Document ID: SEC-2008-0183-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-02-05T05:00Z

[Federal Register: February 5, 2008 (Volume 73, Number 24)]
[Notices]               
[Page 6757-6759]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe08-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57220; File No. SR-NYSEArca-2008-08]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Pertaining to the Imposition of Fines for Minor 
Rule Violations

January 29, 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 January 18, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared substantially 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\ 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 NYSE Arca Rule 6.24, ``Exercise of 
Option Contracts,'' and NYSE Arca Rule 10.12, ``Minor Rule Plan.'' The 
text of the proposed rule change is available on the Exchange's Web 
site (http://www.nyse.com), at the Exchange's principal office, and at 

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 Exchange included statements

[[Page 6758]]

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 Arca Rule 6.24 contains special procedures that apply to the 
exercise of options on the last business day before expiration. The 
Exchange proposes to amend NYSE Arca Rule 6.24 to: (i) Add a reference 
to new terminology; (ii) make minor revisions to the procedures related 
to exercising option contracts; (iii) amend Commentary .08 of NYSE Arca 
Rule 6.24 to authorize the Exchange to sanction an OTP Holder or OTP 
Firm that fails to follow NYSE Arca Rule 6.24, pursuant to the Minor 
Rule Plan (``MRP''); and (iv) add the recommended sanctions to the MRP 
contained in NYSE Arca Rule 10.12. The proposed changes are described 
briefly below.
    An option holder desiring to exercise or not exercise expiring 
options must either: (i) Take no action and allow exercise 
determinations to be made in accordance with the Options Clearing 
Corporation's (``OCC'') Ex-by-Ex procedures, where applicable; or (ii) 
submit a Contrary Exercise Advice (``CEA'') to the Exchange. A CEA is a 
communication to either: (i) not exercise an option that would be 
automatically exercised under OCC's Ex-by-Ex procedure, or (ii) 
exercise an option that would not be automatically exercised under 
OCC's Ex-by-Ex procedure. A CEA is also referred to within the options 
industry as an Expiring Exercise Declaration (``EED''). While the form 
itself may be called by a different name, the purpose and procedure for 
submitting an EED is identical to that of a CEA. The Exchange proposes 
adding a parenthetical reference to EEDs within NYSE Arca Rule 6.24.
    An OTP Holder or OTP Firm that manually submits a CEA to the 
Exchange does so by completing a form and putting it in the Exchange's 
Contrary Exercise Advice Box. Going forward, the Exchange will 
discontinue the use of the Contrary Exercise Advice Box; and instead, 
an OTP Holder or OTP Firm will submit a CEA directly to a designated 
representative of the Exchange's Options Surveillance Department.
    Commentary .08 to NYSE Arca Rule 6.24 provides that the failure of 
any OTP Holder to follow the provisions contained in this rule may be 
referred to the Ethics and Business Conduct Committee (``EBCC'') and 
result in the assessment of a fine, which may include, but is not 
limited to, the disgorgement of potential economic gain obtained or 
loss avoided by the subject exercise. Referral to the EBCC involves a 
formal disciplinary proceeding. NYSE Arca proposes to add a provision 
to Commentary .08 that would authorize the Exchange to sanction an OTP 
Holder or OTP Firm that fails to follow NYSE Arca Rule 6.24, pursuant 
to the MRP. The Exchange would retain the authority to refer violators 
to the EBCC for formal disciplinary proceedings.
    The Exchange also proposes adding the phrase ``or OTP Firm'' to 
Commentary .08 to NYSE Arca Rule 6.24. The Exchange has always intended 
to apply NYSE Arca Rule 6.24 equally to both OTP Holders and OTP Firms. 
The addition of OTP Firms will codify the original intent of NYSE Arca 
Rule 6.24.
    Under this proposal, violators of NYSE Arca Rule 6.24 may be 
subject to MRP fines based on the number of violations occurring within 
a rolling 24-month period. An individual OTP Holder would be subject to 
a fine of $500 for the first offense, $1,000 for the second offense, 
and $2,500 for the third offense. An OTP Firm would be subject to a 
$1,000 fine for the first offense, $2,500 for the second offense, and 
$5,000 for a third offense.\3\ A list of the proposed fines would be 
added to the MRP fine schedule in NYSE Arca Rule 10.12. The MRP 
provides a reasonable means of addressing rule violations that do not 
necessarily rise to the level of requiring formal disciplinary 
proceedings, while also providing a greater flexibility in handling 
certain violations. Adopting a provision that would allow the Exchange 
to sanction violators under the MRP by no means minimizes the 
importance of compliance with NYSE Arca Rule 6.24. The Exchange 
believes that the violation of any of its rules is a serious matter. 
The addition of a sanction under the MRP simply serves to add an 
additional method for disciplining violators of NYSE Arca Rule 6.24. 
The Exchange would continue to conduct surveillance with due diligence 
and make its determination, on a case by case basis, whether a fine 
under the MRP is appropriate, or whether a violation should be subject 
to formal disciplinary proceedings.
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    \3\ The Exchange, in its discretion, processes subsequent 
violations, after the third violation, according to NYSE Arca Rule 
10.4. See NYSE Arca Rule 10.12(h), n.1.
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    In addition, the Exchange, as a member of the Intermarket 
Surveillance Group (``ISG''), as well as certain other self-regulatory 
organizations (``SRO'') executed and filed on October 29, 2007 with the 
Commission, an Agreement pursuant to Section 17(d) of the Act (the 
``17d-2 Agreement'').\4\ As set forth in the 17d-2 Agreement, the SROs 
have agreed that their respective rules concerning the filing of CEAs 
are common rules. As a result, the proposal to add CEA/EED violations 
to the NYSE Arca MRP will further result in consistency in sanctions 
among the SROs that are signatories to the 17d-2 Agreement concerning 
CEA/EED violations.
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    \4\ See letter to Richard Holley, Senior Special Counsel, 
Division of Trading and Markets, Commission, from Nyieri Nazarian, 
Assistant General Counsel, American Stock Exchange LLC (``Amex''), 
dated October 29, 2007.
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    NYSE Arca Rule 10.12(h)(33) and Rule 10.12(k)(i)(33) are presently 
designated as ``Reserved.'' The Exchange proposes to use these reserved 
rule numbers for new NYSE Arca Rule 10.12(h)(33), which would reference 
CEA/EED violations pursuant to Rule 6.24, and new NYSE Arca Rule 
10.12(k)(i)(33), which would include the recommended fines for CEA/EED 
violations.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\6\ 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. 
Specifically, the Exchange believes that the proposed rule change will 
strengthen its ability to carry out its oversight responsibilities as 
an SRO and reinforce its surveillance and enforcement functions. 
Additionally, the Exchange believes that the proposed rule change will 
promote consistency in minor rule violations and respective SRO 
reporting obligations as set forth pursuant to Rule 19d-1(c)(2) under 
the

[[Page 6759]]

Act,\7\ which governs minor rule violation plans.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 17 CFR 240.19d-1(c)(2).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NYSE Arca 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 neither solicited nor received comments on the 
proposal.

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 Exchange 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-NYSEArca-2008-08 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-NYSEArca-2008-08. 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 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-NYSEArca-2008-08 and should 
be submitted on or before February 26, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Florence E. Harmon,
Deputy Secretary.
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    \8\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-1967 Filed 2-4-08; 8:45 am]

BILLING CODE 8011-01-P