Document ID: SEC-2007-0365-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-03-12T04:00Z

[Federal Register: March 12, 2007 (Volume 72, Number 47)]
[Notices]               
[Page 11072-11075]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12mr07-145]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55398; File No. SR-NYSE-2007-25]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 123D (Openings and Halts In Trading)

March 5, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 2, 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 prepared substantially by the Exchange. 
The Exchange has filed the proposal pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the 
proposal 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 is proposing to amend Exchange Rule 123D to add new 
section (3) to enable the Exchange to halt trading in a security whose 
price may be about to fall below $1.00 per share, without delisting the 
security, so that the security may continue to trade on other markets 
that deal in bids, offers, orders, or indications of interest in sub-
penny prices, until the price of the security has recovered 
sufficiently to

[[Page 11073]]

permit the Exchange to resume trading in minimum increments of no less 
than one penny or the issuer is delisted for failing to correct the 
price condition within the time provided under NYSE rules. The text of 
the proposed rule change is available at http://www.nyse.com, NYSE and 

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
    Regulation NMS, adopted by the Commission in April 2005,\5\ 
provides that each trading center intending to qualify for trade-
through protection under Regulation NMS Rule 611 (``Rule 611'') \6\ is 
required to have a Regulation NMS-compliant trading system fully 
operational by March 5, 2007 (the ``Trading Phase Date'').\7\
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    \5\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496 (June 29, 2005).
    \6\ 17 CFR 242.611.
    \7\ See Securities Exchange Act Release No. 55160 (January 24, 
2007), 72 FR 4202 (January 30, 2007).
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    Regulation NMS Rule 612 (``Rule 612''),\8\ permits markets to 
accept bids, offers, orders, and indications of interest in increments 
smaller than a $0.01 per share, but not less than $0.0001 per share, 
for stocks priced below $1.00 per share and to quote and trade such 
stocks in sub-pennies. Markets may choose not to accept such bids, 
offers, orders or indications of interest and the NYSE has done so, 
maintaining a minimum trading and quoting variation of $0.01 per share 
for all securities trading below $100,000 per share.\9\
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    \8\ 17 CFR 242.612.
    \9\ See NYSE Rule 62.
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    However, the Commission has said that Rule 611's proscription 
against trade-throughs extends to quotes which include a sub-penny 
component in stocks priced below $1.00 per share, provided they are 
better priced by a minimum of $0.01 per share.\10\ Rule 612 requires a 
market that routes an order to another market in compliance with Rule 
611 and receives a sub-penny execution to accept the sub-penny 
execution, report that execution to the customer, and compare, clear 
and settle that trade.
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    \10\ Order Exempting Certain Sub-Penny Trade-Throughs From Rule 
611 of Regulation NMS Under the Securities Exchange Act of 1934. See 
Securities and Exchange Commission Release No. 54678 (October 31, 
2006), 71 FR 65018 (November 6, 2006).
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    The Exchange states that, currently, there are no markets quoting 
or trading NYSE-listed securities that are priced under $1.00 per share 
in sub-penny increments. The Exchange's trading system does not 
currently accommodate sub-penny trading, nor can it recognize a quote 
disseminated by another market center if such quote has a sub-penny 
component. The Exchange had previously determined that it would not be 
cost effective to make the changes that would allow its trading system 
to fully accommodate sub-penny trading. In making this determination, 
the Exchange weighed the resource allocation choices that would be 
necessary against the fact that only a very small number of securities 
listed on the Exchange have fallen below $1.00 in the last three years.
    The Exchange has been investigating whether there are systemic or 
other approaches that would allow it to deal with sub-penny executions 
made on markets to which we have routed an order, while not 
necessitating all the changes that would be required to fully trade in 
sub-pennies. No acceptable approach has yet been discovered.
    The Exchange is proposing an approach which will allow it to avoid 
trading a security on NYSE when its price falls below $1.00 per share, 
while permitting it to remain listed on the Exchange so that it could 
continue to be traded by other markets on an unlisted trading 
privileges (``UTP'') basis, including NYSE Arca. This would involve 
``halting'' trading on NYSE, not for a ``regulatory'' reason (as that 
would require other markets to stop reporting trades as well), but 
rather for an ``operational'' (i.e., non-regulatory) reason. NYSE Rule 
123D(2) contemplates such a non-regulatory halt for systems, equipment 
or communication facility problems or for other technical reasons and, 
in the Exchange's view, this is a related situation, since it relates 
to the Exchange's systemic inability to properly accommodate these sub-
penny prices. Existing Rule 123D(2) contemplates halts which are 
relatively brief in duration, whereas a halt for the purposes described 
herein could potentially endure for a number of months.\11\ More 
significantly, Rule 123D currently requires Floor Official approval to 
implement a trading halt of any kind, whether regulatory or 
operational. However, the proposed halt will have to occur 
automatically, so it must be specified to occur without Floor Official 
approval. For this reason the Exchange is proposing to codify this new 
non-regulatory halt in a new subsection (3) or Rule 123D. The Exchange 
is seeking to expand the use of the operational halt in order to 
prevent a problem that the Exchange knows would occur if the price of 
the stock fell below a $1.00 per share.\12\
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    \11\ Section 802.01C of the NYSE Listed Company Manual sets out 
a minimum price criteria for capital or common stock. Currently, 
that section provides that a company will be considered to be below 
compliance standards if the average closing price of a security is 
less than $1.00 over a consecutive 30 trading-day period. Once 
notified, the company must bring its share price and average share 
price back above $1.00 within six months. Alternatively, if a 
company determines that it will cure the price condition by taking 
an action that will require approval of its shareholders, it must 
obtain the necessary shareholder approval by a date no later than 
its next annual meeting, and must implement the action promptly 
thereafter. The price condition will be deemed cured if the price 
promptly exceeds $1.00 per share, and the price remains above the 
level for at least the following 30 trading days.
    \12\ The Exchange will notify its members that the description 
of ``Equipment Changeover'' will now include a halt for this new 
non-regulatory halt.
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    Because the Exchange must halt trading before a security in fact 
trades below $1.00 per share, the new rule will trigger the halt 
whenever a security trading on the Exchange is reported on the 
consolidated tape during normal trading hours as having traded at a 
price of $1.05 per share or less, or if a security would open on the 
Exchange at a price of $1.05 per share or less. In any such event, 
trading in the security on the Exchange shall be immediately halted. 
Once halted for such reason, trading shall not be resumed on the 
Exchange until the security has traded on another automated trading 
center as defined in Rule 600(b)(4) under the Act \13\ for at least one 
entire trading day at a price or prices that are at all times at or 
above $1.10 per share. Any such resumption of trading shall occur at 
the beginning of a trading day, so that normal opening procedures can 
apply. As noted above, in contrast to other trading halts, a sub-penny 
trading halt is automatic as it does not require the approval of any 
Floor Officials.\14\ However, if a

