Document ID: SEC-2008-1398-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-10-09T04:00Z

[Federal Register: October 9, 2008 (Volume 73, Number 197)]
[Notices]               
[Page 59698-59701]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc08-156]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58722; File No. SR-NYSE-2008-95]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 104.10 To Extend the Duration of the Pilot Program 
Applicable to Conditional Transactions as Defined in Rule 104.10(6)(i) 
in all Securities to the Earlier of December 31, 2008 or the Approval 
of SR-NYSE-2008-46

October 2, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 30, 2008, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. 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\ 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 amend Exchange Rule 104.10 to extend the 
duration of the pilot program applicable

[[Page 59699]]

to Conditional Transactions as defined in Rule 104.10(6)(i) in all 
securities to the earlier of December 31, 2008 or the approval of SR-
NYSE-2008-46.

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 amend Exchange Rule 104.10 to extend 
the duration of the pilot program applicable to Conditional 
Transactions as defined in Rule 104.10(6)(i) in all securities to the 
earlier of December 31, 2008 or the approval of SR-NYSE-2008-46.\3\
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    \3\ See Securities Exchange Act Release No. 58184 (July 17, 
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46) (``New Market 
Model filing'').
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    On October 26, 2007, the Securities and Exchange Commission (the 
``Commission'') approved the ability of NYSE specialists to effect 
Conditional Transactions pursuant to Exchange Rule 104.10(6) in all 
securities traded on the NYSE to operate as a pilot through March 31, 
2008 (the ``Conditional Transaction Pilot'').\4\
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    \4\ See Securities Exchange Act Release No. 56711 (October 26, 
2007), 72 FR 62504 (November 5, 2007) (SR-NYSE-2007-83). The Pilot 
was next extended for an additional three months until June 30, 
2008. See Securities Exchange Act Release No. 57592 (April 1, 2008), 
73 FR 18836 (April 7, 2008) (SR-NYSE-2008-23). On June 26, 2008, the 
operation of the Pilot was extended until September 30, 2008. See 
Securities Exchange Act Release No. 58040 (June 26, 2008), 73 FR 
38272 (July 3, 2008) (SR-NYSE-2008-50).
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(1) Current Conditional Transaction Pilot
    Conditional Transactions are specialists' transactions that 
establish or increase a position and reach across the market to trade 
as the contra-side to the Exchange published bid or offer. Under the 
current Conditional Transaction Pilot, NYSE specialists are allowed to 
effect Conditional Transactions in all securities traded on the NYSE 
until September 30, 2008.
    When a specialist effects a Conditional Transaction, he or she has 
obligations to re-enter the market on the opposite side from which the 
specialist effected his or her Conditional Transaction pursuant to the 
rule. Specifically, pursuant to Exchange Rule 104.10(6)(ii), 
``Appropriate'' re-entry means ``re-entry on the opposite side of the 
market at or before the price participation point or the `PPP.' '' \5\ 
Depending on the type of Conditional Transaction, a specialist's 
obligation to re-enter may be immediate or subject to the same re-entry 
conditions of Non-Conditional Transactions.\6\ Conditional Transactions 
are subject to a specialist's overall negative obligation.\7\ As a 
condition of operating the Conditional Transaction Pilot, the Exchange 
committed to providing the Commission with data related to specialist 
executions of Conditional Transactions. The Exchange has provided the 
Commission's Division of Trading and Markets and the Office of Economic 
Analysis with statistics related to market quality, specialist trading 
activity and sample statistics for the months of November 2007 through 
July 2008. The data included the daily Consolidated Tape volume in 
shares, daily number of trades, daily high-low volatility in basis 
points, and daily close price in dollars.
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    \5\ NYSE Rule 104.10(6)(iii)(a) provides that the PPP identifies 
the price at or before which a specialist is expected to re-enter 
the market after effecting a Conditional Transaction. PPPs are only 
minimum guidelines and compliance with them does not guarantee that 
a specialist is meeting its obligations. The Exchange issued 
guidance regarding PPPs in January 2007. See NYSE Member Education 
Bulletin 2007-1 (January 18, 2007).
    \6\ NYSE Rule 104.10(6)(iii)(c) provides that immediate re-entry 
is required after the following Conditional Transactions:
    (I) A purchase that (1) reaches across the market to trade with 
an Exchange published offer that is above the last differently 
priced trade on the Exchange and above the last differently priced 
published offer on the Exchange, (2) is 10,000 shares or more or has 
a market value of $200,000 or more, and (3) exceeds 50% of the 
published offer size.
    (II) A sale that (1) reaches across the market to trade with an 
Exchange published bid that is below the last differently priced 
trade on the Exchange and below the last differently priced 
published bid on the Exchange, (2) is 10,000 shares or more or has a 
market value of $200,000 or more, and (3) exceeds 50% of the 
published bid size.
    Pursuant to current NYSE Rule 104.10(6)(iv), Conditional 
Transactions that involve:
    (a) A specialist's purchase from the Exchange published offer 
that is priced above the last differently-priced trade on the 
Exchange or above the last differently-priced published offer on the 
Exchange; and
    (b) A specialist's sale to the Exchange published bid that is 
priced below the last differently-priced trade on the Exchange or 
below the last differently-priced published bid on the Exchange are 
subject to the re-entry requirements for Non-Conditional 
Transactions pursuant to Rule 104.10 (5)(i)(a)(II)(c).
    NYSE Rule 104.10(5)(i)(a)(II)(c) provides:
    Re-entry Obligation Following Non-Conditional Transactions--The 
specialist's obligation to maintain a fair and orderly market may 
require re-entry on the opposite side of the market trend after 
effecting one or more Non-Conditional Transactions. Such re-entry 
transactions should be commensurate with the size of the Non-
Conditional Transactions and the immediate and anticipated needs of 
the market.
    \7\ The negative obligation, which is part of NYSE Rule 104, 
requires that specialists restrict their dealings so far as 
practicable to those reasonably necessary to permit the specialists 
to maintain a fair and orderly market. Specifically, NYSE Rule 
104(a) provides:
    No specialist shall effect on the Exchange purchases or sales of 
any security in which such specialist is registered, for any account 
in which he, his member organization or any other member, allied 
member, or approved person, (unless an exemption with respect to 
such approved person is in effect pursuant to Rule 98) in such 
organization or officer or employee thereof is directly or 
indirectly interested, unless such dealings are reasonably necessary 
to permit such specialist to maintain a fair and orderly market, or 
to act as an odd-lot dealer in such security.
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    The Exchange will continue to provide data to the Commission on or 
before the 20th of the calendar month as outlined in its filing to 
create the Exchange New Market Model.\8\
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    \8\ See Securities Exchange Act Release No. 58184 (July 17, 
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46) (``New Market 
Model filing'').
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    Furthermore, NYSE Regulation (``NYSER'') continues to have 
appropriate surveillance procedures in place to surveil for compliance 
with the negative obligations of specialists. NYSER monitors, using a 
pattern-and-practice and/or outlier approach, specialist activity that 
appears to cause or exacerbate excessive price movement in the market 
(since such transactions would appear to be in violation of a 
specialist's negative obligation). In this connection, NYSER continues 
to surveil for specialist compliance with the PPP re-entry 
requirements, and, based on its reviews of surveillance data to date, 
has not identified significant compliance issues. The Division of 
Market Surveillance of NYSER also monitors specialist trading to 
cushion such price movements.
(2) Conclusion
    The Exchange believes that an extension of the current Conditional 
Transaction Pilot program will continue to provide NYSE specialists 
with the flexibility to compete and to efficiently and systematically 
trade and quote in their securities as well as equip them to fluidly 
manage their risk.
    In view of the above, the NYSE believes it is appropriate to extend 
the operation of the Conditional Transaction Pilot program to the 
earlier of December 31, 2008 or the approval of SR-NYSE-2008-46.

