Document ID: SEC-2009-0788-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; New York Stock Exchange LLC and NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Changes Relating to Comparison of Executed Transactions
Posted Date: 2009-06-12T04:00Z

[Federal Register: June 12, 2009 (Volume 74, Number 112)]
[Notices]               
[Page 28086-28088]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jn09-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59997; File Nos. SR-NYSE-2009-50 and SR-NYSEAmex-2009-
20]

 
Self-Regulatory Organizations; New York Stock Exchange LLC and 
NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Changes Relating to Comparison of Executed Transactions

May 28, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on May 19, 2009, New York Stock Exchange LLC (``NYSE'') and NYSE 
Amex LLC (``NYSE-Amex'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes as described in 
Items I and II below, which Items have been prepared primarily by NYSE 
and NYSE-Amex (collectively, ``Exchanges''). The Exchanges filed the 
proposed rule changes pursuant to Section 19(b)(3)(A)(iii) of the Act 
\4\ and Rule 19b-4(f)(6) thereunder \5\ so that the proposals were 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule changes from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \5\ 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 Exchanges propose to amend NYSE Rule 134 (Differences and 
Omissions-Cleared Transactions) and NYSE-Amex Rule 134 (NYSE Amex 
Equities. Differences and Omissions-Cleared Transactions) to provide 
for certain technical procedures that the Exchanges use in the 
comparison stage of trade settlement.

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 Exchanges included 
statements concerning the purpose of, and basis for, the proposed rule 
changes and discussed any comments they received on the proposed rule 
changes. The text of those statements may be examined at the places 
specified in Item IV below. The Exchanges have 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 the 
Statutory Basis for, the Proposed Rule Change

    NYSE operates the On-Line Comparison System (``OCS''), which 
provides the first step for the settlement of securities transactions 
on the Exchanges. OCS conducts comparison processing, which includes 
matching initial trade submissions, correction processing, omnibus 
processing, and questioned trade (``QT'') resolution. OCS interacts 
with the Exchanges' members and member organizations in their roles as 
clearing firms, brokers, and Designated Market Making Units (``DMM 
Units'') and is linked internally to the Exchanges' trading systems and

[[Page 28087]]

