Document ID: SEC-2008-1377-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-10-08T04:00Z

[Federal Register: October 8, 2008 (Volume 73, Number 196)]
[Notices]               
[Page 59021-59024]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08oc08-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58699; File No. SR-NYSE-2008-94]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC To 
Extend the Moratorium on the Administration of the Specialist 
Performance Evaluation Questionnaire (``SPEQ'') Pursuant to Exchange 
Rule 103A and the Use of the SPEQ Pursuant to Rule 103B 
(``Moratorium'') to the Earlier of December 31, 2008 or the Approval of 
SR-NYSE-2008-52, To Continue To Suspend the Use of SuperDot Turnaround 
for Orders Received and Responses to Administrative Messages as 
Objective Measures in the Assessment of Specialist Performance During 
the Moratorium and That the SPEQ and Order Reports/Administrative 
Responses Continue To Be Removed From the Criteria Used To Commence a 
Specialist Performance Improvement Action

October 1, 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 September 30, 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 Exchange has designated the proposed rule 
change as ``non-controversial'' under Section 19(b)(3)(A)(iii) \4\ of 
the Act and Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal 
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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \5\ 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 extend the moratorium on the 
administration of the Specialist Performance Evaluation Questionnaire 
(``SPEQ'') pursuant to Exchange Rule 103A and the use of the SPEQ 
pursuant to Rule 103B (``Moratorium''), which was implemented on June 
8, 2007 to the earlier of December 31, 2008 or the approval of SR-NYSE-
2008-52. In addition, the Exchange proposes to continue to suspend the 
use of SuperDot turnaround for orders received and responses to 
administrative messages as objective measures in the assessment of 
specialist performance during the Moratorium. The Exchange further 
proposes that the SPEQ and Order Reports/Administrative Responses 
continue to be removed from the criteria used to commence a specialist 
performance improvement action during the Moratorium.
    The text of the proposed rule changes is available on the 
Exchange's Web site (http://www.nyse.com), at the Exchange's Office of 
the Secretary, 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to extend the moratorium on the 
administration of the Specialist Performance Evaluation Questionnaire 
(``SPEQ'') pursuant to Exchange Rule 103A and the use of the SPEQ 
pursuant to Rule 103B (``Moratorium''), which was implemented on June 
8, 2007,\6\ to the earlier of December 31, 2008 or the approval of SR-
NYSE-2008-52.\7\
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    \6\ See Securities Exchange Act Release Nos. 55852 (June 4, 
2007), 72 FR 31868 (June 8, 2007) (NYSE-2007-47) (``Original 
Request''); 57184 (January 22, 2008), 73 FR 5254 (January 29, 2008) 
(NYSE-2008-02); 57591 (April 1, 2008), 73 FR 18838 (April 7, 2008) 
(NYSE-2008-21); and 58036 (June 26, 2008), 73 FR 38267 (July 3, 
2008) (NYSE-2008-51).
    \7\ See Securities Exchange Act Release No. 58363 (August 14, 
2008), 73 FR 49514 (August 21, 2008) (SR-NYSE-2008-52).
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    In addition, the Exchange proposes that the use of SuperDot 
turnaround for orders received and responses to administrative messages 
continue to be removed from the objective measures

[[Page 59022]]

