Document ID: SEC-2008-1309-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-09-25T04:00Z

[Federal Register: September 25, 2008 (Volume 73, Number 187)]
[Notices]               
[Page 55577-55580]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se08-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58607 ; File No. SR-NYSE-2008-86]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Proposing To Temporarily Suspend the Requirements of NYSE Rule 311 and 
Related NYSE Rules Concerning the Approval of New Member Organizations 
in Order To Approve Barclays Capital Inc. as an NYSE Member 
Organization

September 19, 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 19, 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 filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act,\4\ and Rule 19b-4(f)(6) thereunder,\5\ which renders the 
proposal effective upon filing with the Commission.\6\ 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).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ NYSE gave the Commission written notice of its intention to 
file the proposed rule change on September 19, 2008. The Commission 
reviewed the proposed rule change and gave NYSE permission to file 
the proposed the rule change on the same day. NYSE asked the 
Commission to waive the 30-day operative delay. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to temporarily suspend the requirements 
of NYSE Rule 311 and related NYSE rules concerning the approval of new 
member organizations in order to approve Barclays Capital Inc. 
(``BCI'') as an NYSE member organization, subject to BCI's complying 
with Exchange rules for a new member organization within 60 days of the 
date that BCI is provisionally approved as an NYSE member organization.

[[Page 55578]]

