Document ID: SEC-2006-0243-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.
Posted Date: 2006-02-24T05:00Z

[Federal Register: February 24, 2006 (Volume 71, Number 37)]
[Notices]               
[Page 9629-9630]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24fe06-125]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53327; File No. SR-NYSE-2005-86]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Conform NYSE Rules 123C and 476A with NYSE Rule 80A

February 16, 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 December 7, 2005, the New York Stock Exchange, Inc. (``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 prepared by the Exchange. On 
February 9, 2006, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made minor technical 
changes to the proposed rule text and revised the description of the 
proposal to clarify the general background of NYSE Rules 123C and 
476A. Amendment No. 1 replaced NYSE's original filing in its 
entirety.
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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: (a) NYSE Rule 123C (Market on the 
Close Policy and Expiration Procedures); and (b) the Supplementary 
Material to NYSE Rule 476A (Imposition of Fines for Minor Violation(s) 
of Rules), to conform such rules with the current provisions of NYSE 
Rule 80A (Index Arbitrage Trading Restrictions). The text of the 
proposed rule change is available on the Exchange's Internet Web site 
(http://www.nyse.com), at the Exchange's principal office, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Rules 123C(7) and 476A to 
conform these rules with the provisions of NYSE Rule 80A. The Exchange 
amended NYSE Rule 80A on two earlier occasions to: (i) revise the 
trigger levels for the ``collar'' provisions, among others;\4\ and (ii) 
replace the usage of the Dow Jones Industrial Average \5\ (``DJIA'') as 
the basis for the calculation of the limitations on index arbitrage 
trading with the average closing value of the NYSE Composite Index[reg] 
(also referred to as NYA).\6\ NYSE Rules 123C(7) and 476A refer to the 
former provisions of NYSE Rule 80A and therefore must be conformed with 
NYSE Rule 80A, as amended.
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    \4\ See infra note 9.
    \5\ ``Dow Jones Industrial Average'' is a service mark of Dow 
Jones & Company, Inc.
    \6\ See Securities Exchange Act Release No. 52328 (August 24, 
2005), 70 FR 51398 (August 30, 2005) (SR-NYSE-2005-45) (``NYSE Rule 
80A Order''). NYSE Rule 80A currently calculates limitations on 
index arbitrage trading based on the NYSE Composite Index[reg], 
replacing the previous usage of the DJIA with respect to such 
calculation.
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    NYSE Rule 80A currently requires that, for any component stock of 
the S&P 500[reg] Stock Price Index,\7\ whenever the NYSE Composite 
Index[reg] declines from the previous day's close by an amount greater 
than or equal to two percent calculated pursuant to NYSE Rule 80A, all 
index arbitrage orders to sell must be marked ``sell plus,'' and, 
whenever the NYSE Composite Index[reg] advances from the previous day's 
close by such amount, all index arbitrage orders to buy must be marked 
``buy minus.'' The value at which tick restrictions are imposed is 
calculated quarterly. The two-percent value is based upon the average 
closing value of the NYSE Composite Index[reg] for the last month of 
the previous calendar quarter, rounded down to the nearest ten points.
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    \7\ ``Standard and Poor's 500 Stock Price Index[reg] is a 
service mark of Standard and Poor's Corporation.
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    (a) NYSE Rule 123C(7) Expiration Days: Exception to Rule 80A
    NYSE Rule 123C(7) currently refers to the former provisions of NYSE 
Rule 80A, which utilized the DJIA to calculate the limitations on index 
arbitrage trading. The Exchange proposes to amend NYSE Rule 123C(7) to 
reflect the current provisions of NYSE Rule 80A, which applies the NYSE 
Composite Index[reg] for such calculation. NYSE Rule 123C(7) should 
have been amended along with the amendments to NYSE Rule 80A in August 
2005,\8\ but the Exchange inadvertently overlooked the amendment at 
that time.
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    \8\ See NYSE Rule 80A Order, supra note 6.
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    NYSE Rule 123C(7) currently provides that when a market-on-close 
(``MOC'') index arbitrage order to establish or increase a position is 
entered in any component stock of the S&P 500[reg] Stock Price Index 
and NYSE Rule 80A subsequently goes into effect, the MOC order must be 
handled differently depending upon when NYSE Rule 80A goes into effect. 
The tick restrictions are determined at the time NYSE Rule 80A goes 
into effect under the various conditions that exist in the market at 
that time. However, NYSE Rule 123C(7) also indicates that NYSE Rule 
80A's provisions, which relate to the entry of index arbitrage orders 
when the DJIA is up or down 2.0% from its previous day's closing value, 
do not apply to index arbitrage MOC orders ``that are liquidating 
previously established stock positions against expiring derivative 
index products.'' The rule further provides that the two percent value 
is calculated at the beginning of each calendar quarter and is 2.0%, 
rounded down to the nearest 10 points, of the average closing value of 
the DJIA for the last month of the previous quarter. Further, the rule 
states that the NYSE Rule 80A exemption applies only on expiration 
days. Therefore, the orders that are entered before NYSE Rule 80A goes 
into effect cannot be cancelled between 3:40 p.m. and 3:50 p.m., except 
to correct a legitimate error or when a regulatory trading halt is in 
effect; after 3:50 p.m., cancellation or reduction in the size of MOC 
orders is not permitted for any reason.
    (b) NYSE Rule 476A Imposition of Fines for Minor Violation(s) of 
Rules

[[Page 9630]]

    NYSE Rule 476A specifically provides that a violation of the NYSE 
Rules is committed when NYSE Rule 80A(c) and (d) tick requirements are 
not in place for certain orders when the DJIA has moved 50 points from 
the previous close. However, as discussed above, NYSE Rule 80A has been 
amended to reflect the utilization of the NYSE Composite Index[reg]. In 
addition, the current language in NYSE Rule 476A does not conform to 
the amendments to NYSE Rule 80A made by the Exchange in February 
1999.\9\ Specifically, the Exchange amended, among others, NYSE Rule 
80A's index arbitrage trigger, replacing the 50-point and 25-point 
limits with thresholds set at a two-percent value and a one-percent 
value of the DJIA.\10\ The Exchange should have proposed to amend the 
provisions of NYSE Rule 476A when the NYSE Rule 80A arbitrage trigger 
was amended in 1999, but this amendment was inadvertently overlooked.
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    \9\ See Securities Exchange Act Release No. 41041 (February 11, 
1999), 64 FR 8424 (February 19, 1999) (SR-NYSE-98-45).
    \10\ See id. As discussed earlier, the DJIA was subsequently 
replaced by the NYSE Composite Index[reg] by subsequent amendment to 
NYSE Rule 80A.
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    The Exchange proposes to amend NYSE Rule 476A to eliminate the 
specific reference to paragraphs (c) and (d), to refer instead to 
``order entry requirements,'' to reflect the change to the utilization 
of the NYSE Composite Index[reg], and to delete the portion of the rule 
referring to ``50 points from the previous close'' and replace it with 
the current trigger calculation, which is a two-percent value of the 
NYSE Composite Index[reg].
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\12\ in particular, in that it 
is designed to promote just and equitable principles of trade; to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities; 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 would 
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

    No written comments were solicited or received with respect to 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 self-regulatory organization 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-2005-86 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSE-2005-86. 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-2005-86 
and should be submitted on or before March 17, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Nancy M. Morris,
Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E6-2610 Filed 2-23-06; 8:45 am]

BILLING CODE 8010-01-P