Document ID: SEC-2007-1079-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-08-07T04:00Z

[Federal Register: August 7, 2007 (Volume 72, Number 151)]
[Notices]               
[Page 44205-44206]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07au07-104]                         

[[Page 44205]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56173; File No. SR-NYSE-2007-67]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Relating to NYSE Rule 2 
(``Member,'' ``Membership,'' ``Member Firm,'' etc.)

July 31, 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 24, 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, II, 
and III below, which Items have been substantially 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 proposed rule change reflects changes in the requirements for 
membership in the Exchange as a result of the proposed consolidation of 
the member firm regulatory functions of NASD and NYSE Regulation, Inc. 
(``NYSE Regulation'') that will result in a combined self-regulatory 
organization that will be called Financial Industry Regulatory 
Authority, Inc. (``FINRA'').\3\ The text of the proposed rule change is 
available on the Exchange's Web site (http://www.nyse.com), at the 

principal office of the Exchange, and at the Commission's Public 
Reference Room.
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    \3\ On July 26, 2007, the Commission approved a proposed rule 
change filed by NASD to amend NASD's Certificate of Incorporation to 
reflect its name change to the Financial Industry Regulatory 
Authority, Inc., or FINRA, in connection with the consolidation of 
the member firm regulatory functions of NASD and NYSE Regulation, 
Inc. See Securities Exchange Act Release No. 56146 (July 26, 2007).
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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 NYSE 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 NYSE 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend its membership rules to reflect 
the changes to the regulatory landscape that will result from the 
proposed consolidation of the member firm regulatory functions of NASD 
and NYSE Regulation.
    On November 28, 2006, NYSE Regulation and NASD announced a plan to 
consolidate their member regulation operations into a combined 
organization that will be the sole U.S. private-sector provider of 
member firm regulation for securities firms that conduct business with 
the public (the ``Transaction'').\4\ The objective of the Transaction 
is to increase consistency and efficiency of member firm regulation, 
including examination, enforcement, and rulemaking, for the benefit of 
individual investors and overall market integrity. It is also an 
objective of the Transaction to reduce the regulatory and financial 
burdens placed on member firms as a result of duplicate self-regulatory 
structures.
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    \4\ On July 26, 2007, the Commission approved amendments to 
NASD's By-Laws to implement governance and related changes to 
accommodate the consolidation of the member firm regulatory 
functions of NASD and NYSE Regulation, Inc. See Securities Exchange 
Act Release No. 56145 (July 26, 2007).
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    The concentration of member firm regulation in FINRA will further 
the goal that the NYSE, NASD and the securities industry have already 
been working on: To harmonize the member firm rules of the two 
organizations to eliminate overlapping but slightly different (or 
differently interpreted) rules. Because that harmonization process will 
not be complete by the closing of the Transaction, the Transaction 
contemplates a transition period during which FINRA will continue to 
apply to NYSE member organizations the member firm rules of the NYSE.
    To effect this transition, FINRA will adopt the relevant NYSE 
member firm rules. For administrative convenience, FINRA will 
accomplish this by incorporating these rules into FINRA's rulebook, 
necessitating that the rules also remain as rules of the NYSE. The NYSE 
and FINRA will execute a Rule 17d-2 agreement that will allocate the 
regulatory responsibility for those rules to FINRA.\5\
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    \5\ Pursuant to the Rule 17d-2 Agreement, NYSE and NASD will 
share responsibility for certain non-exclusive common rules, 
including rules relating to supervision, books and records, and 
conduct. See Securities Exchange Act Release No. 56148 (July 26, 
2007).
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    A necessary part of this arrangement is that NYSE will require all 
organizations that currently are or propose to become NYSE member 
organizations to also be members of FINRA. It is also intended that 
FINRA will become the designated examining authority (``DEA'') for all 
NYSE member organizations.\6\ So, for example, NYSE rules will provide 
that it will be a condition to purchase of a NYSE trading license that 
the organization is a member of FINRA.\7\
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    \6\ Historically, NYSE was the DEA for virtually all its member 
organizations. As part of the Transaction, it is contemplated that 
the Commission will name FINRA as the DEA for all the organizations 
for which NYSE was the DEA.
    \7\ NYSE has also allowed an organization to be an NYSE 
``regulation only'' member without purchasing a trading license, if 
the organization qualifies and subjects itself to NYSE regulatory 
jurisdiction. After the Transaction, NYSE will continue to provide 
this status to an organization that is or becomes a FINRA member and 
subjects itself to NYSE jurisdiction, even though the organization 
does not have a NYSE trading license.
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    Most NYSE member organizations are already also members of NASD, 
and thus will automatically be members of FINRA. There are 
approximately 95 NYSE member organizations that are not currently NASD 
members, and these are the organizations that will be required to 
become FINRA members in order to remain NYSE member organizations, and 
remain entitled to utilize a NYSE trading license (``NYSE-only member 
organizations'').\8\
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    \8\ NASD has filed with the Commission a rule filing to specify 
the terms on which these member organizations will be accommodated 
with FINRA membership. Pursuant to that proposed rule filing, NASD 
is proposing to establish Interpretive Material 1013-1 (``IM-1013-
1''), which creates a membership waive-in process for NYSE-only 
member organizations, and Interpretative Material Section 4(e) to 
Schedule A of the NASD By-Laws, which creates a membership 
application fee waiver for those NYSE firms that apply for 
membership pursuant to IM-1013-1. See SR-NASD-2007-056.
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    To address these changes, the Exchange proposes amending the 
definition of ``member organization'' in NYSE Rule 2(b). Under the 
Exchange's current rules, NYSE Rule 2(b) defines the term ``member 
organization'' as a ``registered broker or dealer (unless exempt 
pursuant to Securities Exchange Act of 1934) approved by the Exchange 
and authorized to designate an associated natural person to effect 
transactions on the floor of the Exchange or any facility thereof.'' 
\9\
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    \9\ In 2006, in connection with the creation of NYSE Group, 
Inc., which is now known as NYSE Euronext, Inc., a publicly-traded 
corporation, the Exchange amended its rules to reflect the 
separation of trading privileges at the Exchange from equity 
ownership in the Exchange. Securities Exchange Act Release No. 53382 
(February 27, 2006), 71 FR 11251 (March 6, 2006) (File No. SR-NYSE-
2005-77).

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[[Page 44206]]

    The Exchange proposes to amend NYSE Rule 2(b) to provide that 
membership in FINRA is a condition to becoming a member organization of 
NYSE. NYSE intends to retain for itself the discretion to deem an 
applicant unacceptable for NYSE membership, and is retaining Rule 308 
(Acceptability Proceedings) for this purpose.
    The Exchange recognizes that the proposed amendments to both the 
NYSE's and NASD's membership rules will not be approved as of the date 
of the closing of the Transaction and therefore, as of the closing of 
the Transaction, NYSE-only firms may not yet be approved FINRA members. 
Accordingly, the Exchange proposes that NYSE-only member organizations 
be provided a 60-day grace period within which they must apply for and 
be approved for FINRA membership. This grace period would run from the 
later of the date of Commission approval of either this proposed filing 
or NASD's proposed filing to amend its membership rules.
2. Statutory Basis
    The Exchange states that the statutory basis for proposed rule 
change is the requirement under section 6(b)(5) \10\ of the Act. 
Section 6(b)(5) requires, among other things, that the rules of an 
exchange be 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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    \10\ 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 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the NYSE consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2007-67 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-2007-67. 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 office of the NYSE. 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-2007-67 and should be 
submitted on or before August 28, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15274 Filed 8-6-07; 8:45 am]

BILLING CODE 8010-01-P