Document ID: SEC-2009-1424-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Amending NYSE Rule 103B to: (1) Codify the Exchange's Existing Practice That Renders Designated Market Marker Units Ineligible To Interview for Securities That Are Directly Related to the Performance or Credit of Any of the DMM's Affiliated Entities
Posted Date: 2009-10-07T04:00Z

[Federal Register: October 7, 2009 (Volume 74, Number 193)]
[Notices]               
[Page 51636-51639]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07oc09-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60755; File No. SR-NYSE-2009-99]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending NYSE Rule 103B to: (1) Codify the Exchange's Existing Practice 
That Renders Designated Market Marker Units Ineligible To Interview for 
Securities That Are Directly Related to the Performance or Credit of 
Any of the DMM's Affiliated Entities; (2) Define ``Related Security'' 
for Purposes of NYSE Rule 103B; (3) Provide That all Related Securities 
Listed Under Section 703.19 of the Exchange's Listed Company Manual 
Will Be Automatically Assigned to the Designated Market Maker Unit; (4) 
Define Repackaged Security for Purposes of NYSE Rule 103B, and Provide 
That Repackaged Securities are Allocated Through the Allocation Process 
Pursuant to NYSE Rule 103B

September 30, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 25, 2009, New York Stock Exchange LLC 
(``NYSE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``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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[[Page 51637]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 103B (``Security 
Allocation and Reallocation'') to: (1) Codify the Exchange's existing 
practice that renders Designated Market Marker (``DMM'') units 
ineligible to interview for securities that are directly related to the 
performance or credit of any of the DMM's affiliated entities; (2) 
define ``related security'' (``Related Security'') for purposes of NYSE 
Rule 103B; (3) provide that all Related Securities listed under Section 
703.19 of the Exchange's Listed Company Manual will be automatically 
assigned to the Designated Market Maker unit (``DMM unit'') that is 
assigned the related equity security unless the issuer affirmatively 
requests the Related Security be allocated pursuant to NYSE Rule 103B, 
Section III; (4) define repackaged security (``Repackaged Security''), 
for purposes of NYSE Rule 103B, and provide that Repackaged Securities 
are allocated through the allocation process pursuant to NYSE Rule 
103B, Section III; and (5) include inadvertently omitted rule text as 
well as make conforming changes to the rule text. The text of the 
proposed rule change is available at the Exchange, the Commission's 
Public Reference Room, and http://www.nyse.com.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The New York Stock Exchange LLC (``NYSE'' or ``Exchange'') proposes 
to amend NYSE Rule 103B (``Security Allocation and Reallocation'') to: 
(1) Codify the Exchange's existing practice that renders Designated 
Market Maker (``DMM'') units ineligible to interview for securities 
that are directly related to the performance or credit of any of its 
affiliated entities; (2) define ``Related Security'' for purposes of 
NYSE Rule 103B; (3) provide that all Related Securities listed under 
Section 703.19 of the Exchange's Listed Company Manual (``Manual'') 
will be automatically assigned to the DMM unit that is assigned the 
related equity security unless the issuer affirmatively requests the 
Related Security be allocated pursuant to NYSE Rule 103B, Section III; 
(4) define ``Repackaged Security,'' for purposes of NYSE Rule 103B, and 
provide that Repackaged Securities are allocated through the allocation 
process pursuant to NYSE Rule 103B, Section III; and (5) include 
inadvertently omitted rule text as well as make conforming changes to 
the rule text.
I. Background
A. Listing of ``Other Securities''
    Section 703.19 of the Manual (``Other Securities'') is the listing 
standard pursuant to which the NYSE lists any securities that do not 
qualify for listing under any of the standards specific to securities 
of a particular class. The general categories of securities that are 
currently listed under Section 703.19 are: (1) Capital securities; (2) 
retail debt securities; (3) mandatory convertible securities; and (4) 
Repackaged Securities. These securities may be issued by listed 
companies and their affiliated entities as well as qualified non-listed 
companies and their affiliated entities.
    Capital securities are hybrid securities with characteristics of 
both debt and preferred stock. Generally, these securities pay regular 
dividend or interest payments and have very long maturities or are 
perpetual in nature. Capital securities may be issued directly by the 
listed company or a subsidiary thereof, or by a trust which holds debt 
of the company or its subsidiary, such as trust preferred securities.
    Mandatory convertible securities are hybrid securities that entitle 
the holder to periodic payments on the amount invested until a 
specified conversion date, at which time the security converts into 
shares of the listed company according to a disclosed formula. 
Mandatory convertibles typically mature in 3-5 years.
    Retail debt securities are corporate debt securities that are 
assigned to a DMM unit for trading (as opposed to trading on NYSE 
Bonds), typically with face amounts of $50, $25 or $10. Retail debt 
securities pay a fixed rate of interest and typically have long 
maturity dates of 30+ years.
    Repackaged Securities are issued by a special purpose entity which 
is established for the purpose of issuing such securities and using the 
proceeds to purchase debt or preferred equity securities. Repackaged 
Securities represent an undivided beneficial interest in the debt or 
preferred equity securities held by the special purpose entity. These 
securities also pay interest (either fixed or floating) and typically 
have long maturity dates of 30+ years.
B. Assignment of ``Other Securities'' to DMM Units
    NYSE Rule 103B governs the allocation of securities to a qualified 
DMM unit when: (1) A security is to be initially listed on the 
Exchange; and (2) a security previously assigned to a DMM member 
organization must be re-assigned.\4\
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    \4\ See NYSE Rule 103B, Section III.
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    The allocation of securities that are related to initially listed 
securities is governed by NYSE Rule 103B, Section VI, entitled ``Policy 
Notes.'' Pursuant to the provisions of the rule, the issuer may choose 
whether to have its related security \5\ assigned to the DMM unit 
responsible for trading its listed equity security or referred for 
allocation through the formal allocation process and then must advise 
the Exchange of that decision.
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    \5\ NYSE Rule 103B, Section VI, currently does not provide a 
definition of the term ``related security.''
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    In contrast, warrants on the Exchange are automatically assigned to 
the DMM unit trading the underlying security unless the listed company 
specifically requests the warrant be referred for allocation through 
the formal allocation process.\6\
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    \6\ See NYSE Rule 103B, Section VI(A)(2).
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    Regardless of the method of allocation, current NYSE practice 
restricts DMM units from interviewing to be the assigned DMM unit or 
being allocated a security that is directly related to the performance 
or credit of any of its affiliated entities. DMMs units are not, 
however, restricted from interviewing to be the assigned DMM unit or 
being allocated a Repackaged Security issued by an affiliated entity 
because such products have no direct relation to the performance or 
credit of the issuing entity. However, if that Repackaged Security is 
based on an underlying debt security of an affiliated entity of the DMM 
unit, the DMM unit will be precluded from interviewing to be the 
assigned DMM unit or being allocated the Repackaged Security based on 
the underlying debt security of the affiliated entity of such DMM unit. 
Neither practice is currently codified in NYSE Rules.

