Document ID: SEC-2008-1694-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-12-17T05:00Z

[Federal Register: December 17, 2008 (Volume 73, Number 243)]
[Notices]               
[Page 76691-76693]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17de08-122]                         

[[Page 76691]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59077; File No. SR-NYSE-2008-127]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending Exchange Rule 104T To Make a Technical Amendment To Delete 
Language Relating to Orders Received by NYSE Systems and DMM Yielding; 
Clarifying the Duration of the Provisions of Rule 104T; Making 
Technical Amendments to Rule 98 and Rule 123E To Update Rule References 
for DMM Net Capital Requirements; Rescinding Paragraph (g) of Rule 123; 
and Making Conforming Changes to Certain Exchange Rules To Replace the 
Term ``Specialist'' with ``DMM''

December 10, 2008.
    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 December 8, 2008, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to: (i) Amend Exchange Rule 104T to make a 
technical amendment to delete language relating to orders received by 
NYSE systems and DMM yielding; (ii) clarify the duration of the 
provisions of Rule 104T; (iii) make technical amendments to Rule 98 and 
Rule 123E to update rule references for DMM net capital requirements; 
(iv) rescind paragraph (g) of Rule 123; and (v) make conforming changes 
to certain Exchange rules to replace the term ``specialist'' with 
``DMM.''
    The text of the proposed rule change is available at http://
www.nyse.com, NYSE's principal office, and 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 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
    The New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') is 
proposing to: (i) Amend Exchange Rule 104T to make a technical 
amendment to delete language relating to orders received by NYSE 
systems and DMM yielding that was inadvertently not removed in the 
filing to create its New Market Model; \4\ (ii) clarify the duration of 
the provisions of Rule 104T; (iii) make technical amendments to Rule 98 
and Rule 123E to update rule references for DMM net capital 
requirements; (iv) rescind paragraph (g) of Rule 123; and (v) make 
conforming changes to certain Exchange rules to replace the term 
``specialist'' with ``DMM.''
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    \4\ See Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46) (approving 
certain rules to operate as a pilot scheduled to end October 1, 
2009.)
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Background
    On October 24, 2008, the Commission approved the operation of a 
pilot for the Exchange's New Market Model. As part of this new model 
the functions formerly carried out by specialists on the Exchange were 
replaced by a new market participant, known as a Designated Market 
Maker (``DMM''). While there are some similarities in the manner in 
which DMMs operate, there are some major differences as well. For 
example, DMMs continue to be assigned individual NYSE-listed securities 
as they were under the specialist system, and have an affirmative 
obligation with respect to maintaining a fair and orderly market for 
trading those assigned securities. Unlike the specialist system, each 
DMM also has a minimum quoting requirement \5\ in its assigned 
securities but no longer has a negative obligation.
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    \5\ DMMs will be required to maintain displayed bids and offers 
at the National Best Bid or Offer (``NBBO'') for a certain 
percentage of the trading day in assigned securities. Specifically, 
with respect to maintaining a continuous two-sided quote with 
reasonable size, DMMs must maintain a bid or offer at the NBBO 
(``inside'') for securities in which the DMM is registered at a 
prescribed level based on the average daily volume of the security. 
Securities that have a consolidated average daily volume of less 
than one million shares per calendar month are defined as Less 
Active Securities and securities that have a consolidated average 
daily volume of equal to or greater than one million shares per 
calendar month are defined as More Active Securities.
    For Less Active Securities, a DMM unit must maintain a bid or an 
offer at the NBBO for at least 10% of the trading day during a 
calendar month. For More Active Securities, a DMM unit must maintain 
a bid or an offer at the NBBO for at least 5% or more of the trading 
day during a calendar month. DMMs will be expected to satisfy the 
quoting requirement for both volume categories in their assigned 
securities.
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    The implementation of these changes required the Exchange to amend 
its previous rule governing specialist conduct, former NYSE Rule 104 
(Dealings by Specialists). As approved, the New Market Model will be 
phased \6\ into the Exchange's marketplace to allow for the careful 
monitoring of technological and trading pattern changes that are the 
core of its operation. The Exchange therefore created transitional NYSE 
Rule 104T in order to govern DMM conduct during the first phase of the 
pilot.
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    \6\ Pursuant to the implementation schedule, no later than five 
weeks after Commission approval, DMMs will still receive information 
about orders that are at or between the Exchange quote. DMMs must 
continue to abide by their affirmative obligations, meeting his or 
her requirements to maintain displayed bids and offers at the NBBO 
and re-enter liquidity pursuant to NYSE Rule 104T (``Phase 1''). 
After the fifth week of the operation of the Pilot, Phase 1 will be 
completed and NYSE Rule 104T will cease operation. Once NYSE Rule 
104T ceases operation, DMMs will be subject to new NYSE Rule 104 
(Dealings and Responsibilities of DMMs) (``Phase 2'').
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Proposed Amendments to Rule 104T
    In the New Market Model filing, the Exchange indicated that it 
anticipated that Phase 1 would be completed in five weeks while Phase 2 
of the pilot would be completely implemented no later than ten weeks 
after the approval of that filing. The preliminary note to Rule 104T 
states that the rule is operative from the time of its approval by the 
Commission until five weeks after such approval, i.e., until the 
completion of Phase 1. This was meant to address the two phases of the 
pilot, wherein Phase 1 would be operative for those first five weeks 
(i.e., by November 28, 2008) and Phase 2 would begin thereafter. 
Consistent with this schedule, the Exchange completed the installation 
of all Phase 1 technology on November 17,

