Document ID: SEC-2007-0845-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-06-20T04:00Z

[Federal Register: June 20, 2007 (Volume 72, Number 118)]
[Notices]               
[Page 34056-34059]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20jn07-160]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55908; File No. SR-NYSE-2007-51]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rules 54 (``Dealings on Floor--Persons'') and 70 (``Bids 
and Offers'')

June 14, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 8, 2007, the New York Stock Exchange LLC (``NYSE'' or the 
``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 substantially prepared by the Exchange. 
The Exchange filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder, which 
renders it effective upon filing with the Commission.\4\ 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 Rules 54 (``Dealings on 
Floor--Persons'') and 70 (``Bids and Offers'') to allow a member 
organization to operate its booth premise on the Exchange Floor in a 
manner similar to a member organization's ``upstairs'' office, provided 
that the member organization has been approved to operate its booth in 
this manner by NYSE Regulation, Inc. (``NYSER''). The Exchange further 
proposes to make conforming amendments to Exchange Rules 6 (``Floor''), 
112 (``Orders initiated Off the Floor''), 123 (``Records of Orders''), 
132B (``Order Tracking Requirements''), and 134 (``Differences and 
Omissions-Cleared Transactions''). The text of the proposed rule change 
is available at the Exchange, the Commission's Public Reference Room, 
and http://www.nyse.com.

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 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 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
    NYSE is proposing to amend Exchange Rules 54 (``Dealings on Floor--
Persons'') and 70 (``Bids and Offers'') to allow a member organization 
to operate its booth premise on the Exchange Floor in a manner similar 
to a member organization's ``upstairs'' office, provided that the 
member organization has been approved to operate its booth in this 
manner by NYSER.
    In this filing, the Exchange further proposes to make conforming 
amendments to Exchange Rules 6 (``Floor''), 112 (``Orders initiated Off 
the Floor''), 123 (``Records of Orders''), 132B (``Order Tracking 
Requirements''), and 134 (``Differences and Omissions-Cleared 
Transactions'').
    Operation of an ``Upstairs'' Office From a Floor Member's Booth 
Premise. As a result of the changes in the way in which trading occurs 
on the Exchange (and in the securities markets in general) due to, 
among other things, Regulation National Market System (``Regulation 
NMS'') and the Exchange's operation of its Hybrid Market, the Exchange 
seeks to modify the Exchange rules that impede Floor broker member 
organizations from operating within its booth premises similar to a 
member organization's ``upstairs'' office.
    Although there is no Exchange rule that specifically prohibits a 
Floor broker member organization from operating within its booth 
premise in a manner similar to its ``upstairs'' office,\5\ the ability 
of a Floor broker member organization to operate its booth premises in 
this manner has been restricted by certain Exchange rules. For example, 
member organization staff operating out of such booth premises, who are 
not Exchange ``members'' are constrained in the way in which they are 
allowed to process orders sent to the booth, as Exchange Rule 54 limits 
the right to conduct business ``on the Floor'' to members.
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    \5\ For example, a member organization's upstairs office can, 
among other things, route orders in NYSE listed securities directly 
to another market.
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    The Exchange states that the impetus for the proposed amendment is 
the result of several factors. Competition from other market centers 
and the growth of alternative trading systems, coupled with increased 
internalization by broker-dealers, has challenged the dominance of the 
trading post as the centralized locus of the representation and 
execution of orders in a particular security. Recent statistics provide 
potent proof of this--there has been a 49% decrease in Floor broker 
share of total NYSE trading volume on the NYSE between the first 
quarter of 2006 and the first quarter of 2007. At the same time, the 
rapid dissemination of consolidated quote and trade information and 
real-time updates of the Exchange limit order book has increased 
exponentially the amount and accuracy of available information and the 
speed with which it is disseminated. These changes have not only 
impacted the way in which information is collected and processed, they 
have also increased competition for member organizations, which are 
continually searching for ways to provide more efficient and less 
costly service to their customers.
    Therefore, the Exchange seeks to provide its Floor broker member 
organizations with the ability to access other markets \6\ and trade a 
wider range of products from the Floor broker member organizations' 
booth premises

