Document ID: SEC-2009-0255-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2009-02-25T05:00Z

[Federal Register: February 25, 2009 (Volume 74, Number 36)]
[Notices]               
[Page 8600-8603]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25fe09-109]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59415; File No. SR-NYSE-2009-13]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending Certain NYSE Rules To Reflect That Designated Market Makers on 
the Exchange No Longer Act as Agents for Orders Entered on the Exchange

February 18, 2009.
    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 February 4, 2009, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. 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.
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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 certain NYSE rules to reflect that 
Designated Market Makers (``DMMs'') on the Exchange will no longer act 
as agents for orders entered on the Exchange.
    The text of the proposed rule change is available at http://
www.nyse.com, the Exchange, 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 self-regulatory organization 
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 those statements may be examined at

[[Page 8601]]

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 parts 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 Exchange proposes to amend certain NYSE 
rules to reflect that the Designated Market Makers (``DMMs'') no longer 
have agency responsibilities for orders entered on the NYSE Display 
Book[supreg] (``Display Book'').\4\
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    \4\ The Display Book[supreg] system is an order management and 
execution facility. The Display Book system receives and displays 
orders to the DMM, contains the Book, and provides a mechanism to 
execute and report transactions and publish results to the 
Consolidated Tape. The Display Book system is connected to a number 
of other Exchange systems for the purposes of comparison, 
surveillance, and reporting information to customers and other 
market data and national market systems.
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    The Exchange notes that parallel changes are proposed to be made to 
the rules of the NYSE Alternext Exchange (formerly the American Stock 
Exchange).\5\
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    \5\ See SR-NYSE Alternext-2009-09 (to be filed February 4, 
2009).
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Background
    On June 12, 2008, the NYSE filed a set of proposed rule changes 
designed to transform its market structure and reinforce the NYSE as 
the premier venue for price discovery, liquidity, competitive quotes 
and price improvement.\6\ That and other filings \7\ formed the core 
initiatives submitted by the Exchange to reinforce its dynamic and 
competitive marketplace.
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    \6\ See Securities Exchange Act Release No. 58184 (July 17, 
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46).
    \7\ See for example, Securities Exchange Act Release No. 58052 
(June 27, 2008), 73 FR 38274 (July 3, 2008) (SR-NYSE-2008-45) 
(amending NYSE Rule 98); see also Securities Exchange Act Release 
No. 58363 (August 14, 2008), 73 FR 49514 (August 21, 2008) (SR-NYSE-
2008-52) (amending the NYSE allocation policy).
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    As outlined in SR-NYSE-2008-46 (the ``New Market Model filing''), 
the changes to the Exchange's marketplace included the replacement of 
Exchange specialists with DMMs. The function of the DMM is 
substantially different from the manner in which specialists functioned 
vis-[agrave]-vis the relationship between Exchange order givers and 
representation of these orders in the marketplace. DMMs no longer 
receive copies of orders entered in Exchange systems prior to the 
orders publication to all market participants by Display Book. 
Similarly, DMMs do not have a negative obligation which would require 
the DMM to yield trading for the DMM unit's proprietary account in 
order to allow public orders to be executed against each other. DMMs 
therefore trade on parity with all market participants.
    Incoming orders to buy and sell submitted to the Exchange are 
eligible for automatic quoting and immediate and automatic execution. 
Instead of the DMM, the NYSE Display Book is responsible for tracking 
the liquidity available at each specified price point. NYSE systems 
automatically review the liquidity available on the Display Book for 
execution and then using sophisticated execution logic access the 
necessary liquidity to consummate trades. Exchange systems report 
executions to the entering parties, update the quote and process order 
cancellations.
    Although the DMM no longer receives order by order information, he 
or she is still responsible for the execution of manual transactions on 
the Exchange including opening and re-opening transactions, closing 
transactions, block transactions, gap quote situations and when trading 
reaches LRPs that would lock or cross the market.\8\ DMMs are 
responsible for choosing the price \9\ and the executions of the orders 
at that price during those specific situations.
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    \8\ See NYSE Rule 104(a)(2)-(5).
    \9\ In an opening and reopening trade, Display Book will verify 
that all interest that must be executed in the opening or reopening 
can be executed at the price chosen by the DMM. If all the interest 
that must be executed in the transaction cannot be executed at that 
price, the Display Book will block the execution. In addition, when 
executing blocks (10,000 shares or more or value of $200,000 or 
more), trading out of a gap quote situation or an LRP that locks or 
crossed the market, the Display Book may adjust the execution price 
if there is enough interest on the Display Book to complete the 
transaction at a better price.
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    In the current NYSE trading environment, the DMM no longer 
functions as an agent for orders on the Display Book because the DMM 
does not control order by order information. As such the Exchange 
proposes through this filing to amend legacy rules that retain the 
concept of the Exchange market maker as agent.
Proposed Rule Changes
    Certain Exchange rules contain language that refers to the DMM 
``holding,'' ``receiving,'' and/or ``accepting'' orders. These concepts 
were consistent with the role performed by former specialist but are 
inconsistent with the role of the DMM. The Exchange therefore proposes 
to amend NYSE Rules 13 (``Definitions of Orders''), 91 (``Taking or 
Supplying Securities Named in Order''), 123A (``Miscellaneous 
Requirements'') and 123B (``Exchange Automated Order Routing Systems'') 
to remove this concept.
    Specifically, the Exchange proposes to delete the Supplementary 
Material.10 of NYSE Rule 13 in its entirety to remove language that 
provides a DMM must accept any order given to him, unless he obtains 
Floor Official approval to decline an order. The Exchange further seeks 
to remove the phrase ``the DMM via'' \10\ from Supplementary 
Material.40 of NYSE Rule 91 that governs a DMM making a proprietary 
trade against an order, but retain the procedural provisions. In 
Supplementary Material to Rule 123A, the Exchange proposes to delete 
.10 (``Limited orders-Market orders'') since it speaks to a member 
giving an order to the DMM. The first paragraph of .20 (``Sending 
orders to DMMs'') in that rule is proposed for deletion as it governs 
members and member organizations transmitting orders to DMMs. The 
Exchange further proposes to amend .20 of NYSE Rule 123A to: (i) Delete 
the concept of orders being sent to the DMMs; and (ii) change the title 
to ``Changes in Day Orders'' which reflects the retained material. 
Similarly, Supplementary Material .31 (``Orders sent to 
representatives''), .32 (``Report not received''), .33 (``Addressed 
order or order handed to DMM''), .34 (``Unaddressed order''), .35 
(``Erroneous statement''), .36 (``Legibility of orders''), .37 
(``Identity of stock''), .38 (``Reports, written and oral'') and .39 
(``Duplicate reports'') of NYSE Rule 123A are proposed for deletion as 
they speak to transmitting or giving orders to DMMs, DMMs receiving 
orders, DMMs giving reports on orders, and similar provisions.
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    \10\ See e-mail from Deanna G. W. Logan, Managing Director, NYSE 
Regulation, Inc., to David Liu, Assistant Director, Division of 
Trading and Markets, Commission, dated February 13, 2009 (making 
technical edits) (``February 13th e-mail'').
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    In addition, the Exchange proposes to delete NYSE Rule 
123B(b)(2)(B) because it speaks of orders received by the DMM through 
the Designated Order Turnaround System and to erroneous reports sent by 
the DMM on executions. These functions are no longer handled in this 
manner. As previously explained, order acceptance and reports of 
executions are handled by Exchange systems. The Exchange also proposes 
to delete NYSE Rule 123B(d) because it describes orders being sent to 
and executed by the DMM.
    The Exchange also proposes to amend paragraph (2)(A) of Rule 
123B(b) to have it apply to all members if the member