externally to the National Securities Clearing Corporation.\6\
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    \6\ The National Securities Clearing Corporation (``NSCC'') is a 
clearing agency registered with the Commission under Section 17A of 
the Securities Exchange Act of 1934. NSCC provides centralized 
clearance and settlement services for equity security trades for 
U.S. broker-dealers.
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    For all Exchange-based transactions, NYSE Rule 132.30 (Comparison 
and Settlement of Transactions Through A Fully-Interfaced or Qualified 
Clearing Agency) and NYSE-Amex Equities Rule 132.30 (Comparison and 
Settlement of Transactions Through A Fully-Interfaced or Qualified 
Clearing Agency) require members and member organizations to submit 
data elements to OCS.\7\ This data is then used to compare the terms of 
the two sides (i.e., buy and sell) of a trade. When the two sides 
match, the trade is successfully compared and will move on to the 
subsequent stages of settlement processing. For automated trades, this 
data is recorded electronically, which reduces the error rate and 
produces ``clean'' or ``locked-in'' trades. For manual trades, data is 
submitted by both sides of the trade through their clearing firms.
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    \7\ See also NYSE Rule 130(c) and NYSE-Amex Equities Rule 130(c) 
(Overnight Comparison of Exchange Transactions).
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    To facilitate the comparison process, the Exchanges utilize omnibus 
account designations to record trade data.\8\ Using omnibus account 
designations allows for universal contras for one trade side, thereby 
reducing the number of different data elements that have to be 
independently recorded into a broker's hand-held device or written on a 
Floor report for a trade, which also reduces the likelihood of error.
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    \8\ An ``omnibus account'' is an account in which the 
transactions of multiple individual members are combined.
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    Despite the increased automation of the trading process and the use 
of universal designations, there are still a few trades that do not 
successfully compare. That is, all the trade data elements from the buy 
and sell sides do not match. This can occur when the trade is done 
manually and there is an error made in submitting the trade information 
from one or both sides. It can also occur on electronic trades if there 
are software problems or systemic problems that cause incorrect 
information to be filed thus causing inaccurate information to be 
transmitted. When trades do not compare, a QT is created and then goes 
through the ``QT process.'' This process mandates that clearing member 
organizations must resolve any trades that have not been successfully 
compared by the first business day after the trade date (``T+1'').\9\
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    \9\ NYSE Rule 134(a) and NYSE-Amex Equities Rule 134(a). These 
rules also set forth the procedures and timeframes to resolve QTs.
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    The Exchanges note that the incidence of QTs is very low both in 
terms of absolute numbers and as a percentage of daily trades. For 
example, for the period January 2 through January 8, 2009, there was an 
average of just 337 QTs per day at the NYSE on a T+1 basis, spread 
among the approximately 120 clearing firms and six DMM units. These are 
then researched and almost all of these are reconciled by the second 
evening after the trade date (``T+2''). As a result, on average there 
are typically less than three unresolved trades per month. There is an 
average of over 4 million trades each day on NYSE.
    One of the functions of OCS is to reconcile the balances in the 
omnibus accounts at the end of each trading day. The accounting 
procedure used for trade resolution requires that an omnibus account 
must net to zero at the end of any trading session. That is, there 
cannot be an unassigned security or money position in an omnibus 
account since that would, in effect, assign the open balance to the 
Exchange where the transaction occurred. The Exchanges, therefore, 
propose to assign on T+2 any open balance in any of the omnibus 
accounts it uses to compare trades to either a DMM Unit or the member 
organization that has been identified as the clearing firm for one side 
of the unresolved trade. A clearing firm will be assigned as the 
default contra side in a trade that resulted from an execution 
involving e-Quotes, which are trades involving Floor broker agency 
interest files.\10\ The DMM Unit will be assigned when there is an open 
imbalance in an omnibus account that resulted from the execution of 
orders that did not involve an e-Quote, regardless of whether the DMM 
was involved in the transaction.
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    \10\ NYSE Rule 70(a)(i) and NYSE-Amex Equities Rule 70(a)(i).
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    Specifically, the Exchanges propose to add language to their 
respective Rule 134 to enable them to assign either a DMM Unit or an e-
clearing member organization as the contra party to any uncompared 
transaction or unresolved omnibus account imbalance remaining in OCS at 
the close of business on the second business day after the trade date.
    Since the number of QTs that remain unresolved by the end of the 
second day after the initial trade date is extremely low, the Exchanges 
expect that there will be very few assignments of a default contra side 
involving clearing firms or DMM Units that will be made under the 
proposed revisions of their respective Rule 134.
    The Exchanges state that the proposed rule changes are consistent 
with their obligations under Section 6(b)(5) of the Act,\11\ which 
requires the rules of a registered national securities 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. The Exchanges believe that the proposed rule changes 
comply with these requirements because the changes enhance the 
comparison process at the Exchanges, thereby supporting the timely 
settlement of securities transactions.
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    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchanges do 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 Exchanges did not solicit or receive written comments with 
respect to the proposed rule change. The Exchanges will notify the 
Commission of any comments they receive.

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

    The foregoing rule changes were effective upon filing with the 
Commission pursuant to Section 19(b)(3)(A)(iii) of the Act \12\ and 
Rule 19b-4(f)(6) thereunder \13\ because each of the proposed rule 
changes does not: (i) Significantly affect the protection of investors 
or the public interest; (ii) impose any significant burden on 
competition; and (iii) become operative prior to 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission 
may designate a shorter

[[Page 28088]]

time if such action is consistent with the protection of investors and 
the public interest. The Exchanges have asked the Commission to waive 
the 30-day operative delay so that the proposal may become operative 
immediately upon filing.
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    \14\ Id.
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Acceleration of the operative date will enable the Exchanges to clarify 
and strengthen their process to resolve uncompared transactions or 
unresolved account imbalances without undue delay while still affording 
interested parties the opportunity to submit comments or concerns to 
the Commission regarding these proposals. The new processes should 
instill greater confidence among the Exchanges' members and investors 
that such situations will be handled in an orderly and expeditious 
manner. For these reasons, the Commission designates the proposal to be 
effective and operative upon filing with the Commission.\16\
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    \16\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f). The Exchange provided the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to filing.
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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 No. SR-NYSE-2009-50 or NYSEAmex-2009-20 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-NYSE-2009-50 or NYSEAmex-
2009-20. At least one of these file numbers 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 20549-1090 on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of the filing will also be available for inspection and copying at the 
Exchanges principal offices and on NYSE's Internet Web site at http://
www.nyse.com. 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 No. SR-NYSE-
2009-50 or NYSEAmex-2009-20 and should be submitted on or before July 
6, 2009.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13807 Filed 6-11-09; 8:45 am]

BILLING CODE 8010-01-P