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 this rule filing to temporarily suspend the 
requirements of NYSE Rule 311 and related rules regarding the approval 
of member organizations in order to immediately approve as an NYSE 
member organization the entity that acquires the assets of Lehman 
Brothers Inc. (``LBI''). The Exchange proposes this temporary 
suspension on an emergency basis to ensure that the acquiring entity, 
Barclays Capital Inc. (``BCI''), which is a U.S. registered broker 
dealer and FINRA member, will be able to expeditiously complete its 
proposed acquisition of certain LBI assets and begin operating former 
LBI business lines, including its specialist operations, as early as 
September 22, 2008. This proposed temporary suspension is contingent 
upon BCI having applied for and been approved as a new member 
organization pursuant to Exchange rules within 60 days of the date that 
BCI is provisionally approved as an NYSE member organization pursuant 
to this filing.
a. Background
A. Lehman Files for Bankruptcy
    On September 15, 2008, Lehman Brothers Holding Inc. (``Lehman'') 
filed for bankruptcy protection in the United States Bankruptcy Court 
for the Southern District of New York under Chapter 11 of the U.S. 
Bankruptcy Code. Lehman is the parent holding company of LBI, which is 
a registered broker dealer and NYSE member organization. Lehman filing 
for Chapter 11 protection was just one of the many unprecedented events 
that have affected our markets in the last two weeks.\7\
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    \7\ On September 8, 2008, the U.S. Treasury Department took over 
the federally charted mortgage companies Freddie Mac and Fannie Mae 
and replaced their executive teams. This week, in addition to the 
Lehman bankruptcy, Bank of America agreed to acquire Merrill Lynch 
in an all-stock transaction, the federal government bailed out 
American International Group, Inc. with a $85 million loan and took 
control of the company, Morgan Stanley and Goldman, Sachs & Co.--the 
two remaining independent U.S. investment banks--experienced sharp 
stock declines despite reporting positive earnings, and the 
Securities and Exchange Commission (``SEC'' or the ``Commission'') 
has issued multiple emergency orders amending the rules governing 
short selling.
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    Although LBI did not file for bankruptcy protection at that time, 
Lehman's Chapter 11 status impaired LBI's ability to continue 
operations. For example, out of concern that Lehman Brothers 
MarketMakers (``LBMM''), the division of LBI that is approved as a 
specialist operation at the Exchange, might not have sufficient capital 
to meet both federal and NYSE rule requirements governing specialists, 
on September 15, 2008, pursuant to NYSE Rule 103.11, the Exchange 
temporarily reallocated Lehman Brothers MarketMakers securities to 
Spear, Leeds & Kellogg Specialists LLC (``Spear Leeds'').
    On September 17, 2008, Barclays Bank PLC (``Barclays''), a global 
financial services provider, announced that it had agreed to acquire 
the LBI investment banking and capital markets operations and 
supporting infrastructure for $1.75 billion (the ``proposed 
acquisition''). As part of the proposed acquisition, Barclays would be 
acquiring the LBI fixed income and equities sales, trading and 
research, and investment banking businesses, including LBMM (the ``LBI 
businesses''). Barclays would also be acquiring approximately 10,000 
LBI employees, the Lehman headquarters located at 745 Seventh Avenue in 
New York City, and two data centers located in New Jersey.
    The proposed acquisition is subject to a number of conditions, 
including approval by the United States Bankruptcy Court for the 
Southern District of New York and other regulatory approvals and 
antitrust review. Moreover, if the proposed acquisition is not 
completed by September 24, 2008, Barclays may terminate the agreement 
to acquire LBI businesses.
B. Barclays Will Transfer LBI Assets to BCI
    On September 19, 2008, Barclays announced that certain LBI assets, 
including its employees and businesses, will be transferred to its 
wholly-owned subsidiary, BCI. BCI is a registered U.S. broker dealer 
and FINRA member. However, BCI is not currently approved as an NYSE 
member organization.
    The Exchange understands that LBI will likely file for some form of 
bankruptcy protection on Friday, September 19, 2008, and thus by the 
close of business on Friday, LBI will be in the control of a trustee. 
The Exchange further understands that, subject to approval by the 
bankruptcy court, as part of the bankruptcy proceeding, LBI assets will 
be sold to Barclays and transferred to BCI. Accordingly, as early as 
September 19, 2008, BCI may own and control the LBI businesses.
b. Proposed Temporary Suspension of NYSE Rule 311 and Related Rules
A. Background
    NYSE Rule 311 requires any person who proposes to form a member 
organization to notify the Exchange in writing and submit such 
information as may be required by NYSE rules. Unlike the Act, when a 
corporate acquisition concerns an asset transfer only, and not an 
acquisition of the corporate entity, NYSE member organization status 
cannot be transferred to the acquiring entity; the entity that proposes 
to continue the business operations of the predecessor member 
organization must be separately approved as an NYSE member 
organization.
    Among other things, to be approved as an NYSE member organization, 
the applicant must:
     Provide the Exchange with a written application with the 
name and address of the applicant as well as a list of all proposed 
parties required to be approved under NYSE Rules 304 and 311 (NYSE Rule 
311.11).
     Ensure that all persons associated with the applicant, 
including corporate directors or general partners, as applicable, 
persons in control of the applicant, and any person who meets the 
requirements of an approved person under NYSE Rule 304, is approved as 
a member or approved person (NYSE Rule 311(b)).
     Submit to the Exchange partnership or corporate documents 
as may be applicable, including certificate of incorporation, by-laws, 
and other corporate documents (NYSE Rule 313.10 or .20).
     Provide the Exchange with an opinion of counsel that, 
among other things, the corporation is duly organized and existing, its 
stock is validly issued and outstanding, and that the restrictions and 
provisions required by the Exchange on the transfer, issuance, 
conversion, and redemption of its stock have been made legally 
effective (NYSE Rule 313.20).

[[Page 55579]]

