Document ID: SEC-2009-0273-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2009-03-03T05:00Z

[Federal Register: March 3, 2009 (Volume 74, Number 40)]
[Notices]               
[Page 9323-9325]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr09-131]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59446; File No. SR-NYSE-2009-17]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Eliminating the Ability To Enter Orders on the Exchange With the 
Settlement Instructions of ``Cash'', ``Next Day'' and ``Seller's 
Option''

February 25, 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 February 18, 2009, 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 prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 Exchange proposes to eliminate the ability to enter orders on 
the Exchange with the settlement instructions of ``cash'', ``next day'' 
and ``seller's option''.

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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Through this filing the Exchange seeks to amend several Exchange 
rules to remove references to certain settlement instructions that are 
no longer compatible with the Exchange's more electronic market. These 
include instructions to settle on ``cash'', ``next day'' or ``seller's 
option'' basis.
    The Exchange notes that parallel changes are proposed to be made to 
the rules of the NYSE Alternext Exchange (formerly the American Stock 
Exchange).\4\
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    \4\ See SR-NYSE Alternext-2009-14 (to be filed February 18, 
2009). The Commission notes that the referenced filing was rejected 
because of a deficiency in the proposed rule text.
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Background
    Currently, in addition to regular way settlement (i.e., settlement 
on the third business day following trade date), a customer may submit 
an order with settlement instructions for cash, next day or seller's 
option. An order with cash settlement instructions requires delivery of 
the securities the same day as the transaction in contrast to a regular 
way transaction, where the seller is required to deliver the securities 
on the third business day. Next day settlement instructions require 
delivery of the securities on the first business day following the 
transaction. Orders that have settlement instructions of seller's 
option affords the seller the right to deliver the security or bond at 
any time within a specified period, ranging from not less than two 
business days to not more than 180 days for stocks and not less than 
two business days and no more than sixty days for U.S. government 
securities.
    Cash, next day and seller's option settlement instructions are 
remnants of a time when the Exchange functioned completely as a manual 
auction market. While each of these settlement instructions may be 
included on order types that are submitted electronically to the 
Exchange, orders containing any of those settlement instructions cannot 
be immediately and automatically executed but must bypass the Exchange 
matching/execution engine, Display Book, and are literally printed on 
paper at the trading post for manual processing on the Floor.
Proposed Elimination of Cash, Next Day, Seller's Option Settlement 
Instructions
    In the Exchange's current more electronic market, orders received 
by Exchange systems that are marketable upon entry are eligible to be 
immediately and automatically executed. Order types and settlement 
instructions that require manual intervention pose significant 
impediments to the efficient functioning of the Exchange's market. To 
this end the Exchange filed with the Commission to remove legacy orders 
that require manual processing. Specifically, on January 31, 2008, the 
Exchange filed with the Commission to amend NYSE Rule 13 to invalidate 
the use of the manual order types ``Alternative Order--Either/Or 
Order'', ``Orders Good Until a Specified Time'', ``Scale Order'' and 
``Switch Order--Contingent Order'' and Rule 124's order types ``Limited 
Order, With or Without Sale'' and ``Basis Price Order'' as being 
incompatible with the more electronic Exchange market environment.\5\
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    \5\ See Securities and Exchange Act Release No. 57295 (February 
8, 2008), 73 FR 8731 (February 14, 2008) (SR-NYSE-2008-11).
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    The Exchange's commitment to provide its market participants with 
the ability to have their orders executed in the most efficient manner 
necessitates the elimination of cash, next day and seller's option as 
valid settlement instructions for orders submitted to the

[[Page 9324]]

