Document ID: SEC-2007-1768-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-12-28T05:00Z

[Federal Register: December 28, 2007 (Volume 72, Number 248)]
[Notices]               
[Page 73953-73955]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28de07-200]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57009; File No. SR-NYSE-2007-108]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Change To 
Exchange Rule 325 Relating to Financial Responsibility Requirements of 
Member Organizations

December 20, 2007.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on November 30, 2007, the New York Stock Exchange LLC 
(``NYSE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission the proposed rule change as described in Items I, II, and 
III below, which Items have been substantially prepared by the self-
regulatory organization. The Exchange has designated the proposed rule 
change as one that is concerned solely with the administration of the 
self-regulatory organization pursuant to section 19(b)(3)(A)(iii) \4\ 
of the Act and Rule 19b-4(f)(3) \5\ thereunder, 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \5\ 17 CFR 240.19b-4(f)(3).
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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 325 to eliminate 
the requirement under subparagraph (e) that any member organization 
that employs individuals to execute orders on the Floor of the Exchange 
must provide evidence of financial responsibility in the amount of 
$100,000 for each such individual. The Exchange is further seeking to 
make technical amendments to the text of Exchange Rule 700. The amended 
text of these Rules is attached as Exhibit 1.

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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change.

[[Page 73954]]

The text of these statements may be examined at the places specified in 
Item IV below. The self-regulatory organization 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
    Through this filing, the NYSE seeks to amend Exchange Rule 325 to 
eliminate the requirement under subparagraph (e) that any member 
organization that employs individuals to execute orders on the Floor of 
the Exchange must provide evidence of financial responsibility in the 
amount of $100,000 for each such individual.

Current Exchange Rule 325 (Capital Requirements, Member Organizations, 
General Provisions)

    Currently, Exchange Rule 325 provides that member organizations 
must comply with the net capital requirements prescribed by Rule 15c3-1 
of the Act.\6\ Exchange Rule 325 prescribes additional financial 
requirements beyond Rule 15c3-1, including, pursuant to subparagraph 
(e), the requirement that member organizations that employ individuals 
to execute orders on the Floor of the Exchange must provide evidence of 
financial responsibility in the amount of $100,000 for each such 
individual. In accordance with Rule 325(e), evidence of financial 
responsibility may be provided by any of the following: A guarantee by 
a clearing organization, an escrow account, a letter of credit, or 
pledged securities. Rule 325(e) further provides that the Exchange will 
consider alternate methods of compliance with this financial 
responsibility requirement.
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    \6\ 15 U.S.C. 78a, et seq.
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Background

    Subparagraph (e) of Exchange Rule 325, which prescribes financial 
responsibility requirements for members, was initially approved on 
April 11, 1978.\7\ It was adopted in response to the creation of two 
new classes of members, i.e. lessees and physical access members, 
whereby for the first time there were individuals trading on the Floor 
who did not own actual memberships on the Exchange.\8\ In adopting Rule 
325(e), the Exchange felt that it was important to its reputation for 
integrity and fairness that all members were able to demonstrate the 
ability to cover (1) any liabilities to other members incurred in the 
ordinary course of business on the Floor of the Exchange or (2) any 
amounts due the Exchange.\9\
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    \7\ See Securities Exchange Act Release No. 14652 (April 11, 
1978), 43 FR 16581 (SR-NYSE-78-6).
    \8\ See Securities Exchange Act Release No. 25015 (October 9, 
1987), 52 FR 39321 (October 21, 1987) (SR-NYSE-87-27).
    \9\ See Securities Exchange Act Release No. 25015 (October 9, 
1987), 52 FR 39321 (October 21, 1987) (SR-NYSE-87-27). See also NYSE 
Information Memorandum 1987-04 (January 21, 1987).
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    The Rule was subsequently amended several times to raise the dollar 
amounts in response to increased levels of market activity, volatility 
and order size.\10\ It was also amended to provide for alternate 
methods of proof of financial responsibility, including permitting 
members to pledge their seats or to use surety bonds to satisfy the 
requirement.\11\ On February 27, 2006, the Rule was amended to hold 
member organizations, rather than individual members, responsible for 
presenting evidence of financial responsibility for each individual the 
member organization employs.\12\ This amendment was made to reflect the 
changes in the nature of membership incident to the Exchange's merger 
with Archipelago Holdings, Inc.\13\
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    \10\ See Securities Exchange Act Release No. 17206 (October 9, 
1980), 45 FR 69082 (SR-NYSE-80-23); Securities Exchange Act Release 
No. 26176 (October 13, 1988), 53 FR 41009 (October 18, 1988) (SR-
NYSE-87-27); Securities Exchange Act Release No. 53382 (February 27, 
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-05-77).
    \11\ See Securities Exchange Act Release No. 17206 (October 9, 
1980), 45 FR 69082 (SR-NYSE-80-23); Securities Exchange Act Release 
No. 26176 (October 13, 1988), 53 FR 41009 (October 18, 1988) (SR-
NYSE-87-27); Securities Exchange Act Release No. 53382 (February 27, 
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-05-77).
    While the Rule provides (and has provided) for several different 
methods of proof of financial responsibility, in practice many 
members pledged their seats or used surety bonds to satisfy the 
Rule.
    \12\ See Securities Exchange Act Release No. 53382 (February 27, 
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-05-77). See also NYSE 
Information Memorandum 2005-99 (December 15, 2005).
    \13\ As a result, there are no longer transferable memberships 
and seats on the Exchange that may be used to meet the requirement 
of the Rule.
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Proposed Amendments to Exchange Rule 325