[[Page 34057]]

located around the perimeters of the current Exchange Floor and lining 
the passageways connecting the rooms that comprise the Exchange Floor. 
The NYSE believes that this will provide Floor brokers with the ability 
to remain competitive in view of changes in the markets and the manner 
in which customer orders are handled and executed. Pursuant to the 
proposal, a Floor broker or appropriately registered and supervised 
booth staff would be able to transmit orders in NYSE-listed securities 
that they have received on the Exchange Floor to away markets for 
execution directly from its booth premises without having to send the 
order to an upstairs trading desk. The instant proposal will further 
allow member organizations to centralize these operations within their 
booth premises.
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    \6\ The Exchange previously expanded the ability of Floor broker 
member organizations, on a pilot basis, to transmit agency orders in 
Nasdaq Stock Market LLC (``Nasdaq'') and NYSE ARCASM 
listed securities, from the Exchange Floor, including booth 
premises, provided the member organization complies with certain 
requirements. These requirements include, among others, membership 
in the NASD (for Nasdaq-listed securities) or having NYSE ARCA 
equities trading permit (for NYSE ARCA-listed securities); receipt 
of the order on the NYSE Floor through a permissible communication 
device, and transmission of the order to the appropriate market 
through a non-NYSE order management system. See NYSE Information 
Memo 05-88 (November 10, 2005); NYSE Member Education Bulletin 2006-
7 (March 22, 2006); NYSER Information Memos 06-37 (May 19, 2006) and 
06-43 (June 15, 2006); and NYSER Member Education Bulletin 2006-12 
(July 21, 2006).
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    To remove the impediments to Floor broker member organization 
ability to efficiently operate its business from the Exchange Floor, 
the NYSE seeks to amend Exchange Rule 70 (``Bids and Offers'') to add 
Supplemental section .40. Proposed Exchange Rule 70.40 will allow 
member organizations approved to operate a booth premise to handle 
orders in all securities, including those listed on other markets from 
their approved booth premises. The proposed rule will also allow the 
member organizations' appropriately registered and supervised booth 
staff to handle orders in a similar manner as sales traders are 
permitted to operate in ``upstairs'' offices, subject to restrictions 
described below. As such, the Exchange seeks to make a corresponding 
amendment to Exchange Rule 54 in order to permit appropriately 
registered and supervised booth staff of member organizations operating 
out of an approved booth premise who are not ``members'' to process 
orders sent to the booth in the same manner that a sales trader in an 
``upstairs office'' is allowed to process orders.
    Since the booth premise will operate as an ``upstairs office,'' a 
member organization, consistent with the type of business activities it 
seeks to operate in its approved booth premise, will be required to 
comply with all applicable rules \7\ governing the operation of a 
public business. The specific rules that will apply to the operation of 
an approved booth premise will depend on the type of business that 
NYSER has approved the member organization to operate. For example, a 
member organization that is approved to operate its business solely 
from a booth premise and only provide Exchange Floor executions for 
other member organizations would no longer be required to carry 
Fidelity Bonds pursuant to Exchange Rule 319. Moreover, pursuant to the 
proposed rule, a member organization is required to obtain approval 
from NYSER prior to implementing any changes in the operation of its 
approved booth premise.
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    \7\ Exchange rules applicable to the operation of a public 
business include, but are not limited to, Admission of Members 
(Exchange Rules 300-324) and Operation of Member Organizations 
(Exchange Rules 325-465).
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    Unlike the ``upstairs'' offices, member organizations approved to 
operate booth premises pursuant to proposed Exchange Rule 70.40 shall 
be prohibited from effecting any transaction for its own account, the 
