Document ID: SEC-2010-0007-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2010-01-05T05:00Z

[Federal Register: January 5, 2010 (Volume 75, Number 2)]
[Notices]               
[Page 482-485]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ja10-150]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61251; File No. SR-NYSE-2009-129]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Extending the Operative Date of NYSE Rule 92(c)(3) From December 31, 
2009 to July 31, 2010

December 29, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on December 23, 2009, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is

[[Page 483]]

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.
    \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 extend the operative date of NYSE Rule 
92(c)(3) from December 31, 2009 to July 31, 2010. The text of the 
proposed rule change is available at the Exchange, on the Commission's 
Web site at http://www.sec.gov, 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 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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to extend the delayed operative date of 
NYSE Rule 92(c)(3) from December 31, 2009 to July 31, 2010. The 
Exchange believes that this extension will provide the time necessary 
for the Exchange and the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') to harmonize their respective rules concerning customer 
order protection to achieve a standardized industry practice.
Background
    On July 5, 2007, the Commission approved amendments to NYSE Rule 92 
to permit riskless principal trading at the Exchange.\4\ These 
amendments were filed in part to begin the harmonization process 
between Rule 92 and FINRA's Manning Rule.\5\ In connection with those 
amendments, the Exchange implemented for an operative date of January 
16, 2008, NYSE Rule 92(c)(3), which permits Exchange member 
organizations to submit riskless principal orders to the Exchange, but 
requires them to submit to a designated Exchange database a report of 
the execution of the facilitated order. That rule also requires members 
to submit to that same database sufficient information to provide an 
electronic link of the execution of the facilitated order to all of the 
underlying orders.
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    \4\ See Securities Exchange Act Release No. 34-56017 (July 5, 
2007), 72 FR 38110 (July 12, 2007), SR-NYSE-2007-21.
    \5\ See NASD Rule 2111 and IM-2110-2.
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    For purposes of NYSE Rule 92(c)(3), the Exchange informed member 
organizations that when executing riskless principal transactions, 
firms must submit order execution reports to the Exchange's Front End 
Systemic Capture (``FESC'') database linking the execution of the 
riskless principal order on the Exchange to the specific underlying 
orders. The information provided must be sufficient for both member 
firms and the Exchange to reconstruct in a time-sequenced manner all 
orders, including allocations to the underlying orders, with respect to 
which a member organization is claiming the riskless principal 
exception.
    Because the rule change required both the Exchange and member 
organizations to make certain changes to their trading and order 
management systems, the NYSE filed to delay to May 14, 2008 the 
operative date of the NYSE Rule 92(c)(3) requirements, including 
submitting end-of-day allocation reports for riskless principal 
transactions and using the riskless principal account type 
indicator.\6\ The Exchange filed for additional extensions of the 
operative date of Rule 92(c)(3), the most recent of which was an 
extension to December 31, 2009.\7\
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    \6\ See Securities Exchange Act Release No. 56968 (Dec. 14, 
2007), 72 FR 72432 (Dec. 20, 2007), SR-NYSE-2007-114.
    \7\ See Securities Exchange Act Release Nos. 57682 (Apr. 17, 
2008), 73 FR 22193 (Apr. 24, 2008) (SR-NYSE-2008-29); 59621 (Mar. 
23, 2009), 74 FR 14179 (Mar. 30, 2009) (SR-NYSE-2009-30); and 60396 
(July 30, 2009), 74 FR 39128 [sic] (Aug. 5, 2009) (SR-NYSE-2009-73).
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Request for Extension \8\
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    \8\ NYSE Amex LLC has filed a companion rule filing to conform 
its Equities Rules to the changes proposed in this filing. See SR-
NYSEAmex-2009-92, formally submitted December 23, 2009).
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    FINRA and the Exchange have been working diligently on fully 
harmonizing their respective rules, including reviewing the 
possibilities for a uniform reporting standard for riskless principal 
transactions. However, because of the complexity of the existing 
customer order protection rules, including the need for input from 
industry participants as well as Commission approval, the Exchange and 
FINRA will not have harmonized their respective customer order 
protection rules by the current December 31, 2009 date for the 
implementation of the FESC riskless principal reporting.
    The Exchange notes that it has agreed with FINRA to pursue efforts 
to harmonize customer order protection rules. As authorized by their 
respective Boards, FINRA and NYSE Regulation, Inc. (``NYSE 
Regulation'') have each published a Regulatory Notice/Information Memo 
that solicited comments from their respective member participants on 
the proposed harmonized approach to customer order protection.\9\ 
Because industry participants need to code their trading systems to 
comply with customer order protection rules, the Exchange believes that 
industry input is vital to ensuring that the approach to customer order 
protection both meets regulatory needs of protecting customer orders, 
but is also feasible technologically.
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    \9\ See NYSE Regulation Information Memo 09-13 (March 12, 2009); 
FINRA Regulatory Notice 09-15 (March 12, 2009).
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    Both FINRA and NYSE Regulation have received comments from the 
public on the Regulatory Notice and Information Memo, including 
comments from industry forums such as Securities Industry and Financial 
Markets Association (``SIFMA'') and the Financial Information Forum 
(``FIF'') that each jointly addressed the FINRA and NYSE Regulation 
proposals. The comments have generally supported efforts to harmonize 
the FINRA and NYSE rules. Among issues raised in the comment letters, 
however, is the concern that FINRA and NYSE have a harmonized approach 
for reporting riskless principal transactions. In addition, commenters 
note the need for an implementation period to develop any technology 
that would be needed to comply with the proposed reporting standard.
    On December 10, 2009, FINRA filed with the Commission its rule 
proposal to adopt a new industry standard for customer order protection 
as proposed FINRA Rule 5320.\10\ That proposed filing is based on the 
draft rule text that FINRA and NYSE Regulation each circulated to their 
respective member participants and includes copies of the comment 
letters that FINRA and NYSE Regulation received on the rule proposal. 
The Exchange intends to adopt a new customer order protection rule that 
is substantially identical to proposed FINRA Rule 5320.
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    \10\ See SR-FINRA-2009-090 (December 10, 2009).
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    The Exchange continues to believe that pending full harmonization 
of the respective customer order protection rules, it would be 
premature to require