    The Exchange proposes to amend the financial responsibility 
requirements of Exchange Rule 325 by deleting subparagraph (e). The 
NYSE believes that the requirements of Exchange Rule 325(e) essentially 
function as additional capital requirements for those member 
organizations that employ individuals to execute orders on the Floor. 
Given the robust net capital requirements already in place for member 
organizations pursuant to both SEC Rule 15c3-1 and Exchange Rule 325, 
the financial responsibility requirement under subparagraph (e) is 
unnecessary. In addition, when compared with the levels and volumes of 
trading member organizations currently engage in, the modest extra 
capital required by Rule 325(e) no longer effectively advances the 
purpose of ensuring financial responsibility. As such, the Exchange 
seeks to delete subparagraph (e) of Exchange Rule 325 in its entirety.

Technical Amendments to Rule 700

    The Exchange also proposes to make technical changes to Exchange 
Rule 700. Subparagraph (a) of Exchange Rule 700 provides, in part, that 
``Except as may be specifically provided in the Rules in this series, 
(i) Rules 6, 45 through 298 and Rule 440B shall not apply to option 
transactions and (ii) Rule 325(e) shall not apply to members whose 
transactions on the Exchange are in options solely.''
    The Exchange seeks to delete subparagraph (a)(ii) of Rule 700, as 
Rule 325(e) will no longer exist. In addition, the Exchange proposes to 
delete the designation ``(i)'' in this clause since there will no 
longer be subsection (ii).
2. Statutory Basis
    The basis under the Act for the proposed rule change is the 
requirement under section 6(b)(5) \14\, which requires 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. The proposed rule change 
also is designed to support the principles of section 11A(a)(1) \15\ of 
the Act in that it seeks to ensure economically efficient execution of 
securities transactions, to make it practicable for brokers to execute 
investors' orders in the best market, and to provide an opportunity for 
investors' orders to be executed without the participation of a dealer.
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78k-1(a)(1).
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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.

[[Page 73955]]

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

    The foregoing proposed rule change, which is concerned solely with 
the administration of the self-regulatory organization, has become 
effective as of November 30, 2007 pursuant to section 19(b)(3)(A)(iii) 
\16\ of the Act and Rule 19b-4(f)(3) thereunder.\17\ 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(3).
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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, 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-2007-108 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-2007-108. 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 on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing will 
also 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-2007-108 and should be submitted on or before January 18, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
Deletions [bracketed]
Capital Requirements Member Organizations General Provisions
    Rule 325. (a) Each member organization shall comply with the net 
capital requirements prescribed by Rule 15c3-1 under the Securities 
Exchange Act of 1934 (the ``Exchange Act'') and with the additional 
requirements of this Rule 325.
    [(e) In addition to the net capital requirement prescribed in Rule 
15c3-1 promulgated under the Securities Exchange Act of 1934, each 
member organization which employs individuals to execute orders on the 
floor of the Exchange, must present evidence of financial 
responsibility in the amount of $100,000 for each such employee by one 
of the following methods;
    (1) A written guarantee by a member organization which is a member 
of a qualified clearing agency and has excess net capital of not less 
than $100,000 for each member for whom such guarantee has been 
extended, or
    (2) $100,000 held by an independent agent in escrow, or
    (3) a letter of credit issued by a bank or other party acceptable 
to the Exchange in the amount of $100,000, or
    (4) marketable securities with a total value of at least $100,000 
(after appropriate haircuts, to be determined in the same manner as 
haircuts are determined for capital requirements) on deposit with an 
organization acceptable to the Exchange and readily available, or
    Such written guarantee, escrow account, letter of credit or 
marketable securities shall be available solely for sums due the 
Exchange and such sums as the Board of Directors shall determine are 
due by such member to member organizations as the result of losses 
arising directly from the closing out under the Rules, of contracts 
entered into, in the ordinary course of business in the market on the 
floor of the Exchange for the purchase, sale, borrowing or loaning of 
securities.
    The Exchange will consider alternate methods of compliance with the 
financial responsibility standard.]
Applicability, Definitions and References
    Rule 700. (a) The Rules in this 700 series (Rules 700 through 794) 
shall be applicable to (i) the trading on the Exchange of option 
contracts issued by The Options Clearing Corporation, (ii) the terms 
and conditions, and the exercise and settlement, of option contracts so 
traded, and (iii) the handling of orders, and the conduct of accounts 
and other matters, relating to option contracts dealt in by any member 
or member organization.
    Except as may be specifically provided in the Rules in this series, 
[(i)] Rules 6, 45 through 298 and Rule 440B shall not apply to option 
transactions [and (ii) Rule 325(e) shall not apply to members whose 
transactions on the Exchange are in options solely].

[FR Doc. E7-25190 Filed 12-27-07; 8:45 am]

BILLING CODE 8011-01-P