[[Page 51638]]

II. Proposed Amendments
    The Exchange proposes to clarify and streamline the allocation 
process for securities listed under Section 703.19 of the Manual. 
Specifically, the Exchange seeks to include a definition of ``Related 
Security'' in proposed NYSE Rule 103B, Section VI(A)(2) and to set 
forth allocation procedures for Related Securities. For purposes of 
this rule, the term ``Related Security'' shall be defined as: (i) Any 
security listed on the Exchange issued by a company whose common equity 
securities are listed on the Exchange, other than such common equity 
securities; and (ii) any security listed on the Exchange by any issuer 
affiliated with a company whose common equity securities are listed on 
the Exchange. Related Securities of either a listed company whose 
common equity securities are listed on the Exchange or of an affiliated 
entity of such listed company include, but are not limited to, 
securities listed under NYSE Listed Company Manual Section 703.19 
(except for Repackaged Securities).
    The Exchange further proposes to amend Section VI of NYSE Rule 103B 
to have Related Securities allocated in the same manner as warrants 
listed on the Exchange. Pursuant to proposed Section VI(A)(6) of NYSE 
Rule 103B, the Exchange will automatically assign the Related Security 
to the DMM unit that trades the related equity security unless the 
issuer or affiliated entity affirmatively requests to have the Related 
Security assigned to a DMM unit through the formal allocation process 
as set forth in NYSE Rule 103B, Section III. The current rule which 
requires issuers to make a determination in this regard, places an 
unnecessary burden on issuers of Related Securities because an issuer 
may create and list multiple Related Securities throughout the year. 
The need for the issuer to advise the Exchange of its determination 
creates potential time delay in the allocation and trading of Related 
Securities on the Exchange. The Exchange believes that the proposed 
process will alleviate this burden and time delay.
    Further, pursuant to proposed Section VI(A)(7) of NYSE Rule 103B, 
if an issuer or any affiliated entity does not have an equity security 
listed on the Exchange, but does have a security listed on the Exchange 
that was approved for original listing under Section 703.19 of the 
Manual (except for a Repackaged Security), the Exchange will 
automatically assign any security subsequently listed under Section 
703.19 (except for a Repackaged Security) of that issuer or affiliated 
entity to the DMM unit trading the previously listed security, unless 
the issuer or affiliated entity affirmatively requests to have any such 
subsequently listed security assigned to a DMM unit through the formal 
allocation process as set forth in NYSE Rule 103B, Section III.
    To further alleviate burdens on the issuer related to the 
allocation of Related Securities, the Exchange proposes to amend 
Section VI(A)(4) of NYSE Rule 103B to provide that DMM units that are 
ineligible to receive a new allocation due to their failure to meet the 
requirements of Rule 103B, Section II(D) and (E) will remain eligible 
to receive the securities of a spin-off company and of Related 
Securities and Repackaged Securities where the DMM unit trades the 
related common equity security. The Exchange believes that this is 
appropriate because re-assigning the Related Securities of an equity 
security currently being traded by the DMM unit is disadvantageous and 
burdensome to the issuer that has already established a relationship 
with the DMM unit. The Exchange believes that most issuers prefer to 
have one point of contact to obtain information about the trading 
activity in the issuer's securities. Assignment of a Related Security 
to another DMM unit increases the administrative burdens on the issuer 
in obtaining trading information related to its securities. If the 
issuer chooses, it still may request to have the Related Security 
assigned to a DMM unit through the formal allocation process as set 
forth in NYSE Rule 103B, Section III.
    Additionally, the Exchange proposes to codify in Section II 
(``Eligibility for Allocation'') of NYSE Rule 103B, subparagraph (K), 
its existing practice of prohibiting a DMM unit from interviewing to be 
the assigned DMM unit or being allocated a security that is directly 
related to the performance or credit of any of its affiliated entities. 
The Exchange will not, however, prohibit a DMM unit from acting as the 
DMM unit for Repackaged Securities issued by an affiliated entity that 
bear no direct relation to the performance or credit of the issuing 
entity or any other affiliate of the DMM unit.
    Example #1: Bank A is the parent company of DMM unit Y.
    Bank A creates a Repackaged Security representing interests in an 