[[Page 484]]

firms to meet the current Rule 92(c)(3) FESC reporting 
requirements.\11\ Indeed, having differing reporting standards for 
riskless principal orders would be inconsistent with the overall goal 
of the harmonization process.
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    \11\ The Exchange notes that it would also need to make 
technological changes to implement the proposed FESC reporting 
solution for Rule 92(c)(3).
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    Accordingly, to provide the Exchange and FINRA the time necessary 
to obtain Commission approval for and implement a harmonized rule set 
that would apply across their respective marketplaces, including a 
harmonized approach to riskless principal trade reporting, the Exchange 
is proposing to delay the operative date for NYSE Rule 92(c)(3) from 
December 31, 2009 to July 31, 2010.
    Pending the harmonization of the two rules, the Exchange will 
continue to require that, as of the date each member organization 
implements riskless principal routing, the member organization have in 
place systems and controls that allow them to easily match and tie 
riskless principal execution on the Exchange to the underlying orders 
and that they be able to provide this information to the Exchange upon 
request. To make clear that this requirement continues, the Exchange 
proposes to amend supplementary material .95 to Rule 92 to specifically 
provide that the Rule 92(c)(3) reporting requirements are suspended 
until July 31, 2010 and that member organizations are required to have 
in place such systems and controls relating to their riskless principal 
executions on the Exchange. Moreover, the Exchange will coordinate with 
FINRA to examine for compliance with the rule requirements for those 
firms that engage in riskless principal trading under Rule 92(c).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\12\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\13\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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 the proposed extension provides the Exchange and FINRA the 
time necessary to develop a harmonized rule concerning customer order 
protection that will enable member organizations to participate in the 
national market system without unnecessary impediments.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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

    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 proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (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, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \14\ 
and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to 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 requirement.
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    The Exchange has requested the Commission to waive the 30-day 
operative delay so that the Exchange can extend the operative date of 
NYSE Rule 92(c)(3) without interruption. The Exchange notes that 
extending the delayed operative date of Rule 92(c)(3) from December 31, 
2009 to July 31, 2010 will provide sufficient time for the Exchange and 
FINRA to obtain Commission approval for and implement a harmonized 
approach to customer order protection rules, including how riskless 
principal transactions should be reported. The Commission hereby grants 
the Exchange's request and believes such waiver is consistent with the 
protection of investors and the public interest.\16\ Accordingly, the 
Commission designates the proposed rule change operative upon filing 
with the Commission.
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    \16\ For purposes only of waiving the 30-day operative delay of 
this proposal, 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 the 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-2009-129 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2009-129. 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 such filing also 
will be available for inspection and copying at the principal

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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-2009-129 and should be submitted on or before January 26, 2010.

    For the Commission, by the Division of Trading and Markets, 
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. E9-31271 Filed 1-4-10; 8:45 am]

BILLING CODE 8011-01-P