[[Page 11074]]

determination is made by a Floor Official that a trade that triggered a 
halt because of a ``Sub-penny trading'' condition was made in error or 
otherwise was an anomaly, trading of the security on the Exchange will 
resume immediately.
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    \13\ See 17 CFR 242.600(b)(4).
    \14\ Specifically, designated Exchange staff will actively 
monitor the conditions of the securities and immediately implement 
the trading halt when the conditions of the securities require such 
halt without any Floor Official approval. The Exchange will 
investigate the possibility of creating a systemic modification to 
automate this process. Telephone conversation on March 5, 2007 
between Deanna Logan, Director, NYSE and David Liu, Senior Special 
Counsel, Division of Market Regulation, Commission.
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    When a halt is called under NYSE Rule 123D, a condition indication 
is disseminated over the consolidated tape. The condition under new 
Rule 123D(3) will be denominated as a ``Sub-penny trading'' condition. 
However, steps will be taken to undertake the system development 
necessary to enable the dissemination of such a condition description 
but the changes will not be completed by March 5, 2007, the date when 
this change must be in place. Accordingly, through September 7, 2007, 
or the date the systems are able to disseminate such condition, if 
earlier, should a Sub-penny trading halt be required prior to the 
system being ready to disseminate such condition notification, the 
Exchange will in lieu thereof disseminate the ``Equipment Changeover'' 
condition (used when a halt is called pursuant to NYSE Rule 123D(2)), 
and will clarify as soon as practicable that the halt is due to a 
``Sub-penny trading'' condition on the NYSE's Web site.\15\
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    \15\ See also supra note 12.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \16\ of 
the Act, in general, and furthers the objectives of Section 6(b)(5) 
\17\ in particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 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 foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\18\ and Rule 19b-4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such 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.
    NYSE has asked that the Commission waive the 30-day operative delay 
and five-day pre-filing requirement contained in Rule 19b-4(f)(6)(iii) 
under the Act.\20\ The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because it expands the Exchange's current use of 
trading halts for operational reasons to preemptively prevent 
operational problems on the Exchange and enable the Exchange to comply 
with Rule 612. The proposal is also consistent with the public interest 
and the protection of investors because it will permit Exchange-listed 
securities whose price falls below $1.05 per share to continue to quote 
and trade on an UTP basis, including in sub-penny increments, while 
recognizing the current limitations of the Exchange's systemic 
capacities in that regard. Accordingly, the Commission designates the 
proposal to be effective and operative upon filing with the 
Commission.\21\
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    \20\ CFR 240.19b-4(f)(6)(iii). Rule 19b-4(f)(6) also requires 
the self-regulatory organization to give the Commission 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. NYSE 
gave the Commission written notice of its intention to file the 
proposed rule change on February 26, 2007, four business days prior 
to filing. The Commission is granting the Exchange's request for a 
waiver of the five-day pre-filing requirement.
    \21\ For purposes only of waiving the 30-day operative delay of 
this proposal, 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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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-2007-25 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-2007-25. 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 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 available publicly. All submissions should refer to 
File Number SR-NYSE-2007-25 and should be submitted on or before April 
2, 2007.

[[Page 11075]]

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-4327 Filed 3-9-07; 8:45 am]

BILLING CODE 8010-01-P