Document ID: SEC-2008-0769-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-06-02T04:00Z

[Federal Register: June 2, 2008 (Volume 73, Number 106)]
[Notices]               
[Page 31526-31528]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jn08-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57870; File No. SR-NYSE-2008-37]

 
Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend NYSE Rule 13 To Extend the Definition of Routing Broker and 
Effect Conforming Changes to NYSE Rule 17

May 27, 2008.
    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 May 9, 2008, the New York Stock Exchange, LLC (``NYSE'' or 
``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 has designated the proposed rule change as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ 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\ 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 proposes to amend Exchange Rule 13 to include in the 
definition of ``Routing Broker'' any non-affiliate third-party broker-
dealer that may act as a Routing Broker for the Exchange. The Exchange 
further proposes a conforming amendment to Exchange Rule 17 to allow 
for the operation of such a non-affiliate third-party broker-dealer. 
The text of the proposed rule change is available at NYSE, the 
Commission's Public Reference Room, and 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. 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
    Through this filing, the Exchange proposes to amend Exchange Rule 
13 to expand the definition of ``Routing Broker'' to include any non-
affiliate third-party broker-dealer that may act as a Routing Broker 
for the Exchange. The Exchange further proposes to make conforming 
amendments to Exchange Rule 17 to allow for the operation of

[[Page 31527]]

such a non-affiliate third-party broker-dealer.

Current Exchange Rules 13 and 17

    Exchange Rule 13 currently defines a Routing Broker as the broker-
dealer affiliate of the Exchange that acts as agent for routing orders 
entered into Exchange systems to other market centers for execution 
whenever such routing is required by Exchange Rules and federal 
securities laws.\5\ Rule 13 further provides that the Routing Broker 
shall operate as prescribed in Exchange Rule 17. Archipelago 
Securities, LLC (``Arca Sec''), a broker-dealer affiliate of the 
Exchange, currently functions as the sole Routing Broker for the 
Exchange.\6\
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    \5\ On April 5, 2007, the Commission noticed amendments to 
Exchange Rules 13 and 17 to establish a mechanism to route orders to 
away market centers for execution in compliance with Exchange Rules 
and Regulation NMS, and to facilitate the acceptance of odd-lot and 
sub-penny executions. See Securities Exchange Act Release No. 55590 
(April 5, 2007), 72 FR 18707 (April 13, 2007) (SR-NYSE-2007-29) 
(``Routing Broker Release'').
    \6\ See id.
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    Exchange Rule 17 provides that the Routing Broker will receive 
routing instructions from the Exchange to route orders to other market 
centers and report such executions back to the Exchange.\7\ The Routing 
Broker has no discretion and cannot change the terms of an order or the 
routing instructions.\8\ Although the use of the Routing Broker to 
route orders to another market center is optional, all trades entered 
on the Exchange that are routed to other market centers via the Routing 
Broker and are executed are binding.\9\
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    \7\ See Exchange Rule 17(b)(1).
    \8\ See id.
    \9\ See Exchange Rule 17(b)(3) and (4).
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    By serving as a ``system of communication to or from'' the 
Exchange, the Routing Broker operates as a facility of the Exchange in 
accordance with Section 3(a)(2) of the Act.\10\ The Exchange is 
responsible for filing with the Commission any rule changes and fees 
relating to the functions performed by the Routing Broker on NYSE.\11\ 
The books, records, premises, officers, agents, directors and employees 
of the Routing Broker, as a facility of the Exchange, shall be deemed 
to be those of the Exchange (and subject to its oversight) for the 
purposes of the Act.\12\ The books and records of the Routing Broker as 
a facility of the Exchange are subject at all times to inspection and 
copying by the Exchange and the Commission.\13\
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    \10\ 15 U.S.C. 78c(a)(2). See also Exchange Rule 17(b)(5) and 
(6).
    \11\ See Exchange Rule 17(b)(5).
    \12\ See Exchange Rule 17(b)(6).
    \13\ See id.
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Proposed Amendments to Exchange Rules 13 and 17

