Document ID: SEC-2008-1482-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The New York Stock Exchange LLC
Posted Date: 2008-10-29T04:00Z

[Federal Register: October 29, 2008 (Volume 73, Number 210)]
[Notices]               
[Page 64392-64394]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29oc08-104]                         

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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-58834; File No. SR-NYSE-2008-93]

 
Self-Regulatory Organizations; The New York Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change to Temporarily Suspend the Operation of NYSE Rule 123D(3) 
to Respond to Market Conditions for Thornburg Mortgage, Inc. (TMA) on 
September 29, 2008

October 23, 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 October 10, 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. This order provides notice of the proposed rule change 
and approves the proposed rule change on an accelerated basis.
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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 temporarily suspend the operation of NYSE 
Rule 123D(3) to respond to market conditions for Thornburg Mortgage, 
Inc. (TMA) on September 29, 2008.
    The text of the proposed rule change is available at the Exchange, 
http://www.nyse.com, 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 III 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 temporarily suspend the operation of 
NYSE Rule 123D(3) with respect to the opening transactions on September 
29, 2008, in the common stock and preferred Series E of Thornburg 
Mortgage, Inc. (``Thornburg''), a NYSE-listed company (TMA).

Background

    Thornburg is a single-family residential mortgage lender that 
originates, acquires, and retains investments in adjustable-rate and 
variable-rate mortgage assets. On September 26, 2008, the common stock 
of TMA underwent a one-for-10 reverse stock split pursuant to which 
every ten shares of common stock were combined into one share of new 
common stock. As part of the stock split, TMA issued new stock 
certificates representing the new issue.\4\ Generally, reverse stock 
splits are intended to increase the value of the common stock of a 
company.
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    \4\ See Thornburg Mortgage, Inc., Form 8-K (Sept. 26, 2008).
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    Because Thornburg issued new stock certificates, the Exchange 
considers the trading of TMA on September 29, 2008 to be a new issue, 
notwithstanding prior trading in the stock.\5\ Accordingly, in 
anticipation of TMA trading at the Exchange on September 29, 2008, the 
Exchange received multiple orders for TMA to participate in the opening 
transaction.
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    \5\ TMA has been the subject of a Sub-penny trading condition at 
the Exchange and closed Friday, September 26, 2008 at $0.28 in away 
markets.
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    To ensure a fair and orderly market, and in particular, to ensure 
that orders in TMA that have been submitted to the Exchange get 
executed, the Exchange is proposing to suspend the operation of NYSE 
Rule 123D(3) on September 29, 2008 for Thornburg's common stock and the 
Preferred Series E (``TMA securities'') \6\ that would open at a price 
of $1.05 or less. This proposed suspension relates only to the opening 
transactions of TMA securities on September 29, 2008. Immediately 
following the opening of such securities, the Exchange intends to halt 
trading of TMA securities pursuant to NYSE Rule 123D(3) and invoke a 
Sub-penny trading condition.
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    \6\ See TMA and TMA-PE.

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[[Page 64393]]

NYSE Rule 123D(3)

Sub-penny Trading Condition

    NYSE Rule 123D(3) provides that if a security would open on the 
Exchange at a price of $1.05 or less, trading on the Exchange shall be 
immediately halted because of a ``Sub-penny trading'' condition. The 
Exchange adopted Rule 123D(3) in part to be compliant with Regulation 
NMS.
    Regulation NMS, adopted by the Securities and Exchange Commission 
(``SEC'') in April 2005,\7\ provides that each trading center intending 
to qualify for trade-through protection under Regulation NMS Rule 611 
\8\ is required to have a Regulation NMS-compliant trading system fully 
operational by March 5, 2007 (the ``Trading Phase Date'').\9\
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    \7\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 17 CFR parts 200, 201, 230, 240, 242, 249 and 270.
    \8\ See 17 CFR 242.611.
    \9\ 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 
\10\ 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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    \10\ See 17 CFR 242.612. Rule 612 originally was to become 
effective on August 29, 2005, but the date was later extended to 
January 29, 2006. See Securities Exchange Act Release No. 52196 
(Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005).
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    The Commission'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. Failure to do so constitutes a violation of Rule 611's 
Order Protection Rule. However, pursuant to Rule 611(b)(3) of 
Regulation NMS,\11\ transactions that constitute a single-priced 
opening, reopening, or closing transaction by a trading center are 
excepted from the Order Protection Rule. Accordingly, a sub-penny 
execution at the opening that trades through another market center does 
not constitute a violation of Regulation NMS Rule 611's Order 
Protection Rule.
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    \11\ See 17 CFR 242.611(b)(3).
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    The Exchange adopted Rule 123D(3) 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 rule requires 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.\12\
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    \12\ See Securities and Exchange Commission Release No. 34-
55398; File No. SR-NYSE-2007-25 (Mar. 5, 2007).
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    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. (``NYSE Arca'') and handled in accordance 
with the rules governing that market.\13\ When a ``Sub-penny trading'' 
condition is invoked, all open limit orders in such security at the 
Exchange will be cancelled and will not be routed to NYSE Arca.
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    \13\ See Securities and Exchange Commission Release No. 34-
55537; File No. SR-NYSE-2007-30 (Mar. 27, 2007).
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Proposed Suspension of Rule 123D(3) for TMA Securities

