Document ID: SEC-2006-0728-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-06-07T04:00Z

[Federal Register: June 7, 2006 (Volume 71, Number 109)]
[Notices]               
[Page 33030-33032]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07jn06-148]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53912; File No. SR-NYSE-2006-29]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange LLC Amending the Listed Company 
Manual To Mandate Listed Companies Become Eligible To Participate in a 
Direct Registration System

May 31, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 6, 2006, the New York 
Stock Exchange LLC (``NYSE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change described in Items 
I, II, and III below, which items have been prepared primarily by the 
NYSE. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE proposes to amend its Listed Company Manual (``Manual'') 
to mandate that all listed companies become eligible to participate in 
a Direct Registration System (``DRS'') administered by a clearing 
agency registered under Section 17A of the Act.

[[Page 33031]]

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 NYSE 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 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 these 
statements.\2\
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    \2\ The Commission has modified portions of the text of the 
summaries prepared by the NYSE.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The NYSE proposes to amend its Manual to mandate that all listed 
companies become eligible to participate in DRS administered by a 
clearing agency registered under Section 17A of the Act.
    A DRS is a system that allows an investor to establish either 
through the issuer's transfer agent or through the investor's broker-
dealer a book-entry position in eligible securities on the books of the 
issuer and to electronically transfer her position between the transfer 
agent and the broker-dealer.\3\ DRS, therefore, allows an investor to 
have eligible securities registered in her name without having a 
certificate issued to her and to electronically transfer, thereby 
eliminating the risk and delays associated with the use of 
certificates, her securities to her broker-dealer in order to effect a 
transaction. In 1996 the NYSE amended its rules to permit companies to 
participate in DRS although such participation was voluntary.\4\ 
Approximately 649 issuers listed on the NYSE currently participate in 
DRS.
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    \3\ Currently, the only registered clearing agency operating a 
DRS is the Depository Trust Company (``DTC''). For a description of 
DRS and the DRS facilities administered by DTC, see Securities 
Exchange Act Release Nos. 37931 (November 7, 1996), 61 FR 58600 
(November 15, 1996), [File No. SR-DTC-96-15] (order granting 
approval to establish DRS) and 41862 (September 10, 1999), 64 FR 
51162 (September 21, 1999), [File No. SR-DTC-99-16] (order approving 
implementation of the Profile Modification System).
    \4\ Securities Exchange Act Release No. 37937 (November 8, 
1996), 61 FR 58728 (November 18, 1996), [File No. SR-NYSE-96-29].
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    In 2004, the Commission issued a concept release, Securities 
Transaction Settlement, discussing whether self-regulatory 
organizations (``SROs'') that list securities should adopt rules to 
require issuers to participate in DRS.\5\ Subsequently, representations 
of the NYSE, the NASDAQ Stock Market, the American Stock Exchange, DTC, 
and the Securities Industry Association entered into discussions that 
resulted in the decision to propose a common approach that would 
require listed companies to become eligible to participate in DRS but 
would not require listed companies to participate in DRS.\6\ There is 
an expectation that requiring listed companies to be eligible to 
participate in DRS will accelerate the trend already evident among 
companies to participate in DRS.
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    \5\ Securities Exchange Act Release No. 49405 (March 11, 2004), 
69 FR 12922 (March 18, 2004), [File No. S7-13-04].
    \6\ NASDAQ Stock Market LLC and the American Stock Exchange LLC 
have also filed proposed rule changes with the Commission that would 
require certain listed companies securities DRS eligible. Securities 
Exchange Act Release Nos. 53913 (May 31, 2006) [File No. SR-NASDAQ-
2006-008] and 53911 (May 31, 2006) [File No. SR-Amex-2006-40]. NYSE 
expects that NYSE Arca will submit a similar rule filing in the near 
future.
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    Under the proposed rule change, NYSE will impose its DRS 
eligibility requirement pursuant to proposed new Section 501.00 of the 
Manual.\7\ Proposed Section 501.00 does not specifically require that 
securities must be eligible for the DRS. Rather it requires listed 
companies' securities to be eligible for a direct registration system 
operated by a clearing agency, as defined in Section 3(a)(23) of the 
Act,\8\ that is registered with the Commission pursuant to Section 
17A(b)(2) of the Act. Therefore, while the DRS currently operated by 
DTC is currently the only DRS facility meeting the definition, Section 
501.00 will provide issuers with the option of using another qualified 
DRS if one should exist in the future.
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    \7\ The exact text of the NYSE prepared rule change is set forth 
in its filing which can be found at http://www.nyse.com/RegulationFrameset
.

