Document ID: SEC-2008-1551-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-11-19T05:00Z

[Federal Register: November 19, 2008 (Volume 73, Number 224)]
[Notices]               
[Page 69704-69706]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no08-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58936; File No. SR-NYSE-2008-117]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Delete Section (3) of Exchange Rule 123D, Which Provides for the ``Sub-
Penny Trading'' Condition

November 13, 2008.
    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 November 6, 2008, 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 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 delete section (3) of Exchange Rule 123D, 
which provides for the ``Sub-penny trading'' condition. The text of the 
proposed rule change is available at www.nyse.com, NYSE's principal 
office, and 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 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.

[[Page 69705]]

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

1. Purpose
    Regulation NMS, adopted by the Securities and Exchange Commission 
(``SEC''),\4\ provides that each trading center intending to qualify 
for trade-through protection under Regulation NMS Rule 611 \5\ is 
required to have a Regulation NMS-compliant trading system fully 
operational by March 5, 2007 (the ``Trading Phase Date'').\6\
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    \4\ 17 CFR 242.600 to 242.612. See Securities Exchange Act 
Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) 
(``Regulation NMS Adopting Release'').
    \5\ See 17 CFR 242.611.
    \6\ See Securities Exchange Act Release No. 55160 (January 24, 
2007), 72 FR 4202 (January 30, 2007) (S7-10-04).
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    For stocks priced below $1.00 per share, Regulation NMS Rule 612 
\7\ permits markets to accept bids, offers, orders and indications of 
interest in increments smaller than a $0.01, but not less than $0.0001, 
and to quote and trade such stocks in sub-pennies. Markets may choose 
not to accept such bids, offers, orders or indications of interest and 
the NYSE has done so, maintaining a minimum trading and quoting 
variation of $0.01 for all securities trading below $100,000. See NYSE 
Rule 62.
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    \7\ 17 CFR 242.612. Rule 612 originally was to become effective 
on August 29, 2005, but the date was later extended to January 31, 
2006. See Securities Exchange Act Release No. 52196 (Aug. 2, 2005), 
70 FR 45529 (Aug. 8, 2005) (S7-10-04).
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    The SEC's interpretation of Rule 612 requires a market that routes 
an order to another market in compliance with Rule 611 and receives a 
sub-penny execution, to accept the sub-penny execution, report that 
execution to the customer, and compare, clear and settle that trade. 
The SEC, however, provided a limited exemption to Rule 611's 
proscription against trade-throughs to protected quotes that include a 
sub-penny component to such quotes that are better-priced by a minimum 
of $0.01.\8\
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    \8\ See Securities and Exchange Act Release No. 54714 (November 
6, 2006), 71 FR 66352 (November 14, 2006). (Order Granting National 
Securities Exchanges a Limited Exemption from Rule 612 of Regulation 
NMS under the Securities Exchange Act of 1934 to Permit Acceptance 
by Exchanges of Certain Sub-Penny Orders.)
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    In March, 2007, the Exchange amended Rule 123D to provide for a 
``Sub-penny trading'' condition because the Exchange's trading systems 
did not then accommodate sub-penny executions on orders routed to 
better-priced protected quotations, nor could it recognize a quote 
disseminated by another market center if such quote had a sub-penny 
component and, therefore, could have inadvertently traded through 
better protected quotations. The amended rule allowed the Exchange to 
halt trading in a security whose price was about to fall below $1.00, 
without delisting the security, so that the security could continue to 
trade on other markets that deal in bids, offers, orders or indications 
of interest in sub-penny prices, until the price of the security had 
recovered sufficiently to permit the Exchange to resume trading in 
minimum increments of no less than one penny or the issuer is delisted 
for failing to correct the price condition within the time provided 
under NYSE rules.\9\ A subsequent amendment established that any orders 
received by the NYSE in a security subject to a ``Sub-penny trading'' 
condition would be routed to NYSE Arca, Inc. and handled in accordance 
with the rules governing that market.\10\
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    \9\ See Securities and Exchange Act Release No. 55398, 72 FR 
11072 (March 12, 2007) (SR-NYSE-2007-25).
    \10\ See Securities and Exchange Act Release No. 55537 (Mar. 27, 
2007), 72 FR 15749 (April 2, 2007) (SR-NYSE-2007-30).
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    Through this filing, the Exchange proposes to eliminate the ``Sub-
penny trading'' condition in its entirety. The NYSE now has the 
technical capability to recognize protected quotations with a sub-penny 
component in its round-lot market and accommodate away market 
executions in sub-pennies, in compliance with SEC Rules 611 and 612.
    The Exchange system enhancements that will enable recognition of 
sub-penny quotations for pricing of odd-lots in the odd-lot system are 
contained in the technology associated with Phase 2 implementation of 
the New Market Model.\11\ Until the conclusion of the second Phase of 
implementation, which is scheduled to be completed no longer than ten 
weeks after October 24, 2008, those odd-lot orders that would receive 
an execution price based on the NBBO as set forth in NYSE Rule 124 will 
be priced at the last NBBO that did not contain a sub-penny price.
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    \11\ See Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46).
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    Given that Exchange systems will now be able to accommodate these 
orders and away-market executions, the Sub-penny trading condition halt 
is no longer required.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \12\ of 
the Securities Exchange Act of 1934 (the ``Act''), in general, and 
furthers the objectives of Section 6(b)(5) \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 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. 
The Exchange believes that the instant proposal is in keeping with 
these principles in that it seeks to operate technology on the NYSE 
that allows the Exchange to recognize protected quotations with a sub-
penny component and accommodate away market executions in sub-pennies, 
in compliance with SEC Rules 611 and 612.
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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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, 
the proposed rule change 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).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\16\ However, 
Rule 19b-

[[Page 69706]]

4(f)(6)(iii) permits the Commission to designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest. NYSE requested that the Commission waive the 30-day operative 
delay, as specified in Rule 19b-4(f)(6)(iii),\17\ which would make the 
rule change effective and operative upon filing.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission 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. NYSE has satisfied this requirement.
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the Exchange systems are now capable of recognizing protected 
quotations with a sub-penny component in its round-lot market and can 
accommodate away market executions in sub-pennies, in compliance with 
SEC Rules 611 and 612. The Commission finds that it is appropriate to 
waive the 30-day operative delay for this proposed rule change because 
the ``Sub-penny trading'' condition no longer serves any purpose and 
waiving the delay should allow the Exchange to immediately come into 
full compliance with Regulation NMS with respect to sub-pennies. For 
these reasons, the Commission designates the proposed rule change as 
operative upon filing.\18\
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    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's effect 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-2008-117 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-2008-117. 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 the filing will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2008-117 and should be submitted on or before December 10, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27404 Filed 11-18-08; 8:45 am]

BILLING CODE 8011-01-P