account of an associated person, or an account with respect to which it 
or an associated person thereof exercises investment discretion from 
such approved booth premises.
    In addition, proposed Exchange Rule 70.40 will require that member 
organizations operating approved booth premises in this manner must 
adopt and implement comprehensive written procedures and guidelines 
governing the conduct and supervision of business and staff at the 
booth, as well as a process for regular review of these procedures and 
guidelines and compliance therewith. These written procedures and 
guidelines and any changes thereto must be approved by NYSER prior to 
their implementation.
    Exchange rules that govern trading on the Exchange Floor will 
continue to apply to member organizations on the Exchange Floor, 
including those member organizations operating within an approved booth 
premise. Member organizations that operate within an approved booth 
premises pursuant to the proposal will also be required to comply with 
all rules that govern upstairs activity. Through this filing, the 
Exchange seeks to amend Exchange Rule 123(e) to make clear that member 
organizations operating a booth premise that choose to route an order 
to the Exchange Floor for execution must, immediately upon receipt of 
the order and prior to representation and execution on the Exchange 
Floor or placement in an agency interest file within the Display Book 
system or routing the order to a Floor broker for execution at the 
post, enter such order into an electronic system on the Exchange 
Floor.\8\
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    \8\ See Exchange Rule 123(e) (``FESC'').
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    The Exchange further seeks to amend Exchange Rule 123(b) and 
132B(a)(1) to make clear that orders in NYSE-listed securities sent to 
or generated at a member organization's approved booth premise and 
routed to another market for execution must continue to comply with the 
requirements of NYSE Rule 132B (Order Tracking Requirements). For such 
orders, the provisions of Exchange Rule 123(b) shall not apply; rather, 
the provisions of the Exchange Rule 132B will apply to such orders.
    Moreover, as it relates to any order initiated and/or routed from a 
member organization's booth premise operating pursuant to proposed 
Exchange Rule 70.40 for execution on another market center, the 
Exchange seeks to amend Exchange Rule 134(d) to make clear that member 
organizations are prohibited from processing errors related to 
transactions on another market center in its Exchange required error 
account. Member organizations continue to be required to maintain ``* * 
* an error account at a registered broker or dealer in his or her name, 
or in the name of his or her member organization; or (b) such member 
participates in an error account established for a group of members * * 
*.'' \9\ Nevertheless error transactions processed in said error 
account must be limited solely to transactions executed on the Exchange 
Floor. Of course, member organizations must follow the applicable rules 
of the away market center related to error transactions.
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    \9\ See Exchange Rule 134(d).
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    Regulation of Approved Booth Premises. The proposed amendment 
envisions robust regulation of the staff and business conducted from 
booth premises by both the member organization and NYSER. For example, 
prior to operating booth premises in the manner permitted by the 
amended rule, a member organization must receive the approval of NYSER. 
In determining whether to grant such approval, member organizations 
will be required to provide NYSER with, among other things, detailed 
information regarding the proposed systems and order handling process, 
proof that all personnel are appropriately registered, proof of 
independent compliance personnel and proof of adequate supervisory 
controls.
    Further, the member organization must adopt and implement 
comprehensive written procedures, which also must be approved by NYSER, 
in governing the conduct of its business and staff and must review 
compliance with these procedures on a regular basis. In addition, the 
same registration and supervisory requirements that apply to upstairs 
offices must be followed in the booth premises.