[[Page 76692]]

2008 and is progressively installing the Phase 2 technology. It was 
always understood that those securities operating without Phase 2 
technology must still be subject to the provisions of Rule 104T; 
however, the preliminary note of Rule 104T inaccurately describes its 
schedule of operation. The Exchange therefore seeks to amend the 
preliminary note of NYSE Rule 104T to state that it will cease 
operation no later than ten weeks after the approval of SR-NYSE-2008-
46, the New Market Model which will allow for the progressive 
installation of the Phase 2 technology.
    The Exchange further seeks to amend NYSE Rule 104T to remove legacy 
language that requires the DMM to yield his or her trading interest. 
Specifically, NYSE Rule 104T Supplementary Material .10 subparagraph 
(10) requires the DMM to yield his or her trading interest that has 
been expressed orally to later arriving system orders capable of 
trading in the transaction that was consummated on the basis of the 
oral interest expressed by the DMM. The requirement to yield in legacy 
Rule 104 was a function of the specialist's negative obligation and 
should have been removed in the New Market Model filing. Moreover, this 
particular section of the rule also refers to Convert and Parity Orders 
(``CAP'') that were rescinded as valid order types on the Exchange 
pursuant to the New Market Model filing. As such, the Exchange proposes 
to rescind the provisions of NYSE Rule 104T Supplementary Material .10 
subparagraph (10) in its entirety.
Proposed Amendments to Rules 98 and 123E
    The Exchange further proposes through this rule filing to make 
correct cross references contained in NYSE Rules 98 and Rule 123E. In 
particular, the requirements for DMM unit net capital were previously 
part of NYSE Rule 104.21 but were relocated to NYSE Rule 103.20(b) as 
part of the New Market Model filing. NYSE Rules 98(c)(2)(D) and Rule 
123E(f)(i) still referenced the previous NYSE Rule 104.21 for the 
market maker's net capital requirements. Accordingly, the Exchange 
proposes to amend NYSE Rule 98(c)(2)(D) and Rule 123E(f)(i) to change 
the rule reference from NYSE Rule 104.21 to NYSE Rule 103.20.
Rescission of Paragraph (g) of Rule 123
    Rule 123 (Records of Orders) contains various record keeping 
requirements for members and member organizations. Paragraph (g) 
requires that a record be kept of any request made to a specialist to 
yield to a customer order pursuant to Rule 104.10(5)(i)(a)(I)(d). The 
Exchange proposes to rescind this requirement since DMMs trade on 
parity with all other interest in the Exchange market, and is no longer 
required to yield to customer orders.
Conforming Changes to NYSE Rules
    Finally, the Exchange proposes to amend the NYSE Rules listed in 
the table below to substitute the word ``specialist'' with ``DMM,'' or 
``DMM Unit'' as appropriate to conform these rules to the operation of 
the New Market Model. Also reflected in the chart below is the 
Exchange's proposal to add the terms ``market maker'' and ``market 
making'' to NYSE Rule 431 in order to reflect the current DMM operating 
on the NYSE.

