447 (``Emergency Powers'')

April 19, 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 January 9, 2007, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by NYSE. On April 18, 2007, NYSE submitted 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    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new Rule 447 (``Emergency Powers'') 
which would allow the Exchange to grant exemptive regulatory relief in 
the event of an emergency, e.g. a pandemic-like situation. The text of 
the proposed rule change is available at NYSE, the Commission's Public 
Reference Room, and http://www.nyse.com.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received on the

[[Page 20574]]

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
Introduction
    Currently, the Exchange does not, in the normal course, grant 
plenary exemptive relief to member organizations from the requirements 
of NYSE rules. The Exchange is proposing to obtain authorization to 
provide such relief, in the rare event of overwhelming need, such as a 
pandemic, by way of the new proposed NYSE Rule 447.
    In the wake of recent media attention and industry concern 
regarding the potential for a pandemic flu outbreak,\4\ proposed Rule 
447 would provide the Exchange with a basis of authority pursuant to 
which it may consider granting exemptive regulatory relief during such 
an emergency.
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    \4\ See NYSE Information Memo 06-30 (May 5, 2006) for further 
guidance.
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    In implementation of the duty to enforce regulatory compliance, 
self-regulatory organizations (``SROs'') possess inherent authority to 
administer and interpret their own rules. This authority comprehends 
the ability to grant relief from the formal strictures of a specific 
provision where the conduct sought to be effected, in any single given 
instance, is otherwise consistent with the purpose and intent of that 
rule. However, the Exchange does not have a medium for granting 
interim, but categorical relief to a class of its membership across 
rule lines--as circumstances may necessitate, and/or to impose 
additional and more rigorous requirements in response to emergency 
conditions. The purpose of the proposed rule is to provide such a 
mechanism and thereby grant the Exchange the regulatory flexibility to 
grant member organizations relief in the event of an emergency, as 
defined.
    Indeed, many of the types of relief envisioned under the proposed 
rule illustrate the general circumspection with respect to which 
requests for relief would be viewed. While recourse to the rule would 
be limited to ``major disturbances'' in regard to which the Commission 
is statutorily authorized to alter, suspend, or impose requirements or 
restrictions of matters subject to regulation by it or SROs, the nature 
of the relief to be granted would necessarily serve to mitigate the 
effects of the disruption so that the markets may perform in a manner 
consistent with customer expectations. Likely, the same manner of 
consequences to affect the investing public would similarly impact 
personnel of the securities industry such that they would equally need 
to address these external forces and factors.
Background
Existing NYSE Rules
    NYSE Rule 446 (``Business Continuity and Contingency Plans'') 
governs business continuity and contingency planning for member 
organizations. While the rule does not require that member 
organizations remain in business in the event of a significant business 
disruption, it does require firms to have a plan in place establishing 
procedures reasonably designed to enable the member organization to 
meet existing obligations to customers, other broker-dealers, and 
counter-parties.\5\ In an effort to assist and enable member 
organizations in the context of an emergency to remain in compliance 
with NYSE rules, the Exchange is proposing new Rule 447 to apply where 
regulatory flexibility may be necessary to address the emergency 
atmosphere which could result in the event of a pandemic or other 
similar type event. Easing circumstances for facilitating member 
organizations to remain in business would facilitate the orderly flow 
of the markets while also providing for the protection of investors.
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    \5\ See NYSE Information Memos 04-24 (May 3, 2004) and 05-80 
(October 13, 2005) for additional guidance.
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Federal Exemptive Relief
    Section 12(k)(2) of the Act \6\ empowers the SEC, in an emergency, 
to take summary action to alter, suspend, or supplement requirements or 
restrictions with respect to any matter subject to regulation by the 
Commission or an SRO. Section 12(k)(7) of the Act \7\ defines the term 
``emergency'' to include ``a major disturbance that substantially 
disrupts, or threatens to substantially disrupt the functioning of 
securities markets, investment companies, or any other significant 
portion or segment of the securities markets* * *.''
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    \6\ 15 U.S.C. 78l(k)(2).
    \7\ 15 U.S.C. 78l(k)(7).
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Proposed NYSE Rule 447
General Rule
    Proposed Rule 447 allows the Exchange, with the concurrence of the 
Commission that an ``emergency'' exists, where it is necessary in the 
public interest and for the protection of investors, and on such 
conditions, if any, which it may impose, to grant certain regulatory 
relief to member organizations. The Exchange may take action in 
implementation of the proposed rule at its discretion, after seeking 
the concurrence of the Commission as to the type of relief that may be 
appropriate in the circumstances, in respect of any member 
organization, any class or category of member organization, or in 
respect of all member organizations and/or their personnel.
    The Exchange would seek the concurrence of the SEC by alerting 
Commission staff electronically or via telephone as to the type of 
action the Exchange would take in implementation of the proposed rule. 
NYSE staff would make a good faith effort to have a conversation with 
Commission staff. However, if NYSE staff is unable to reach SEC staff, 
it may take action and advise the SEC of such action in an expedient 
manner. Pursuant to conversations with Commission staff, the Exchange 
may move forward with the appropriate relief in good faith without 
formal agreement from the Commission so as to provide timely relief to 
member organizations in an emergency.
Specific Regulatory Relief
    Under the proposed rule, the Exchange may elect to defer or extend 
Exchange-imposed time frames (otherwise applicable) for: Filing 
documents or reports with the Exchange (other than trade reports or 
reports arising from the settlement of transactions); obtaining 
Exchange approval, where such approval is required; requesting margin 
extensions via Exchange automated extension processing systems; or 
complying with testing, training, or continuing education requirements. 
The Exchange may ``defer'' time frames where it is appropriate to put 
off or delay the due dates for submissions or approvals until an 
unknown date, based on the circumstances of the emergency. Otherwise, 
the Exchange may ``extend'' time frames to a fixed date in the future.
    In addition, the proposed rule gives the Exchange authority, upon 
customer consent, to permit recourse to means and systems not 
customarily utilized by broker-dealers for: The direct receipt,

