Document ID: SEC-2008-1416-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-10-10T04:00Z

[Federal Register: October 10, 2008 (Volume 73, Number 198)]
[Notices]               
[Page 60380-60382]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10oc08-147]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58736; File No. SR-NYSE-2008-91]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by New York Stock Exchange LLC To Adopt a Policy Relating to its 
Treatment of Trade Reports That It Determines To Be Inconsistent With 
the Prevailing Market

October 6, 2008.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Exchange Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is 
hereby given that on September 26, 2008, New York Stock Exchange, LLC 
(the ``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 prepared by the Exchange. 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 et SEC [sic].
    \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 adopt a policy relating to its treatment 
of trade reports that it determines to be inconsistent with the 
prevailing market. The Exchange does not expect that the proposed rule 
change will have any direct effect, or significant indirect effect, on 
any other Exchange rule in effect at the time of this filing.

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 these statements may be examined at

[[Page 60381]]

the places specified in Item IV below. The NYSE 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
    Trades in listed securities occasionally occur at prices that 
deviate significantly from prevailing market prices and those trades 
sometimes establish a high, low or last sale price for a security that 
does not reflect the true market for the security.
    The Consolidated Tape Association (``CTA'') offers each Participant 
in the CTA Plan the discretion to append an indicator (an ``Aberrant 
Report Indicator'') to a trade report to indicate that the market 
believes that the trade price in a trade executed on that market does 
not accurately reflect the prevailing market for the security. The CTA 
recommends that data recipients should exclude the price of any trade 
to which the Aberrant Report Indicator has been appended from any 
calculation of the high, low and last sale prices for the security.
    The Exchange proposes to adopt as policies of the Exchange:
    i. That it shall monitor for trade prices that do not accurately 
reflect the prevailing market for a security;
    ii. That it shall append an Aberrant Report Indicator to any trade 
report with respect to any trade executed on the Exchange that the 
Exchange determines to be inconsistent with the prevailing market; and
    iii. That it shall discourage vendors and other data recipients 
from using prices to which the Exchange has appended the Aberrant 
Report Indicator in any calculation of the high, low or last sale price 
of a security.
    The Exchange shall act retroactively to append the Aberrant Report 
Indicator to trades that do not accurately reflect the prevailing 
market for a security commencing as of January 1, 2007.
    The Exchange will urge vendors to disclose the exclusion from high, 
low or last sale price data of any aberrant trades excluded from high, 
low or last sale price information they disseminate and to provide to 
data users an explanation of the parameters used in the Exchange's 
aberrant trade policy. Upon initial adoption of the Aberrant Report 
Indicator, the Exchange will also contact all of its listed companies 
to explain the aberrant trade policy and will notify users of the 
information that these are still valid trades. The Exchange will inform 
the affected listed company each time the Exchange or another market 
appends the Aberrant Report Indicator to a trade in an NYSE-listed 
stock and will remind the users of the information that these are still 
valid trades in that they were executed and not unwound as in the case 
of a clearly erroneous trade.
    While the CTA disseminates its own calculations of high, low and 
last sale prices, vendors and other data recipients--and not the 
Exchange--frequently determine their own methodology by which they wish 
to calculate high, low and last sale prices. Therefore, the Exchange 
shall endeavor to explain to those vendors and other data recipients 
the deleterious effects that can result from including in the 
calculations a trade to which the Aberrant Report Indicator has been 
appended.
    In making the determination to append the Aberrant Report 
Indicator, the Exchange shall consider all factors related to a trade, 
including, but not limited to, the following:
     Material news released for the security;
     Suspicious trading activity;
     System malfunctions or disruptions;
     Locked or crossed markets;
     A recent trading halt or resumption of trading in the 
security;
     Whether the security is in its initial public offering;
     Volume and volatility for the security;
     Whether the trade price represents a 52-week high or low 
for the security;
     Whether the trade price deviates significantly from recent 
trading patterns in the security;
     Whether the trade price reflects a stock-split, 
reorganization or other corporate action;
     The validity of consolidated tape trades and quotes in 
comparison to national best bids and offers; and
     The general volatility of market conditions.
    Currently, the Exchange does not trade on an unlisted trading 
privilege (``UTP'') basis any securities listed on other markets. In 
the event that the Exchange commences UTP trading at some future date, 
the Exchange proposes that its policy shall be to consult with the 
listing exchange (if the Exchange is not the listing exchange) and with 
other markets (in the case of executions that take place across 
multiple markets) and to seek a consensus as to whether the trade price 
is consistent with the prevailing market for the security.
    In monitoring trade prices that may be inconsistent with the 
prevailing market, the Exchange proposes that Exchange policy shall be 
to follow the following general guidelines: The Exchange will review 
whether a trade price does not reflect the prevailing market for a 
security if the trade occurs during regular trading hours (i.e., 9:30 
a.m. to 4 p.m.) and occurs at a price that deviates from the 
``Reference Price'' by an amount that meets or exceeds the following 
thresholds:

