Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend Exchange Rule 104 Regarding the Requirement That Specialists Obtain Floor Official Approval for Destabilizing Dealer Account Transactions That Match the National Best Bid or Offer, 28399-28401 [E6-7453]

Download as PDF Federal Register / Vol. 71, No. 94 / Tuesday, May 16, 2006 / Notices 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 rulecomments@sec.gov. Please include File Number SR–NYSE–2006–24 on the subject line. 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–2006–24 and should be submitted on or before June 6, 2006. national best bid or offer without requiring that they obtain Floor Official approval. The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in [brackets]. * * * * * For the Commission, by the Division of Market Regulation, pursuant to delegated authority.8 Nancy M. Morris, Secretary. [FR Doc. E6–7392 Filed 5–15–06; 8:45 am] Rule 104 No change in (a) through .10(4) (5)(i) Transactions on the Exchange for his own account of a member acting as specialist are to be effected in a reasonable and orderly manner in relation to the condition of the general market, the market in the particular stock and the adequacy of the specialist’s position to the immediate and reasonably anticipated needs of the round-lot and the odd-lot market. The following types of transactions to establish or increase a position are not to be effected except when they are reasonably necessary to render the specialist’s position adequate to such needs: (A) A purchase at a price above the last sale in the same session: (B) The purchase of more than 50% of the stock offered in the market at a price equal to the last sale where such transaction would be on a ‘‘zero plus tic’’ (i.e., the last sale price was above the previous different regular way sale price); and (C) Failing to reoffer or rebid where necessary after effecting transactions described in (A) and (B) above. Transactions of these types may, nevertheless, be effected with the approval of a Floor Official or in less active markets where they are an essential part of a proper course of dealings and where the amount of stock involved and the price change, if any, are normal in relation to the market. (ii) Notwithstanding the provisions of subparagraphs (5)(i)(A) and (B) above, whenever a specialist effects a principal purchase of a [speciality] specialty stock, in another participating market center through ITS, at or above the price at which he holds orders to sell that stock, such orders which remain unexecuted on the Floor must be filled by the specialist buying the stock for his own account, at the same price at which he effected his principal transaction through ITS unless, effecting such a principal transaction on the Floor, at that price, would (a) be inconsistent with the maintenance of fair and orderly markets; or (b) result in the election of stop orders. (iii) Whenever a specialist effects a principal sale of a specialty stock, in BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53782; File No. SR–NYSE– 2006–07] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend Exchange Rule 104 Regarding the Requirement That Specialists Obtain Floor Official Approval for Destabilizing Dealer Account Transactions That Match the National Best Bid or Offer May 10, 2006. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (the • Send paper comments in triplicate ‘‘Act’’),1 and Rule 19b–4 thereunder,2 to Nancy M. Morris, Secretary, notice is hereby given that on February Securities and Exchange Commission, 16, 2006, the New York Stock Exchange 100 F Street, NE., Washington, DC LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with 20549–1090. the Securities and Exchange Commission (‘‘Commission’’) the All submissions should refer to File proposed rule change as described in Number SR–NYSE–2006–24. This file Items I, II, and III below, which Items number should be included on the subject line if e-mail is used. To help the have been prepared by the NYSE. On April 27, 2006, NYSE filed Amendment Commission process and review your No. 1 to the proposed rule change.3 The comments more efficiently, please use only one method. The Commission will Commission is publishing this notice to post all comments on the Commission’s solicit comments on the proposed rule change, as amended, from interested Internet Web site (http://www.sec.gov/ persons. rules/sro.shtml). Copies of the submission, all subsequent I. Self-Regulatory Organization’s amendments, all written statements Statement of the Terms of Substance of with respect to the proposed rule the Proposed Rule Change change that are filed with the The Exchange is proposing to amend Commission, and all written NYSE Rule 104 (Dealings by Specialists) communications relating to the to permit specialists to effect proposed rule change between the Commission and any person, other than destabilizing dealer account transactions when matching the those that may be withheld from the public in accordance with the 8 17 CFR 200.30–3(a)(12). provisions of 5 U.S.C. 552, will be 1 15 U.S.C. 78s(b)(1). available for inspection and copying in 2 17 CFR 240.19b–4. the Commission’s Public Reference 3 In Amendment No. 1, the Exchange made Room. Copies of such filing also will be technical corrections to the rule text of the proposed rule change. available for inspection and copying at sroberts on PROD1PC70 with NOTICES Paper Comments VerDate Aug<31>2005 16:06 May 15, 2006 Jkt 208001 28399 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 Dealings by Specialists E:\FR\FM\16MYN1.SGM 16MYN1 sroberts on PROD1PC70 with NOTICES 28400 Federal Register / Vol. 71, No. 94 / Tuesday, May 16, 2006 / Notices another participating market center through ITS, at or below the price at which he holds orders to buy that stock, such orders which remain unexecuted on the Floor must be filled by the specialist by selling the stock for his own account, at the same price at which be effected his principal transaction through ITS subject to the same conditions as