Document ID: SEC-2007-0948-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-07-13T04:00Z

[Federal Register: July 13, 2007 (Volume 72, Number 134)]
[Notices]               
[Page 38643-38645]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy07-127]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56024; File No. SR-NYSE-2007-61]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Rule 97, Limitation on Members' Trading Because of Block 
Positioning

July 6, 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 July 6, 2007, the 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 substantially prepared by the Exchange. 
The Exchange has designated the proposed rule change as a ``non-
controversial'' rule change pursuant to section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule 
change 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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 amend NYSE Rule 97 to permit members or 
member organizations that hold long positions as a result of block 
transactions with customers to send proprietary buy intermarket sweep 
orders (``ISOs'') in the course of facilitating another customer's buy 
or sell order. The text of the proposed rule change is available on the 
NYSE's Web site (http://www.nyse.com), at the NYSE, 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 Exchange included statements 
concerning the purpose of, and basis for, 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
    The Exchange is proposing to amend NYSE Rule 97 in order to permit 
member organizations that hold long positions as a result of a block 
transaction with a customer to execute proprietary ISOs on a plus tick 
during the last 20 minutes of the trading day if they are required 
under Regulation NMS \5\ to send a buy ISO in the course of 
facilitating another customer's buy or sell order during that time 
period.
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    \5\ 17 CFR 242.600 et seq.
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    NYSE Rule 97 governs block facilitation transactions by NYSE member 
organizations on behalf of customers. The rule states that if, as a 
result of facilitating one or more customer sell order(s) in a stock 
during the trading day, a member organization ends up holding a long 
position in the stock in a proprietary account, then during the last 20 
minutes of trading, the member organization is prohibited from buying 
such stock as principal on a ``plus tick'' if the transaction would 
take place at a price above the lowest price at which it acquired the 
long position. The Exchange states that the underlying purpose of Rule 
97 was to address concerns that a member firm might engage in 
manipulative practices by attempting to ``mark-up'' the price of a 
stock to enable the position acquired in the course of block 
positioning to be liquidated at a profit, or to maintain the market at 
the price at which the position was acquired.
    Under Regulation NMS, member organizations may not trade through a 
protected quotation in another market, but may satisfy their obligation 
to the protected order by sending ISOs to the protected market at the 
same time that they send orders to the inferior-priced market. 
Depending on the size of the block that is being facilitated and the 
size of the protected quotes, block customers may--pursuant to Rules 
600(b)(30)(ii) and 611(b)(6) of Regulation NMS \6\--decline to take and 
process better priced executions that result from the sending of the 
ISO orders. This may occur, for example, where the ISO amounts are de 
minimis in relation to the size of the block being facilitated. In 
those situations, the firm would be required--based on the customer's 
instructions--to print the

[[Page 38644]]

block at the inferior price and send the ISOs, which would be marked 
and booked as principal (rather than as agent).
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    \6\ 17 CFR 242.600(b)(30)(ii) and 17 CFR 242.611(b)(6).
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    The aforementioned may result in a conflict between NYSE Rule 97 
and Regulation NMS. That is, if, during the last 20 minutes of trading, 
a member organization facilitates a customer order that trades through 
protected bids or offers, and in compliance with Rules 600(b)(30)(ii) 
and 611(b)(6) of Regulation NMS, the member firm simultaneously routes 
proprietary ISOs to execute against the full displayed size of any 
protected quotation in that security (``ISO facilitation''), the ISO 
facilitation could violate Rule 97 if the ISO orders would trade on a 
plus tick at a price above the lowest facilitation price. In essence, 
the implementation of Regulation NMS requires firms to choose between 
violating Regulation NMS or violating Rule 97.
    To resolve this potential conflict, the Exchange proposes adding an 
exemption to Rule 97 so that when facilitating a customer order that 
would otherwise require the firm to either violate Rule 97 or trade 
through protected quotations, member organizations can comply with 
their Regulation NMS obligations without also violating Rule 97.\7\ 
This exemption would be available only when: (1) The firm has acquired 
a proprietary position as a result of a previous block facilitation for 
a customer; (2) the facilitation trade during the last 20 minutes of 
trading would cause the firm to trade through a better priced offer on 
another market, such that the firm is obligated by Rule 611 of 
Regulation NMS to send proprietary ISOs when it facilitates the 
customer's order; (3) the customer has declined better-priced ISO 
executions; and (4) the better-priced offers in away markets are such 
that NYSE Rule 97 would prohibit the firm from sending a proprietary 
buy order. In such cases, the firm would be permitted to send the 
proprietary buy ISOs, provided that the ISOs were limited in quantity 
to the aggregate size of better priced protected quotations in other 
markets. For purposes of this amendment, the Exchange further proposes 
adopting the definitions of Regulation NMS in connection with the terms 
``protected quotation'' and ``intermarket sweep order.'' \8\ The 
Exchange notes that the firm would still be subject to the anti-
manipulation provisions of the NYSE and Commission rules and 
regulations.
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    \7\ A similar issue arises under NYSE Rule 92, which can also 
conflict with Regulation NMS Rule 611. See Securities Exchange Act 
Release No. 56017 (July 5, 2007) (SR-NYSE-2007-21).
    \8\ See 17 CFR 242.600(b)(58) and (30).
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    The Exchange believes that the exemption is appropriate in view of 
the pending compliance date for Regulation NMS and the fact that a 
firm's intention in these situations is not to manipulate the market or 
to mark up its long position, but rather to facilitate a legitimate 
customer order. Under these circumstances, the Exchange believes that 
the amendment is in the public interest, since it would facilitate 
Regulation NMS compliance.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \9\ 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.
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    \9\ 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

    The rule proposal was developed in response to concerns expressed 
by certain member organizations and the Securities Industry and 
Financial Markets Association (``SIFMA''), an industry organization 
that represents the interests of more than 650 securities firms, banks 
and asset managers. During the drafting of the rule filing and proposed 
rule, SIFMA, on behalf of its members, submitted materials for the 
NYSE's consideration in connection with the relief requested. The 
Exchange has incorporated these comments into the final rule proposal, 
but the Exchange has neither solicited nor received written comments on 
the final proposed rule change.

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

    Because the 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 after the date of the 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 \10\ and 
Rule 19b-4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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 the five-day pre-filing requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \12\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ 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 operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it would facilitate member compliance with their respective 
intermarket sweep order routing obligations under Rule 611 of 
Regulation NMS.\14\ For these reasons, the Commission designates that 
the proposed rule change become operative immediately.\15\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ 17 CFR 242.611(b)(6).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact 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 the 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

[[Page 38645]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2007-61 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-NYSE-2007-61. 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 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-
NYSE-2007-61 and should be submitted on or before August 3, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13593 Filed 7-12-07; 8:45 am]

BILLING CODE 8010-01-P