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                   Rule                                     Section                    Substitution or addition
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2A (Jurisdiction)........................  (c).....................................  ``specialist'' changed to
                                                                                      ``DMM''.
15 (Pre-Opening Indications).............  (b).....................................  ``specialist'' changed to
                                                                                      ``DMM''.
48 (Exemptive Relief--Extreme Market       (b)(2)..................................  ``specialist'' changed to
 Volatility Condition).                                                               ``DMM''.
70 (Execution of Floor Broker Interest) .  .25(a)(vii) and (viii)..................  ``specialist'' changed to
                                                                                      ``DMM'' ``DMM'' and ``DMM
                                                                                      Unit''.
111 (Reports of Executions)..............  (b).....................................  ``specialist'' changed to
                                                                                      ``DMM''.
124 (Odd-Lot Orders).....................  (f).....................................  ``specialist'' changed to
                                                                                      ``DMM''.
325 (Capital Requirements Member           (c)(2)..................................  ``specialist'' changed to
 Organizations).                                                                      ``DMM''.
431 (Margin Requirements)................  (f)(2)(M)(iv)(10)(F)....................  ``market maker'' and
                                                                                      ``market making''.
440G (Transactions in Stocks and Warrants  .10(7)(h)...............................  ``specialist'' changed to
 for the Accounts of Members, Principal                                               ``DMM''.
 Executives and Member Organizations).
900 Off-Hours Trading: Applicability and   (b)(iii)................................  ``specialist'' changed to
 Definitions.                                                                         ``DMM''.
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2. Statutory Basis
    The bases under the Securities Exchange Act of 1934 (the ``1934 
Act'') for this proposed rule change are the requirements under section 
6(b)(5) that the rules of an 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 
Exchange believes that the instant proposal is consistent with the 
above principals [sic] in that it conforms the rule language to the 
approved New Market model which the Exchange anticipates will enhance 
the liquidity in the market and foster increased competition among 
Exchange market participants thus providing Exchange customers with 
additional opportunities for price improvement.

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 foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of filing, 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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[[Page 76693]]

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\9\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. NYSE requested that the Commission waive the 30-
day operative delay, as specified in Rule 19b-4(f)(6)(iii),\10\ which 
would make the rule change effective and operative upon filing.
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    \9\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission notice of its intent to file the proposed rule change, 
along with a brief description and text of 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. NYSE has satisfied this requirement.
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will conform the rule text to what was previously approved 
by the Commission in a prior Exchange proposed rule change, and make 
clarifications technical to those rules.\11\ Waiving the operative 
delay will ensure that the rule text of the Exchange is accurate and 
will avoid potential confusion by eliminating technical errors.\12\ 
Accordingly, the Commission designates the proposed rule change as 
operative upon filing with the Commission.
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    \11\ See supra note 4.
    \12\ For purposes only of waiving the operative delay for this 
proposal, 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 such 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.\13\
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    \13\ 15 U.S.C. 78s(b)(3)(C).
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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-2008-127 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2008-127. 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 such filing also will be available for 
inspection and copying at the principal office of the NYSE. 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-2008-127 and should be 
submitted on or before January 7, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-29901 Filed 12-16-08; 8:45 am]

BILLING CODE 8011-01-P