used in the assessment of specialist performance pursuant to Exchange 
Rule 103B or as criteria used to commence specialist performance 
improvement action pursuant to Exchange Rule 103A during the 
Moratorium.
SPEQ
    Prior to June 2007, pursuant to Exchange Rule 103A, on a quarterly 
basis, the Exchange distributed a twenty question survey known as the 
SPEQ to eligible Floor brokers \8\ to evaluate specialist performance 
during the quarter immediately prior to the distribution of the SPEQ. 
Initially, this subjective feedback provided critical information to 
assist the Exchange in maintaining the quality of the NYSE market.
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    \8\ The Exchange believed that conscientious participation in 
the SPEQ process was a critical element in the Exchange's program 
for evaluating the overall performance of its specialists. All 
eligible Floor brokers are required to participate in the process 
and evaluate from one to three specialist units each quarter. Floor 
brokers were selected to participate in the SPEQ process based on 
broker badge data submitted in accordance with audit trail 
requirements. Brokers who intentionally failed or refused to 
participate in the SPEQ process were potentially subject to 
disciplinary action, including the imposition of a summary fine 
pursuant to Exchange Rule 476A.
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    However, the Exchange believed that the SPEQ no longer adequately 
allowed a Floor broker to assess the electronic interaction between the 
specialist and the Floor broker. The Hybrid Market provided Floor 
brokers and specialists with electronic trading tools that have 
resulted in less personal and verbal contact between Floor brokers and 
specialists. Currently, the majority of transactions executed on the 
Exchange are done through electronic executions.
    In addition, the dramatic increase in transparency with respect to 
the Display Book through, among other things, Exchange initiatives like 
NYSE OPENBOOK\TM\ \9\ (``OPENBOOK'') has decreased the need for the 
Floor broker to obtain market information verbally from the specialist. 
This increased transparency gives all market participants, both on and 
off the Floor, a greater ability to see and react to market changes.
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    \9\ OPENBOOK Online Database is an Exchange online service that 
allows subscribers to view the contents of the specialist book for 
any stock at any given point in the day, or over a period of time. 
Results are returned in an Excel spreadsheet. OPENBOOK Online 
Database is a historical database with data stored online for a 12-
month period.
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    The questions on the SPEQ did not take into account the operation 
of the electronic tools available in the Hybrid Market. The SPEQ did 
not provide Floor brokers with a means to evaluate specialist 
performance under the current market model. As a result of the more 
electronic interaction between Floor brokers and specialists, Floor 
brokers were unable to assess specialist performance using the SPEQ.
    The questions posed to the Floor brokers on the SPEQ required Floor 
brokers to opine on the specialists' ability to offer single price 
executions and specialists' ability to provide notification to Floor 
brokers of market changes in particular stocks. In the current more 
electronic market, specialists are unable to offer single price 
executions and the relative speed of executions makes it virtually 
impossible for specialists to notify brokers of changes in a particular 
security.
    Given the above, the SPEQ no longer served as a meaningful measure 
of specialist performance.
Objective Measures
    The Exchange further requests that during the extension of the 
Moratorium, allocations of newly listed securities on the Exchange 
continue to be based on the objective measures identified in Exchange 
Rule 103B,\10\ with the exception of SuperDot turnaround for orders 
received and response to administrative messages.
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    \10\ Pursuant to Exchange Rule 103B, specialist dealer 
performance is measured in terms of participation (TTV); 
stabilization; capital utilization, which is the degree to which the 
specialist unit uses its own capital in relation to the total dollar 
value of trading in the unit's stocks; and near neighbor analysis, 
which is a measure of specialist performance and market quality 
comparing performance in a stock to performance of stocks that have 
similar market characteristics. Additional objective measures 
pursuant to Exchange Rule 103B are those measures included in 
Exchange Rule 103A which are: (a) Timeliness of regular openings; 
(b) promptness in seeking Floor official approval of a non-
regulatory delayed opening; (c) timeliness of DOT turnaround; and 
(d) response to administrative messages.
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    As explained in the Original Request and previously requested 
extensions, SuperDot turnaround for orders received and response to 
administrative messages no longer provide meaningful objective 
standards to evaluate specialist performance in today's electronic 
market. Specifically, in the more electronic market, orders received by 
Exchange systems that are marketable upon entry are eligible to be 
immediately and automatically executed by Exchange systems. As such, 
SuperDot turnaround no longer provided a meaningful objective measure 
of a specialist's performance.
    Furthermore, in the current more electronic market, the Exchange 
systems automatically respond to the majority of the administrative 
messages. Today, there are two administrative messages that require a 
manual response from specialists. These are messages that require the 
specialist to provide status information on market orders and stop 
orders. With regard to requests for the status of stop orders, the 
specialists are no longer capable of providing this information. In 
December 2006, following Commission approval,\11\ the Exchange changed 
its stop order handling process. Stop orders are no longer visible to 
the part of the NYSE Display Book[reg] that the specialist ``sees.'' 
When a transaction on the Exchange results in the election of a stop 
order that had been received prior to such transaction, the elected 
stop order is sent as a market order \12\ to the Display Book and the 
specialist's system employing algorithms, where it is handled in the 
same way as any other market order. The specialist, therefore, is 
unable to provide any information regarding the status of stop orders.
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    \11\ See Securities Exchange Act Release No. 54820 (November 27, 
2006), 71 FR 70824 (December 6, 2006) (SR-NYSE-2006-65).
    \12\ As used herein, the term ``market order'' refers to market 
orders that are not designated as ``auction market orders.''
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    Market orders are eligible to receive immediate and automatic 
execution on the Exchange. The immediate and automatic execution of 
market orders eliminates the need for the specialists to respond to the 
administrative request for the status of market orders. In practice, a 
customer that submits a market order will likely receive a report of 
execution before the administrative message requesting the status of 
the market order has been printed and read by the specialist.
    This change has had a minimal impact on Exchange customers. In the 
past few years, the average number of administrative messages received 
on a daily basis has steadily declined. The Exchange believes that 
immediate and automatic execution of orders will virtually eliminate 
administrative messages that require a manual response from a 
specialist. As a result, a specialist's ability to respond to 
administrative messages no longer provides a meaningful measure of 
specialists' performance during the Moratorium.
    Given the above, the Exchange seeks to continue suspension of the 
use of both measures as criteria used to assess specialists' 
performance during the extension of the Moratorium.
Performance Improvement Actions
    Similarly, during the extension of the Moratorium, the Exchange 
seeks to continue suspending the use of the SPEQ and Order Reports/
Administrative