    In addition, the Exchange reviews whether the applicant meets 
federal and NYSE capital requirements and whether it has adopted 
controls and procedures to comply with Exchange rules. For example, an 
applicant that seeks approval to operate a specialist business pursuant 
to NYSE Rule 103 must demonstrate that it has policies and procedures 
in compliance with the NYSE rules governing trading by specialists, and 
if applicable, has been approved for an exemption for approved persons 
under NYSE Rule 98 (Former) or been approved to operate a specialist 
unit under NYSE Rule 98.
    Due to the amount of information an applicant is required to 
provide and have completed prior to being approved as a member 
organization, the member organization approval process generally takes 
several months to complete. The length of the approval process varies 
depending on the timing of the applicant's response to requests for 
information and documentation.
B. A Temporary Suspension of NYSE Rule 311 and Related Rules for BCI is 
Consistent with the Act
    As proposed, BCI will continue the business operations of LBI, 
including the LBMM specialist operations, in the same manner that they 
were operated by LBI. Because the bankruptcy proceeding for LBI will 
likely be on September 19, 2008, BCI could be eligible to continue LBI 
operations on Monday, September 22, 2008.
    To ensure that BCI can continue the LBI operations without 
unnecessary interruption, including all operations that required LBI to 
be a member organization of the NYSE, such as the specialist operations 
and entering orders directly with the Exchange, the Exchange believes 
that BCI should be approved immediately as an NYSE member organization. 
The Exchange notes that BCI is already a registered broker dealer and 
FINRA member, which are prerequisites to becoming an NYSE member 
organization. See NYSE Rule 2(b).
    The Exchange therefore proposes providing BCI with a temporary 
suspension of NYSE Rules 304, 311, 312, and 313, as they relate to 
approval to operate an NYSE member organization and approval of a 
proposed member organization's approved persons, and immediately 
approve BCI as a member organization. As proposed, this temporary 
suspension is contingent upon:
     BCI's providing the Exchange with sufficient information 
to confirm that BCI will meet its capital requirements as an NYSE 
member organization; and
     Within 60 days of BCI's approval as an NYSE member 
organization under this proposed filing, BCI and its approved persons 
will have applied for and complied with the Exchange's new member 
organization requirements, as set forth in NYSE Rules 304, and 311-313.
    Moreover, the Exchange proposes that in addition to being approved 
as an NYSE member organization, to ensure that the LBMM operations can 
continue, BCI should also be deemed approved as a specialist under NYSE 
Rule 103. This approval is contingent upon BCI's certifying in writing 
to the Exchange that, for the period immediately following approval as 
an NYSE member organization until such time that BCI is independently 
approved as an NYSE member organization:
     BCI will maintain the existing LBMM technologies, 
staffing, supervisory structure, and written supervisory procedures 
with respect to the specialist operations;
     Both BCI and its approved persons, as defined under NYSE 
Rule 304, will comply with LBI's existing written supervisory 
procedures and information barriers between the LBMM specialist 
operations and the rest of the firm and its approved persons, pursuant 
to NYSE Rule 98 (Former); and
     BCI will maintain the minimum capital for specialists, as 
required both by federal rules and NYSE Rule 104.20 and 104.21.
    Upon receipt of such written statement, the Exchange will approve 
BCI as a successor entity to LBI's registration as a specialist and 
will lift the current temporary allocation of LBMM's securities to 
Spear Leeds and formally allocate those securities to BCI. In addition, 
the Exchange will extend the Rule 98 (Former) exemption currently 
granted to LBI and its approved persons to BCI and its approved 
persons, including Barclays.
    As proposed, if BCI does not apply for and be approved as a new 
NYSE member organization pursuant to Exchange rules within 60 days of 
the effective date of this filing, BCI's status as an approved NYSE 
member organization will no longer be effective.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act,\8\ in that 
it is designed to prevent fraudulent and manipulative practices, to 
promote just and equitable principles of trade, to remove impediments 
to, and perfect the mechanisms of, a free and open market and a 
national market system, and, in general, to protect investors and the 
public interest.
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    \8\ 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: (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 from 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 \9\ and 
Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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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.
    The NYSE has requested the Commission to waive the 30-day operative 
delay. The Commission hereby grants NYSE's request.\11\ The Commission 
notes that the Exchange is proposing that certain of its rules relating 
to membership requirements be temporarily suspended so that BCI can be 
provisionally approved as an NYSE member organization. The proposed 
relief does not exempt BCI from Exchange rule requirements governing 
member organizations. BCI would have a 60-day grace period within which 
to apply for and be approved under relevant Exchange rules. Moreover, 
the Commission believes that immediate

[[Page 55580]]

effectiveness is appropriate to ensure a smooth transition of the LBI 
businesses to another entity. In particular, with respect to BCI, time 
is of the essence as it has been announced that BCI may succeed to 
LBI's assets as early as September 19, 2008. Therefore, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest and designates the 
proposed rule change as operative upon filing.
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    \11\ For purposes of waiving the 30-day operative delay, the 
Commission has considered the proposal's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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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-2008-86 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-2008-86. 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 will 
also be available for inspection and copying at the NYSE's principal 
office and on its Internet Web site at www.nyse.com. 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-2008-86 and should be 
submitted on or before October 16, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Jill M. Peterson,
Assistant Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-22506 Filed 9-24-08; 8:45 am]

BILLING CODE 8010-01-P