underlying debt security of XYZ Company that is not related to Bank A 
or DMM unit Y. DMM unit Y will not be precluded from interviewing to be 
the assigned DMM unit or being allocated the Repackaged Security based 
on the underlying debt security of XYZ Company.
    Example #2: However, assuming the same scenario above, Bank N, 
which is not affiliated with Bank A or DMM unit Y, creates a Repackaged 
Security based on an underlying debt security of Bank A. DMM unit Y 
will be precluded from interviewing to be the assigned DMM unit or 
being allocated the Repackaged Security created by Bank N based on the 
underlying debt security of Bank A.
    In Example 1, DMM unit Y will not be precluded from 
interviewing to be the assigned DMM unit or being allocated the 
Repackaged Security based on the underlying debt security of XYZ 
Company because that Repackaged Security bears no direct relation to 
the performance or credit of Bank A. The Exchange notes that the 
Repackaged Security will be fully funded at the time of creation and 
the issuer of the Repackaged Security is not reliant on the continued 
solvency of Bank A to be able to comply with all of its obligations to 
the holders of the Repackaged Securities.
    In Example 2, DMM unit Y will be precluded from 
interviewing to be the assigned DMM unit or being allocated to trade 
the Repackaged Security because that Repackaged Security was created 
based on an underlying debt security of Bank A and therefore has a 
direct relation to the credit and performance of Bank A.
    The Exchange also seeks to amend NYSE Rule 103B to include 
inadvertently omitted rule text. Specifically, Section VI(A) governs 
spin-offs, listing of related companies and listing of related 
securities. However, the words ``related security'' are inadvertently 
omitted from the actual text of the rule. Through this filing, the 
Exchange seeks to correct this oversight and include the words 
``related security'' in the body of NYSE Rule 103B, Section VI(A). 
Finally, the Exchange seeks to amend NYSE Rule 103B, Section VI(2) 
regarding allocation of warrants. In order to keep the language 
consistent through this section, the Exchange proposes to replace the 
word ``traded' with the word ``listed.''
III. Conclusion
    The Exchange submits that the amendments proposed herein are 
reasonable and necessary to clarify the operation of NYSE Rule 103B and 
streamline the allocation process.
2. Statutory Basis
    The basis under the Act for the proposed rule change is the 
requirement under Section 6(b)(5),\7\ which requires

[[Page 51639]]

that an exchange have rules that are designed 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. The Exchange believes that 
the proposed amendments are consistent with these objectives because 
the changes will alleviate impediments in the administrative process of 
assigning Related Securities to DMM units which ultimately facilitates 
the fair and orderly trading in those securities.
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    \7\ 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 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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) \8\ of the Act and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19-b-4(f)(6) 
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.
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    A proposed rule change filed under Rule 19b-4(f)(6) under the Act 
\10\ normally does not become operative prior to 30 days after the date 
of the filing. However, pursuant to Rule 19b4(f)(6),\11\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay \12\ is consistent with the 
protection of investors and the public interest because such waiver 
will permit the Exchange to avoid any continuing confusion regarding 
the application of NYSE Rule 103B, as well as immediately allow a 
Related Security to be assigned to the DMM unit that is assigned the 
related equity security, unless the issuer affirmatively requests the 
Related Security to be allocated pursuant to NYSE Rule 103B.
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ Id.
    \12\ 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. See 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-2009-99 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-2009-99. 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 20549-1090 on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of such filing will also be 
available for inspection and copying at the NYSE's principal office and 
on its 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 Number SR-NYSE-2009-99 and should be submitted on 
or before October 28, 2009.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-24085 Filed 10-6-09; 8:45 am]

BILLING CODE 8011-01-P