[[Page 59700]]

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 \9\ 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. The proposed rule change also is designed to support 
the principles of Section 11A(a)(1) \10\ in that it seeks to assure 
economically efficient execution of securities transactions. The 
Exchange believes that extending the operation of the Conditional 
Transaction Pilot will provide specialists with the required 
flexibility to compete, thus adding value to the Exchange market by 
encouraging specialists to continue to commit capital. Ultimately, the 
Exchange believes that the Conditional Transaction Pilot benefits the 
marketplace by allowing specialists to manage their risk and, 
therefore, provides them with the ability to increase the liquidity 
they provide at prices outside the best bid and offer, as well as meet 
their obligation to bridge temporary gaps in supply and demand and 
dampen volatility.
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    \9\ See Securities Exchange Act Release No. 58184 (July 17, 
2008), 73 FR 42853 (July 23, 2008)(SR-NYSE-2008-46) (``New Market 
Model filing'').
    \10\ 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 either solicited or received with respect 
to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated the proposed rule change as one that: 
(i) Does not significantly affect the protection of investors or the 
public interest; (ii) does not impose any significant burden on 
competition; and (iii) by its terms, does not 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. Therefore, the foregoing proposed rule change 
has become effective pursuant to Section 19(b)(3)(A) of the Exchange 
Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 until 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange believes that the 
instant filing is non-controversial because it merely seeks to extend 
the operation of the current Conditional Transaction Pilot. For the 
foregoing reasons, this rule filing qualifies for immediate 
effectiveness as a ``non-controversial'' rule change under paragraph 
(f)(6) of Rule 19b-4.\15\
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    \13\ Id. 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. The Exchange has 
satisfied this requirement.
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6).
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    The Exchange further respectfully requests that the Commission 
waive the 30-day delayed operative date so that the proposed rule 
change may become effective and operative upon filing with the 
Commission pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 
19b-4(f)(6) \17\ thereunder. The Exchange submits that good cause 
exists to justify waiver of the operative delay because the instant 
filing seeks to extend the operation the Conditional Transaction Pilot 
without interruption thus allowing specialists to continue managing 
their risk and therefore providing them with the ability to increase 
the liquidity they provide at prices outside the best bid and offer, as 
well as meeting their obligation to bridge temporary gaps in supply and 
demand, and dampening volatility. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because such waiver would allow the 
Conditional Transaction Pilot to continue without interruption through 
the earlier of December 31, 2008 or the approval SR-NYSE-2008-46 and 
provide the Exchange and the Commission additional time to evaluate the 
pilot.\18\ Accordingly, the Commission designates the proposed rule 
change effective and operative upon filing with the Commission.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4.
    \18\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78(c)(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-2008-95 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-2008-95. 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 also will be available

[[Page 59701]]

for inspection and copying at the principal 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-2008-95 and should be 
submitted on or before October 30, 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. E8-23928 Filed 10-8-08; 8:45 am]

BILLING CODE 8011-01-P