[[Page 20575]]

transmission, or delivery of funds and securities, to and from 
customers; the valuation of securities; and the transmission of 
statements, confirmations, proxy materials, and other functionally 
equivalent material. This would allow broker-dealers to work with the 
Exchange to determine alternative means and systems to most effectively 
serve their customers and the public interest in the event of an 
emergency.
    The proposed rule would allow the Exchange to permit the closure of 
main offices during an emergency. The Exchange may also elect to 
recognize alternative testing and/or qualification criteria for tests 
or criteria otherwise required as a prerequisite to the assumption of a 
position or function.
    Under proposed Rule 447, the Exchange may modify or waive, in whole 
or in part, requirements pertaining to the registration and supervision 
of branch offices and their personnel and the payment of late fees. 
This relief would not apply to the requirements relating to the 
maintenance of books and records or the obligation for a member 
organization to maintain essential supervision of all its associated 
persons. The Exchange may provide relief which allows member 
organizations to implement remote supervision \8\ of branch offices 
(including locations otherwise not eligible for such) in an emergency, 
which would provide flexibility for member organizations to retain the 
essential supervision of associated persons.
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    \8\ See NYSE Information Memo 05-74 (October 6, 2005); see also 
SEC Staff Legal Bulletin No. 17 (March 19, 2004) regarding 
supervision of remote locations.
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    Pursuant to proposed Rule 447, the Exchange may take certain action 
to restrict the activities of member organizations in an emergency. The 
proposed rule would allow the Exchange to alter or rescind approval of 
a member organization's outsourcing arrangements or expand the 
requirements or prerequisites applicable to such. The Exchange may also 
require the curtailment or reduction of business activity and/or 
solicitation of new accounts or new products.\9\ Moreover, the Exchange 
may require the enhancement of insurance coverage; the closure of 
offices or locations; and/or the addition of supervisory personnel or 
procedures.
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    \9\ Under NYSE Rule 326, the Exchange may impose restrictions on 
a member organization's business activities if it fails to maintain, 
among other things, the capital requirements of Rule 15c3-1 under 
the Act. The proposed rule grants the Exchange authority to require 
member organizations to limit or reduce business activities in an 
emergency, regardless of whether the firm is in compliance with 
these provisions.
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    In addition to the actions noted above, the proposed rule gives the 
Exchange authority to take such other similar action, or withhold 
taking similar action, in anticipation of, during the course of, or as 
a consequence of, an emergency.

Timing

    In implementation of the proposed rule, the Exchange would grant 
regulatory relief for a maximum of 90 days, and would be wary of 
situations which would impede access by customers to their funds or 
securities. Upon the passage of 90 days from the initial action by the 
Exchange, the Exchange may find, with the concurrence of the 
Commission, that an emergency continues to exist. Upon such a finding, 
the Exchange would re-evaluate the types of relief granted and, after 
seeking the concurrence of the Commission, determine whether to further 
extend such relief, provide alternative relief, or cease the grant of 
such relief.
    If the Exchange determines not to extend the regulatory relief past 
90 days, it would alert member organizations to the date on which the 
relief would expire via Information Memo and/or the Exchange's 
Electronic Filing Platform (``EFP'').\10\ The Exchange would supply a 
reasonable expiration date to allow adequate time for member 
organizations to adjust to the reinstatement of customary regulatory 
requirements.
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    \10\ EFP is an extranet built by the NYSE to support 
authenticated, encrypted, two-way communications between the NYSE 
and its membership. It is used to communicate information to certain 
key personnel of member organizations.
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    Inasmuch as the purpose of this proposed rule is to grant authority 
to the Exchange to act creatively in the event of an emergency, the 
terms of the rule are, to a certain extent, broad and inclusive. 
However, the Exchange would act in a manner consistent with the public 
interest and for the protection of investors, and it intends to be 
bound by and guided by these underlying precepts should there be need 
to invoke the rule and exercise the power therein.
2. Statutory Basis
    The statutory basis for this proposed rule change is Section 
6(b)(5) of the Act.\11\ Section 6(b)(5) requires, among other things, 
that rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and national market system, and in general, 
to protect investors and the public interest. The proposed rule will 
provide the Exchange with the regulatory flexibility to grant member 
organizations relief, as necessary, in the event of an emergency, as 
defined.
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    \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 
result in 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 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-2007-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSE-2007-02. This 
file number should be included on the subject line if e-mail is used. 
To help the

[[Page 20576]]

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. 
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 publicly 
available. All submissions should refer to File Number SR-NYSE-2007-02 
and should be submitted on or before May 16, 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. E7-7836 Filed 4-24-07; 8:45 am]

BILLING CODE 8010-01-P