[[Page 34058]]

    The Exchange expects member organizations to vigorously supervise 
compliance with these procedures. NYSER will also appropriately review 
compliance with these obligations and has the authority to enforce them 
through the disciplinary process as warranted.
    NYSER will periodically examine the member organization's business 
conducted at its approved booth premise. Further, NYSER has the ability 
to examine the member organization's business conducted at such 
approved booth premise in the same manner as it has with respect to a 
firm's ``upstairs'' office. The review would include an examination to 
confirm that the member organization has in place adequate policies and 
procedures to reasonably prevent and detect, among other things, 
effecting proprietary transactions from its approved booth premises and 
ensure compliance by the member organization with the other related 
provisions of proposed Exchange Rule 70.40. NYSER further represents 
that its procedures are adequate to appropriately review compliance 
with all obligations delineated in proposed Exchange Rule 70.40, 
including the prohibition against proprietary trading, during its 
examination of the member organization's approved booth premise.
    Conforming Amendments. Through this proposal, the Exchange further 
seeks to make certain conforming changes to Exchange rules. The 
Exchange proposes to amend Exchange Rule 6 (``Floor'') and Exchange 
Rules 112(b). Specifically, the Exchange proposes to amend the 
definition of ``Floor'' in Rule 6 and the corresponding definition of 
Floor contained in Exchange Rule 112(b) to properly reflect the 
physical locations that comprise the Exchange Floor. Thus, the Exchange 
proposes to amend these rules so that each will state that the Exchange 
Floor consists of the Exchange trading Floor and the premises 
immediately adjacent thereto, such as the various entrances and lobbies 
of the 11 Wall Street, 18 New Street, 8 Broad Street, 12 Broad Street 
and 18 Broad Street Buildings. The Exchange Floor will also include the 
telephone facilities available in the aforementioned locations.
    In addition, the Exchange proposes to amend Exchange Rule 123.10 to 
clarify that, when giving out orders originating on the Exchange Floor, 
or transmitted by any person other than a member or member organization 
to members on the Exchange Floor, or when changing or cancelling orders 
previously given, members are required to do so electronically, or in 
writing.
    The Exchange also seeks to amend Exchange Rule 123.23 to accurately 
reflect that currently member organizations employ vendor systems or 
proprietary systems to record the details of an order or report for 
purposes of Exchange Rule 123. Furthermore, the proposed conforming 
amendment to Exchange Rule 123.23 clarifies that whether a member 
organization employs a vendor system or uses its proprietary systems to 
record the details of an order or report, the system must be 
synchronized with reference to a time source as designated by the 
Exchange.
    Conclusion. The Exchange believes that the above proposal provides 
Floor broker member organizations with the ability to remain 
competitive in view of changes in the markets and the manner in which 
customer orders are handled and executed by allowing Floor broker 
member organizations to represent customer orders from its approved 
booth premises similar to that of an ``upstairs'' office on the 
Exchange Floor in a robust regulatory environment that serves to foster 
just and equitable principles of trade and benefit Exchange customers.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \10\ of 
the Securities Exchange Act of 1934 (the ``Act''), in general, and 
furthers the objectives of Section 6(b)(5) \11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and subparagraph (f)(6) of Rule 19b-4 
\13\ thereunder because it does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; (iii) become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.\14\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ Rule 19b-4(f)(6)(iii) requires that a self-regulatory 
organizationsubmit to the Commission written 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. The Exchange has satisfied the 
five-day pre-filing notice requirement.
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    Under Rule 19b-4(f)(6) of the Act,\15\ the proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. NYSE has requested that the 
Commission waive the 30-day operative delay so that it may immediately 
implement this proposal which it believes will result in a more 
efficient and less costly service to the customers of Floor broker 
member organizations as a result of the Floor broker member 
organizations' ability to centralize operations in their booth 
premises. The Commission notes that the Exchange has already 
implemented two pilot programs that presently allow Floor brokers to 
access away liquidity in NASDAQ-listed securities and NYSE Arca-listed 
securities from the Exchange Floor. The Commission also notes that the 
member organizations must obtain approval from NYSE prior to operating 
pursuant to proposed Rule 70.40 and must continue to meet all their 
obligations pertaining to executions on the Exchange Floor. In 
addition, the Commission notes that any proprietary trading would be 
prohibited in approved booth premises, and requires significant 
obligations on the part of member organizations and NYSER with regard 
to such trading. The Commission believes that the proposed rule change 
should allow for greater efficiencies for the Exchange as well as 
member organizations which make use of approved booth premises. 
Therefore, the

[[Page 34059]]

Commission, consistent with the protection of investors and the public 
interest, has determined to waive the 30-day operative date so that the 
proposal may take effect upon filing.\16\
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    \15\ Id.
    \16\ For purposes only of waiving the operative delay for this 
proposal, theCommission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such 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.

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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2007-51 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-2007-51. 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 will also 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-2007-51 and should be submitted on or before July 
11, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-11941 Filed 6-19-07; 8:45 am]

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