[[Page 59023]]

Reports as criteria for the implementation of a performance improvement 
action pursuant to Exchange Rule 103A. Exchange Rule 103A(b) provides 
that:

    The Market Performance Committee shall initiate a Performance 
Improvement Action (except in highly unusual or extenuating 
circumstances, involving factors beyond the control of a particular 
specialist unit, as determined by formal vote of the Committee) in 
any case where a specialist unit's performance falls below such 
standards as are specified in the Supplementary Material to this 
rule. The objective of a Performance Improvement Action shall be to 
improve a specialist unit's performance where the unit has exhibited 
one or more significant weaknesses, or has exhibited an overall 
pattern of weak performance that indicates the need for general 
improvement.

    Prior to June 2007, the SPEQ and Order Reports/Administrative 
Reports were two criteria included in the standards specified in 
Exchange Rule 103A Supplementary Material. Given that SPEQ and Order 
Reports/Administrative Reports no longer provided significant objective 
measures of specialists' performance in the Hybrid Market, the Exchange 
sought to suspend the use of both measures as criteria for the 
implementation of a performance improvement action during the 
Moratorium. Through this filing, the Exchange seeks to continue this 
suspension for the duration of the Moratorium.
Creation of a New Process
    The Exchange has established a quantifiable measure in order to 
determine a specialist unit's eligibility to participate in the new 
Allocation Process. The Exchange has formally submitted a proposal to 
the Commission to amend Exchange rules that govern the allocation of 
securities to specialist units and other related rules.\13\
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    \13\ See Securities Exchange Act Release No. 58363 (August 14, 
2008), 73 FR 49514 (August 21, 2008) (NYSE-2008-52).
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    The Exchange believes that the use of a single objective measure to 
determine specialist unit eligibility for allocation will create a more 
efficient process that is consistent with the Exchange's current more 
electronic trading environment.
Conclusion
    The Exchange therefore requests to extend the Moratorium on the 
administration of the Specialist Performance Evaluation Questionnaire 
(``SPEQ'') pursuant to Exchange Rule 103A and the use of the SPEQ 
pursuant to Rule 103B until the earlier of December 31, 2008 or the 
approval of SR-NYSE-2008-52. In addition, the Exchange proposes to 
continue to suspend the use of SuperDot turnaround for orders received 
and responses to administrative messages continue to not be used as 
objective measures in the assessment of specialist performance during 
the Moratorium. The Exchange further proposes that the SPEQ and Order 
Reports/Administrative Responses continue to be removed from the 
criteria used to commence a specialist performance improvement action 
during the Moratorium.
2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is the requirement under Section 6(b)(5) \14\ that 
an Exchange have rules that are designed 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 proposed 
rule change also is designed to support the principles of Section 
11A(a)(1) \15\ in that it seeks to assure economically efficient 
execution of securities transactions, make it practicable for brokers 
to execute investors' orders in the best market and provide an 
opportunity for investors' orders to be executed without the 
participation of a dealer. Due to the Exchange's transition to a more 
electronic market, the current SPEQ, SuperDot turnaround for orders 
received and response to administrative messages no longer provide 
meaningful objective standards to evaluate specialist performance. The 
Exchange requests this continued extension of the Moratorium to 
determine whether elimination of the SPEQ as well as SuperDot 
turnaround for orders received and response to administrative messages 
as objective measures would remove an impediment to a free and open 
electronic market which would result in the more economically efficient 
execution of securities transactions. Given the current trend to a more 
electronically-based market, the Exchange believes that the use of more 
objective and detailed measures will promote healthy competition 
between specialist units and ultimately result in better market-making 
for Exchange customers.
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78k-1(a)(1).
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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 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 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 \16\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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.\18\ 
However, Rule 19b-4(f)(6)(iii) \19\ 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 pre-operative delay and designate the 
proposed rule change to become operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires a self-regulatory organization to give the 
Commission written notice of its intent to file 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.
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ Id.
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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. 
The Commission designates the proposal to become effective and 
operative upon filing.\21\
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    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the impact of the proposed rule 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 the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is

[[Page 59024]]

necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in the 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-2008-94 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-2008-94. 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 NYSE. 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-2008-94 and should be 
submitted on or before October 29, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23837 Filed 10-7-08; 8:45 am]

BILLING CODE 8011-01-P