    Because of reverse stock split in the common stock of Thornburg on 
September 26, 2008, the Exchange considered trading in that security on 
September 29, 2008 as a new issue. Accordingly, prior to the opening, 
the Exchange received pre-opening orders in the common stock. The 
Exchange also received pre-opening orders in the Preferred Series E of 
Thornburg. If the Exchange were to invoke a ``Sub-penny trading'' 
condition for those securities prior to the opening, such orders would 
be cancelled and would not be routed to NYSE Arca. Therefore, such 
orders would not be executed, potentially harming the investing public 
that routed such orders to the Exchange before the Exchange's 
announcement of a sub-penny trading halt.
    The Exchange notes that while such an opening transaction would be 
a violation of NYSE Rule 123D(3), an execution at a sub-penny price at 
the opening at the Exchange would not be a violation of Regulation NMS. 
Accordingly, because a sub-penny execution at the opening would not 
constitute a violation of the Regulation NMS Rule 611 Order Protection 
Rule, the Exchange believes that the harm to the investing public in 
not having their orders in TMA securities executed at the opening 
outweighs any harm that may result from a violation of NYSE Rule 
123D(3). The Exchange therefore proposes a one-day suspension of the 
operation of NYSE Rule 123D(3) that would be in effect only for the 
opening transactions of TMA securities on September 29, 2008.
    After trading in TMA securities opened at the Exchange, the 
Exchange halted any further trading in TMA securities and invoked a 
``Sub-penny trading'' condition for such securities.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \14\ of 
the Act, in general, and furthers the objectives of Section 6(b)(5) 
\15\ 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.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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. 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

[[Page 64394]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2008-93 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-2008-93. 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 offices 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-2008-93 and should be 
submitted on or before November 19, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\16\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\17\ 
which requires that an exchange have rules designed, among other 
things, 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.
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    \16\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange previously filed this rule proposal on September 29, 
2008 for immediate effectiveness pursuant to Section 19(b)(3)(A) \18\ 
of the Act and Rule 19b-4(f)(6) \19\ thereunder; however the proposed 
rule change was rejected for technical, non-substantive reasons. In 
that prior rule filing, the Exchange noted that the proposal should be 
effective on September 29, 2008 because of the immediate nature of the 
relief requested. Specifically, the Exchange received pre-opening 
orders of TMA securities in response to the reverse stock split, which 
did not have the intended consequences. Instead, pre-opening interest 
was below $0.70. By temporarily suspending operation of Rule 123D(3) 
for opening transactions of TMA securities on September 29, 2008, the 
Exchange was able to execute the pre-opening orders it received in TMA 
securities.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6).
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    As noted above, the Exchange previously submitted a proposed rule 
change for immediate effectiveness on September 29, 2008 that was 
rejected by the Commission for technical non-substantive reasons. The 
Commission is granting accelerated approval of this proposed rule 
change on a retroactive basis to September 29, 2008. The Commission 
finds good cause for approving this proposal before the thirtieth day 
after the date of publication of notice of this filing in the Federal 
Register.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NYSE-2008-93) be, and it 
hereby is, approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-25809 Filed 10-28-08; 8:45 am]

BILLING CODE 8011-01-P