Exchange. These instructions result in these orders printing to paper 
at the trading Post \6\ when they are submitted electronically in 
Exchange systems. The DMM and the trading assistant must realize that 
the document printed was in fact an order thus causing delay in the 
execution of the order. The DMM is then responsible for the manual 
execution of the order. The manual intervention required of the DMM and 
trading assistant at the Post in the processing of these orders puts 
the orders at the very real risk of ``missing the market'' as a result 
of the current speed of order execution in the Exchange market.
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    \6\ Trading Posts are the horseshoe shaped counters manned by 
DMMS and trading assistants on the Trading Floor of the NYSE where 
individual stocks are bought and sold.
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    In addition, the inefficiency of these order types is made obvious 
by the fact that they are infrequently used by market participants. A 
review of the different types of orders received by the Exchange during 
the week of May 12, 2008 through May 16, 2008 shows that there were on 
average 28 cash orders (with an average of 1,653 shares per day), 48 
next day orders (average of 763 shares per day) and 2 seller's option 
orders (average of 2,839 shares per day) utilized by market 
participants each day. By comparison, for May 2008, the Exchange 
received an average of 92.2 million orders a day. Even during the last 
five trading days of 2007, when the most cash, next day and seller's 
option orders are received, the average per day submissions were 123 
for cash (average of 896 shares per day), 199 for next day (average of 
1,848 shares per day) and 10 for seller's option (average of 11,679 
shares per day).\7\
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    \7\ The Exchange notes that on December 30th and 31st of 2008 it 
executed an atypical amount of shares for orders submitted with 
cash, next day and seller's option settlement instructions. 
Specifically, on December 30, 2008, 126,504 shares were executed on 
a cash settlement basis, 10,284,879 shares for next day settlement 
and 10,000,000 shares for seller's option settlement. In addition, 
there were 8,110,228 shares executed for cash settlement on December 
31, 2008. The Exchange believes that this level of activity is 
reflective of the economic events of 2008 and is unrelated to usual 
trading patterns for these settlement types.
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    The Exchange now seeks to eliminate cash, next day and seller's 
option as valid settlement instructions for orders submitted to the 
NYSE. The Exchange therefore proposes to delete the references to those 
settlement instructions from NYSE Rules 12 (``Business Day''), 64 
(Bonds, Rights and 100-Share-Unit Stocks), 66 (U.S. Government 
Securities),\8\ 123 (Records of Orders), 124 (Odd-Lot Orders), 130 
(Overnight Comparison of Exchange Transactions), 137 (Written 
Contracts), 137A (Samples of Written Contracts), 189 (Unit of 
Delivery), 235 (Ex-Dividends, Ex-Rights), 236 (Ex-Warrants), 241 
(Interest--Added to Contract Price), 257 (Deliveries After ``Ex'' 
Date), 282 (Buy-In Procedures) and 440G (Transactions in Stocks and 
Warrants for the Accounts of Members, Principal Executives and Member 
Organizations). In addition, the Exchange seeks to eliminate entirely 
Rules 73 (``Seller's Option''), 177 (Delivery Time--``Cash'' Contracts) 
and 179 (``Seller's Option''). In addition, the Exchange proposes to 
remove language in Rules 64 and 66 that provide for the possibility of 
using multiple settlement periods for bids and offers entered on the 
Exchange since, for all practical purposes, the Exchange will now only 
accept orders for regular way settlement.
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    \8\ The Exchange does not have the capability to accept these 
order types for U.S. Government securities.
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    The Exchange also proposes to amend Rule 66 to add the provision 
that exists in Rule 64 to allow the Exchange, in its discretion, to 
provide for additional settlement periods. The Exchange is proposing 
this addition to bring the provisions of the two rules into harmony as 
they address similar procedures with respect to different types of 
securities admitted to dealings on the Exchange. The Exchange, however, 
recognizes that any additional settlement periods it proposes to add 
will be subject to the rule filing process under Section 19(b) of the 
Securities Exchange Act of 1934 (the ``Act'') [sic].\9\
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    \9\ 15 U.S.C. 78s(b).
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    The Exchange will commence implementation of the proposed 
elimination of the settlement instructions discussed herein on March 
13, 2009. The Exchange intends to progressively implement this 
elimination on a security by security basis as it gains experience with 
the implementation until it is operative in all securities traded on 
the Floor. During the implementation, the Exchange will identify on its 
Web site which securities will no longer be eligible for these 
settlement instructions.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Act'') 
[sic] for this proposed rule change is the requirement under Section 
6(b)(5) \10\ 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. 
The instant filing accomplishes these goals by rescinding legacy 
settlement instructions that place customers at risk of missing the 
market and possibly receiving inferior priced executions.
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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

    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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest, (ii) impose any 
significant burden on competition, and (iii) 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, it has become effective pursuant to 
Section 19(b)(3)(A) \11\ of the Act and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative until 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ 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 so that the proposed rule 
change may become operative on March 13, 2009. Specifically, the 
Exchange states that the proposal will rescind legacy settlement 
instructions that are not compatible with the Exchange's electronic 
market. The Commission believes that allowing the proposed rule change 
to become operative on March 13, 2009 is consistent with the

[[Page 9325]]

protection of investors and the public interest, because it will enable 
the Exchange to implement pending technological enhancements that 
require the rescission of these settlement instructions. The Exchange 
expects these enhancements to make its order processing operations more 
efficient and thereby strengthen and advance the quality of the 
Exchange's market. Accordingly, the Commission designates the proposed 
rule change to be operative on March 13, 2009.\15\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ Id. In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file 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 this requirement.
    \15\ For purposes only of waiving the 30-day operative delay of 
the proposal, 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-2009-17 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 Number SR-NYSE-2009-17. 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 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-2009-17 and should be 
submitted on or before March 24, 2009.

    For the Commission, by the Division of Trading and Markets, 
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. E9-4427 Filed 3-2-09; 8:45 am]

BILLING CODE 8011-01-P