    The Exchange believes it is prudent to have a secondary Routing 
Broker (or Brokers, as may be needed) as a risk management tool in the 
event of a system malfunction or failure. The Exchange thus proposes to 
amend Rules 13 and 17 to allow any non-affiliate third-party broker-
dealer to operate as a Routing Broker for NYSE.
    Under this proposal, Arca Sec would continue to operate as an 
Exchange Routing Broker in conjunction with a non-affiliate third-party 
broker-dealer(s) that will operate simultaneously as a Routing Broker 
for the Exchange. By relying on parallel Routing Brokers, the Exchange 
will have the ability to divert order flow from one Routing Broker to 
another in the event of a system malfunction or failure.
    A non-affiliate third-party broker-dealer will operate as 
prescribed by Exchange Rule 17, subject to an amendment to subparagraph 
(b)(2). Currently, Exchange Rule 17(b)(2) provides that the Routing 
Broker will not engage in any business other than (a) its outbound 
router function and (b) any other activities it may engage in as 
approved by the Commission.\14\ In view of the addition of a non-
affiliate third-party broker-dealer to Rules 13 and 17, the Exchange 
proposes to limit the proscription on business conduct contained in 
Rule 17(b)(2) to its broker-dealer affiliate (i.e. Arca Sec).
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    \14\ This provision relates specifically to Arca Sec in its 
capacity as the Exchange's sole Routing Broker and affiliate. See 
Routing Broker Release, supra note 5. In March 2007, the Commission 
authorized Arca Sec to act as a marketing agent on behalf of NYSE 
Arca Tech 100 Index and NYSE Arca Tech 100 ETF. These business 
functions have no connection to Arca Sec's function as Routing 
Broker and facility for the Exchange. See Securities Exchange Act 
Release No. 55442 (March 12, 2007), 72 FR 12654 (March 16, 2007) 
(SR-NYSEArca-2007-09).
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    Any non-affiliate third-party broker-dealer that serves as a 
Routing Broker to the Exchange will be subject to the regulatory 
oversight and enforcement responsibilities of a self-regulatory 
organization unaffiliated with the Exchange or any of its other 
affiliates.\15\ Furthermore, the Exchange shall establish and maintain 
procedures and internal controls reasonably designed to adequately 
restrict the flow of confidential and proprietary information between 
the Exchange and its facilities (including the non-affiliate third-
party broker-dealer acting as a facility of the Exchange (``third-party 
Routing Facility''), and any other entity, including any affiliate of 
the third-party Routing Facility, and, if the third-party Routing 
Facility or any of its affiliates engage in any other business 
activities other than providing routing services to the Exchange, 
between the segment of the third-party Routing Facility or affiliate 
that provides the other business activities and the routing 
services.\16\
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    \15\ Currently, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') is the examining authority for the Routing Broker 
designated by the Commission pursuant to Rule 17d-1 of the Act. As 
such, FINRA is responsible for the oversight and enforcement of the 
Routing Broker for compliance with the applicable financial 
responsibility rules.
    \16\ See proposed Exchange Rule 17(b)(8). Telephone conversation 
between Deanna Logan, Associate General Counsel, Office of General 
Counsel, NYSE, and Theodore S. Venuti, Special Counsel, Division of 
Trading and Markets, Commission, on May 27, 2008.
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2. Statutory Basis
    The basis under the Act for the proposed rule change is the 
requirement under Section 6(b)(5),\17\ which requires that an exchange 
have rules that are designed 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. The Exchange believes that 
having a secondary Routing Broker as a risk management tool in the 
event of a system malfunction or failure fulfills these requirements. 
The Exchange thus proposes to amend Rules 13 and 17 to allow any non-
affiliate third-party broker-dealer to operate as a Routing Broker for 
NYSE.
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    \17\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change also supports the principles of Section 
11A(a)(1)(C) of the Act \18\ in that it seeks to ensure economically 
efficient execution of securities transactions and to make it 
practicable for brokers to execute investors' orders in the best 
market. The proposed rule change also contributes to the linking of all 
markets for qualified securities through communication and data 
processing facilities pursuant to Section 11A(a)(1)(D) of the Act,\19\ 
by fostering efficiency, enhancing competition, increasing information 
availability, facilitating the offsetting of investors' orders, and 
contributing to the best execution of such orders.
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    \18\ 15 U.S.C. 78k-1(a)(1)(C).
    \19\ 15 U.S.C. 78k-1(a)(1)(D).
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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

[[Page 31528]]

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 rule change does not: (1) Significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) become operative for 30 
days after the date of this filing, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\22\ 
However, Rule 19b-4(f)(6)(iii) \23\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because such waiver 
will immediately provide a mechanism for the Exchange to divert order 
flow from one Routing Broker to another in the event of a system 
malfunction or failure. In addition, the Commission notes that the 
proposed Exchange rules applicable to a non-affiliated Routing Broker 
are substantially similar to the rules of other national securities 
exchanges applicable to non-affiliated outbound routing brokers.\24\ 
For these reasons, the Commission designates the proposed rule change 
to be operative upon filing with the Commission.\25\
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    \22\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit 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 this notice requirement.
    \23\ Id.
    \24\ See, e.g., the National Stock Exchange, Inc. Rule 2.12, the 
Philadelphia Stock Exchange, Inc. Rule 185(g), and the International 
Securities Exchange, LLC Rule 2108.
    \25\ For the purposes only of waiving the 30-day operative 
delay, 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 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 an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2008-37 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-2008-37. 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 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-2008-37 and should be submitted on or before June 23, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-12205 Filed 5-30-08; 8:45 am]

BILLING CODE 8010-01-P