[[Page 8602]]

makes an erroneous report of the price of a transaction, by 
substituting the word ``member'' for the word ``broker'' in the rule. 
This will then include situations in which a DMM makes an erroneous 
report as to price on a transaction.
    NYSE Rule 92(d)(6) (``Limitations on Members' Trading Because of 
Customers' Orders'') is further proposed for deletion as it restricts 
DMM proprietary trading during the hours the Exchange is closed. The 
restriction was predicated on the former specialist system where the 
specialist had knowledge of customer orders in his or her possession. 
The restriction is obviated by the fact that the DMM no longer 
``holds'' customer orders. Nevertheless, as members, DMMs will continue 
to be subject to the rule's general prohibition. Similarly, the last 
sentence of NYSE Rule 127(d)(3) (``Block Crosses Outside the Prevailing 
NYSE Quotation'') is proposed for deletion because it also is 
predicated on the DMM retaining stock for the DMM's own account at a 
price at which the DMM ``holds'' unexecuted customer orders.\11\
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    \11\ See February 13th e-mail, supra, note 10.
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    The Exchange believes that the amendments proposed herein to remove 
legacy rule language that is inconsistent with the role of the DMM as 
approved by the Commission in the New Market Model filing are necessary 
to adequately reflect the functions performed by the DMM.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\12\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\13\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, 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 Exchange 
believes the proposed rule changes are consistent with these principles 
in that it amends legacy rules to accurately reflect the role performed 
by the Exchange's market maker thus removing impediments to and 
perfecting the mechanism of a free and open market.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of 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 \14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\16\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requested that the Commission waive 
the 30-day operative delay and designate the proposed rule change 
operative upon filing.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) 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 has satisfied this requirement.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The proposed rule change seeks to remove legacy language that is 
inconsistent with the role performed by DMMs as approved by the 
Commission in the New Market Model filing.\17\ Furthermore, it seeks to 
clarify its rule text in order to avoid any undue confusion on the part 
of Exchange market participants as it relates to the function performed 
by DMMs. Therefore, the Commission designates the proposal operative 
upon filing.\18\
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    \17\ See supra note 6.
    \18\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 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 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.\19\
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    \19\ 15 U.S.C. 78s(b)(3)(C).
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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-2009-13 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2009-13. 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

[[Page 8603]]

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-2009-13 and should be submitted on or before March 
18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
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    \20\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E9-3980 Filed 2-24-09; 8:45 am]

BILLING CODE 8011-01-P