Document ID: SEC-2006-0270-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.
Posted Date: 2006-03-02T05:00Z

[Federal Register: March 2, 2006 (Volume 71, Number 41)]
[Notices]               
[Page 10738-10740]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02mr06-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53354; File No. SR-NYSE-2006-08]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Supplementary Material .26 to Exchange Rule 301 To Waive the 
Posting Requirements in Relation to Transfers for Nominal Consideration 
Between Employees of the Same Member Organization and New Leases

February 23, 2006.
    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 February 17, 2006, the New York Stock Exchange, Inc. (``Exchange'' 
or ``NYSE'') 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 Exchange 
filed the proposed rule change pursuant to Section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
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 Supplementary Material .26 to 
Exchange Rule 301 to waive the posting requirements in relation to 
transfers for nominal consideration between employees of the same 
member organization and new leases.
    The text of the proposed rule changes is available on the 
Exchange's Web site (http://www.nyse.com), at the Exchange's Office of 

the Secretary, 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 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
    The Exchange proposes to amend Supplementary Material .26 to 
Exchange Rule 301 to waive the posting requirements in relation to 
transfers for nominal consideration between employees of the same 
member organization and new leases.
    Article II, section 10, of the Exchange Constitution authorizes the 
Exchange's board of directors to (i) approve the transfer of membership 
of a regular member and the lease of such a membership and (ii) adopt, 
amend and repeal such rules as it may deem necessary or proper relating 
to the posting of notice of the proposed transfer or lease of a 
membership and other similar matters. Supplementary Material .26 to 
Exchange Rule 301 sets forth the current posting requirements for 
transfers and leases of seats, requiring that a proposed transfer or 
lease of a membership must be posted on the Exchange's bulletin board 
and in the Exchange's Weekly Bulletin at least 10 days before board 
consideration of such transfer or lease.
    A large percentage of Exchange memberships and leases of 
memberships are held on behalf of member organizations by individuals 
who are employees of those member organizations. When an employee who 
owns a membership on behalf of a member organization leaves that member 
organization, the member organization may instruct the employee to 
transfer such membership to another employee of the member organization 
for a nominal consideration (``nominal transfer''). Similarly, if a 
lessee member leaves his member organization, the member organization 
may cause another employee to sign a new lease to enable the member 
organization to retain the departed employee's floor trading rights.
    On December 6, 2005, the members of the Exchange and the 
shareholders of Archipelago Holdings, Inc. (``Archipelago'') voted to 
approve a merger between the Exchange and Archipelago. Upon 
consummation of the merger, all membership interests in the Exchange 
will be exchanged for a combination of cash and common stock of NYSE 
Group, Inc. After the merger, the right to trade on the floor of the 
Exchange will be pursuant to a system of trading licenses. In light of 
the fact that memberships will cease to exist upon consummation of the 
merger and the time and resources it takes to process transfers and 
leases of membership, the Exchange announced that it would not process 
any transfers or new leases of memberships entered into after the close 
of business on Friday, December 30, 2005.
    At the time the Exchange announced its decision to cease processing 
transfers of memberships and new leases, the Exchange believed that the 
merger would be completed before the end of January 2006. As completion 
of the merger has taken longer than anticipated, a backlog has 
developed of memberships beneficially owned by member organizations 
that are not available for use by such member organizations. This 
problem is a consequence of the inability of those member organizations 
to cause the nominal transfer to continuing employees of memberships 
held by departed employees so as to allow those continuing employees to 
transact business on the trading floor. Similarly, member organizations 
have been unable to execute new leases in the names of continuing 
employees when the employee who had been a lessee member on behalf of 
the member organization has departed. In addition, member organizations 
frequently meet their expanding needs for trading floor personnel by 
causing employees to enter into new leases. The Exchange's decision not 
to process new leases has prevented member firms from expanding their 
floor trading capacity in this manner and has forced them to operate 
with fewer floor trading personnel than they consider desirable.
    Some member organizations have experienced difficulty in 
effectively conducting their business as a result of this inability 
either to have employees admitted as members in place of departed 
employees or to acquire memberships by entering into new leases to 
expand their trading floor capacity. The Exchange has responded to this 
problem by recommencing the processing of nominal transfers and new

[[Page 10739]]

leases.\5\ However, member organization personnel needs make it 
important to process these transfers and leases as quickly as possible. 
Therefore, the Exchange proposes to amend Supplementary Material .26 to 
Exchange Rule 301 to waive the posting requirements in relation to 
nominal transfers and new leases, so as to shorten the process where an 
applicant is otherwise acceptable to the Exchange and ready for 
approval.
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    \5\ All new leases are required to contain a provision 
specifying that they will terminate by their terms upon closing of 
the merger.
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    The Exchange believes that waiving the ten day notice period prior 
to Exchange approval of a transfer will provide significant relief to 
member organizations that need to replace departed employees on the 
trading floor, or expand their trading floor personnel, as quickly as 
possible. The Exchange intends this waiver for nominal transfers and 
leases to be of a limited duration and will reimpose the ``posting'' 
requirement if at any time the conditions that make such waiver 
necessary, as discussed above, no longer exist.
    The purposes of the ``posting'' requirement are (i) to enable 
members to raise objections to the suitability of a proposed new member 
and (ii) to give notice to any member who may have a claim against the 
proceeds of the sale of the membership. As the ``posting'' process has 
not given rise to any objections to a proposed new member in many years 
and the Exchange performs a thorough background check as part of its 
approval process, the Exchange believes that waiving the ``posting'' 
requirement in the limited circumstances proposed by this filing will 
not meaningfully diminish the stringency of the new member approval 
process. Furthermore, the Exchange notes that there will be no 
``posting'' procedure with respect to applicants for trading licenses 
under the rules that will be in effect after the consummation of the 
merger. In addition, since the only membership transfers that will be 
permitted are nominal transfers between employees of the same member 
organization, no true sale is occurring and there are therefore no 
proceeds for a third party to make claims against.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirement under section 6(b)(5) \6\ of the Act 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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    \6\ 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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
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) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \9\ normally 
may not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \10\ 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 five-day prefiling requirement and the 30-day 
operative delay, and designate the proposed rule change immediately 
operative. The Commission believes that waiving the five-day prefiling 
requirement and the 30-day operative delay is consistent with the 
protection of investors and the public interest.\11\ The Commission 
notes that the Exchange represented that the posting process has not 
resulted in objections to a proposed new member in many years and the 
Exchange performs a thorough background check as part of its approval 
process for new members. The Commission also notes that the Exchange 
represented that the proposed waiver of the 10-day posting period 
should provide relief to member organizations that, as a consequence of 
the backlog in processing membership transfers, need to replace 
departed employees on the trading floor, or expand their trading floor 
personnel, as quickly as possible to enable them to effectively conduct 
their business. Accordingly, the Commission designates that the 
proposal become operative immediately.
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    \9\ Id.
    \10\ 17 CFR 240.19b-(f)(6)(iii).
    \11\ 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 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-2006-08 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-2006-08. 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

[[Page 10740]]

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-NYSE-2006-08 and should be submitted on or before March 
23, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-2931 Filed 3-1-06; 8:45 am]

BILLING CODE 8010-01-P