    \8\ 15 U.S.C. 78a.
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    In order to make a security DRS-eligible, as currently operated by 
DTC, the issuer must have a transfer agent which is a DTC DRS Limited 
Participant.\9\ NYSE understands that the larger transfer agents 
serving NYSE's listed company community are already eligible to 
participate in DRS. However, taking into account all the diverse 
issuers and transfer agents involved across all the markets that will 
be proposing similar rules regarding DRS eligibility, some transfer 
agents may need to take steps to become eligible to participate in DRS, 
and some issuers may wish to change their transfer agent in connection 
with this process. In addition, NYSE has been notified that some 
issuers may need to amend their certificate of incorporation or by-laws 
to become DRS eligible.
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    \9\ DTC's rules require that a transfer agent (including an 
issuer acting as its own transfer agent) acting for a company 
issuing securities in DRS must be a DRS Limited Participant. 
Securities Exchange Act Release No. 37931 (November 7, 1996), 61 FR 
58600 (November 15, 1996), [File No. SR-DTC-96-15].
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    To allow sufficient time for any such necessary actions, NYSE 
proposes to impose the DRS eligibility requirement in two steps. 
Companies listing for the first time should have greater flexibility to 
conform to the eligibility requirements; therefore, proposed Section 
501.00 would require all securities initially listing on NYSE on or 
after January 1, 2007, to be eligible for DRS at the time of listing. 
This provision does not extend to securities of companies (i) Which 
already have securities listed on the NYSE, (ii) which immediately 
prior to such listing had securities listed on another registered 
securities exchange in the U.S., or (iii) which are specifically 
permitted under NYSE's rules to be and which are book-entry only.\10\ 
On and after January 1, 2008, all securities listed on the NYSE will be 
required to be eligible for DRS, again excepting those securities which 
are specifically permitted under NYSE rules to be and which are book-
entry only.
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    \10\ Securities which the NYSE permits to be book-entry-only 
include all debt securities, securities issued pursuant to Section 
703.19 of the Manual, and nonconvertible preferred stock.
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    NYSE also proposes to amend Section 601.01 of the Manual 
(``Exchange Approval of Transfer Agents and Registrars'') to require 
that any issuer required to make a listed security eligible for DRS 
pursuant to proposed Section 501.00 must maintain a transfer agent for 
that security which is eligible either for DRS operated by DTC or by 
another registered clearing agency. In addition, the NYSE proposes to 
amend the transfer agent agreements in Section 906 of the Manual to 
require transfer agents for securities subject to proposed Section 
501.00 to agree that they will at all times be eligible either for the 
DRS operated by DTC or by another registered clearing agency.
2. Statutory Basis
    The statutory basis under the Act for this proposed rule change is 
the requirement under Section 6(b)(5) of the Act, which requires, among 
other things, that the rules of an exchange are 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

[[Page 33032]]

regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.\11\ NYSE believes that the proposed amendments to Sections 
501.00, 601.01, and 906 of the Manual are consistent with its 
obligations under Section 6(b)(5) because issuers will be encouraged to 
use DRS, which should facilitate reducing the use of securities 
certificates and in turn should promote more efficient clearing and 
settling of securities transactions.
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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 NYSE 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 NYSE 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 thirty-five 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 ninety 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 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-2006-29 in 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-2006-29. 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of the 
NYSE and on the NYSE's Web site, http://www.nyse.com. 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-2006-29 and should be 
submitted on or before June 28, 2006.

    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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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-8816 Filed 6-6-06; 8:45 am]

BILLING CODE 8010-01-P