------------------------------------------------------------------------
                                                              Numerical
                        Trade price                           threshold
                                                              (percent)
------------------------------------------------------------------------
Between $0 and $15.00......................................            7
Between $15.01 and $50.00..................................            5
In excess of $50.00........................................            3
------------------------------------------------------------------------

    The ``Reference Price'' refers to (a) if the primary market for the 
security is open at the time of the trade, the national best bid or 
offer for the security, or (b) if the primary market for the security 
is not open at the time of the trade, the first executable quote or 
print for the security on the primary market after execution of the 
trade in question. However, if the circumstances suggest that a 
different Reference Price would be more appropriate, the Exchange will 
use the different Reference Price. For instance, if the national best 
bid and offer for the security are so wide apart as to fail to reflect 
the market for the security, the Exchange might use as the Reference 
Price a trade price or best bid or offer that was available prior to 
the trade in question.
    If the Exchange determines that a trade price does not reflect the 
prevailing market for a security and the trade represented the last 
sale of the security on the Exchange during a trading session, the 
Exchange may also determine to remove that trade's designation as the 
last sale. The Exchange may do so either on the day of the trade or at 
a later date, so as to provide reasonable time for the Exchange to 
conduct due diligence regarding the trade, including the consideration 
of input from markets and other market participants.
    The Exchange has always monitored for trade prices that do not 
accurately reflect the prevailing market for a security. For more than 
a year, the Exchange has embraced the policy of discouraging vendors 
and other data recipients from including trade reports that are 
inconsistent with the prevailing market in their calculations of high, 
low and last sale prices. The Exchange proposes to use the Aberrant 
Report Indicator in accordance with the

[[Page 60382]]

guidelines set forth above. Where appropriate, the Exchange may apply 
the Aberrant Report Indicator to trades that were reported prior to the 
adoption of this policy.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\4\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange Act,\5\ in particular in 
that it is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, 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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    \4\ 4 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    In particular, the Aberrant Report Indicator is consistent with the 
protection of investors and the public interest in that the Exchange 
will seek to ensure a proper understanding of the Aberrant Report 
Indicator among securities market participants by: (i) Urging vendors 
to disclose the exclusion from high, low or last sale price data of any 
aberrant trades excluded from high, low or last sale price information 
they disseminate and to provide to data users an explanation of the 
parameters used in the Exchange's aberrant trade policy; (ii) informing 
the affected listed company each time the Exchange or another market 
appends the Aberrant Report Indicator to a trade in an NYSE-listed 
stock; and (iii) reminding the users of the information that these are 
still valid trades in that they were executed and not unwound as in the 
case of a clearly erroneous trade.

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 Exchange Act.

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

    From time to time, the Exchange has received comments from 
representatives of its listed companies that a trade report for a 
transaction in the stock of that listed company is inconsistent with 
the prevailing market for that stock and that the inconsistent trade 
price has inappropriately distorted the high, low and last sale price 
calculations for the listed company. While those commenters have not 
submitted formal, written comments on the proposal, the Exchange has 
incorporated some of their ideas into the proposal and this proposed 
rule change reflects their input. The Exchange has not received any 
unsolicited written comments from members or other interested parties.

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 the self-regulatory organization consents, the Commission will:
    (A) By order approve the 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 Exchange 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-2008-91 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2008-91. 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, 100 F Street, NE., 
Washington, DC 20549, 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-2008-91 and should be 
submitted on or before October 31, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-24181 Filed 10-9-08; 8:45 am]

BILLING CODE 8011-01-P