Document ID: SEC-2007-0672-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-05-14T04:00Z

[Federal Register: May 14, 2007 (Volume 72, Number 92)]
[Notices]               
[Page 27164-27165]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my07-69]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55723; File No. SR-NYSEArca-2007-38]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 
Thereto Relating to Rule 6.80 Governing Accommodation Transactions 
(Cabinet Trades)

May 8, 2007.
    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 April 17, 2007, NYSE Arca, Inc. (``NYSE Arca'' or the ``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 substantially prepared by the Exchange. On May 7, 2007, NYSE 
Arca filed Amendment No. 1 to the proposed rule change. The Commission 
is publishing this notice to solicit comment on the proposed rule 
change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Rule 6.80 governing 
Accommodation Transactions, also referred to as Cabinet Trades. The 
text of the proposed rule change is available at NYSE Arca, the 
Commission's Public Reference Room, and http://www.nysearca.com.

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 Exchange 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 these 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 aspects of such 
statements.

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

1. Purpose
    An ``accommodation'' or ``cabinet'' trade refers to trades in 
listed options on the Exchange that may be considered worthless or 
which are not actively traded. Exchange Rule 6.80, Accommodation 
Transactions (Cabinet Trades), which sets forth specific procedures for 
engaging in cabinet trades, currently (i) permits cabinet trades to 
occur via open outcry at a cabinet price of $1 per option contract when 
the class does not trade on the NYSE Arca automated electronic trading 
system,\3\ and (ii) requires Market Makers and Floor Brokers who wish 
to conduct a cabinet transactions to place their orders with a Trading 
Official.
---------------------------------------------------------------------------

    \3\ Cabinet orders were previously eligible for automated 
electronic trading on the PCX Plus system. NYSE Arca decommissioned 
the PCX Plus electronic trading system during the fourth quarter of 
2006 and replaced it with the OX electronic trading system. As a 
result, the Exchange proposes to delete the name ``PCX Plus'' from 
the text of Rule 6.80. At this time no issues have been designated 
for cabinet trading on OX or any other Exchange sponsored electronic 
system.
---------------------------------------------------------------------------

    The primary purpose of this rule change is to amend Exchange Rule 
6.80 to authorize Floor Brokers and Market Makers to initiate cabinet 
trades. Under the existing procedures, Market Makers and Floor Brokers 
are only permitted to (i) place cabinet orders with a Trading Official 
and (ii) respond at a cabinet price to a request for a quote from a 
Trading Official. Pursuant to the proposed amendment, Market Makers and 
Floor Brokers will also be permitted to initiate a cabinet trade in the 
trading crowd on their own, without the need to first place the order 
with a Trading Official. This will save the additional time and process 
involved in a Market Maker or Floor Broker needing to first place a 
cabinet order that they are initiating, with a Trading Official, who 
would then in turn represent and execute the order on behalf of the 
Market Maker or Floor Broker. Permitting Market Makers and Floor 
Brokers to initiate cabinet orders and trades on their own accord will 
provide Market Makers and Floor Brokers with additional flexibility and 
will facilitate the fair, orderly and efficient handling of cabinet 
transactions on the Exchange. Permitting Market Makers and Floor 
Brokers to represent cabinet orders is

[[Page 27165]]

similar to and consistent with Rule 6.54 of the Chicago Board Option 
Exchange.\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 53808 (May 16, 
2006), 71 FR 29371 (May 22, 2006) (File no. SR-CBOE-2006-33) 
(permitting Floor Brokers to represent cabinet orders); Securities 
Exchange Act Release No. 55081 (January 10, 2007), 72 FR 2317 
(January 18, 2007) (File no. SR-CBOE-2007-02) (permitting Market 
Makers to represent cabinet orders).
---------------------------------------------------------------------------

    The second purpose of this rule change is to make clear that Floor 
Brokers and Market Makers who enter into either opening or closing 
cabinet transactions may do so as long as they first yield priority to 
all corresponding orders in the cabinet book. Rule 6.80 currently 
provides that all bids and offers for cabinet transactions, both 
opening and closing, must be placed with a Trading Official, and that 
opening orders must yield to closing orders in the cabinet. The 
Exchange now proposes that both opening and closing transactions may be 
represented by Floor Brokers and Market Makers, so long as they first 
yield priority to all corresponding orders in the cabinet.
    The Exchange also proposes to include a provision in Rule 6.80 
stating that the rules governing cabinet trading do not apply to issues 
that trade as part of the Penny Pilot program. Although cabinet trades 
involve orders priced at $1 per option contract, the specific terms and 
conditions for cabinet trading are not applicable to option classes 
participating in the Penny Pilot.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \6\ 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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule change (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) 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, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6)(iii) thereunder.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6)(iii). Rule 19b-4(f)(6) (iii) requires 
the Exchange to give written notice to the Commission of its intent 
to file the proposed rule change at least five business days prior 
to filing. The Exchange complied with this requirement.
---------------------------------------------------------------------------

    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 No. SR-NYSEArca-2007-38 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2007-38. 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 Commissions 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. Copies of such 
filing also will be available 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-NYSEArca-2007-38 and should be submitted on or before 
June 4, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-9195 Filed 5-11-07; 8:45 am]

BILLING CODE 8010-01-P