set forth in (ii)(a) and (b) above and provided further that effecting such a principal transaction on the Floor, at that price, would not be precluded by the short selling rules, or would not result in a sale to a stabilizing bid. (iv) Notwithstanding the provisions of (5)(i)(A) and (B) above, a specialist may effect a principal purchase of a specialty security to establish or increase a position at a price above the last sale in the same session at a price that matches the then current national best bid or, in the case of a sale, that matches the then current national best offer. (6)(i) Transactions on the Exchange by a specialist for his own account in liquidating or decreasing his position in a specialty stock are to be effected in a reasonable and orderly manner in relation to the condition of the general market, the market in the particular stock and the adequacy of the specialist’s positions to the immediate and reasonably anticipated needs of the round-lot and the odd-lot market and in this connection: (A) The specialist may liquidate a position by selling stock on a direct minus tick or by purchasing stock on a direct plus tick only if such transactions are reasonably necessary in relation to the specialist’s overall position in the stocks in which he is registered[;] , and the specialist has obtained the prior approval of a Floor Official; (B) The specialist may liquidate a position by selling a security on a direct or zero minus tick or by purchasing a security on a direct or zero plus tick without the need to obtain Floor Official approval if such transaction is effected at a price that matches the then current national best bid or offer; [(B)] (C) The specialist should maintain a fair and orderly market during liquidation and, after reliquifying, should re-enter the market to offset imbalances between supply and demand. The selling of stock on a direct minus tick or a zero minus tick, or the purchasing of stock on a direct plus tick or a zero plus tick should be effected in conjunction with the specialist’s reentry in the market on the opposite side of the market from the liquidating transaction where the imbalance of supply and demand indicates that VerDate Aug<31>2005 16:06 May 15, 2006 Jkt 208001 immediately succeeding transactions may result in a lower price (following the specialist’s sale of stock on a direct minus tick or a zero minus tick) or a higher price (following the specialist’s purchase of stock on a direct plus tick or a zero plus tick). During any period of volatile or unusual market conditions resulting in a significant price movement in the subject security, the specialist’s transactions in re-entering the market following a liquidating transaction effected by selling stock on a direct minus tick or zero minus tick, or purchasing stock on a direct plus tick or zero plus tick, should, at a minimum, reflect the specialist’s usual level of dealer participation in the subject security. During such periods of unusual price movement in a security, any series of such transactions which may be effected in a brief period of time should be accompanied by the specialist’s re-entry in the market and effecting transactions which reflect a significant degree of dealer participation; [(C)] (D) Transactions by a specialist for his or her dealer account in liquidating or decreasing a position in a specialty security must yield parity to and may not claim precedence based on size over a customer order in the crowd upon the request of the member representing such order, where such request has been documented as a term of the order, to the extent of the volume of such order that has been included in the quote prior to the transaction. However, this provision shall not apply to automatic executions involving the specialist dealer account. (ii) Notwithstanding the provisions of subparagraph (6)(i)(A) above, whenever a specialist effects a principal purchase (sale) of a specialty stock, in another participating market center through ITS, at or above (at or below) the price at which he holds orders to sell (buy) that stock, such orders which remain unexecuted on the Floor must be filled by the specialist by buying (selling) the stock for his own account, at the same price at which he effected his principal transaction through ITS subject to the same conditions as set forth in subparagraphs (5)(ii) and (iii) above. [No change to remainder of Rule] * * * * * 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 NYSE included statements concerning the purpose of and basis for the proposed rule change, as amended. The PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 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 NYSE Rule 104 governs specialists’ dealings in their specialty stocks. In particular, NYSE Rules 104.10(5) and (6) describe certain types of transactions that are not to be effected unless they are reasonably necessary to render the specialist’s position adequate to the needs of the market. In effect, these restrictions generally require specialists’ transactions for their own accounts to be ‘‘stabilizing’’ (i.e., against the trend of the market) and prohibit specialists from making transactions that are ‘‘destabilizing’’ (i.e., with the market trend by buying on plus ticks and selling on minus ticks), except with the approval of a Floor Official. The Exchange is proposing to allow specialists to effect proprietary transactions on a destabilizing basis for their own account when such trades are effected at a price that matches the current national best bid or offer (‘‘NBBO’’). In certain circumstances today, such as trading in exchange traded funds (‘‘ETFs’’), specialists are not currently restricted under NYSE Rule 104 from effecting proprietary destabilizing transactions that bring an ETF into parity with the value of the index on which the ETF is based. The Exchange believes that this recognizes that specialists are not leading the market through proprietary transactions in these instances, but rather following the market as set by the independent judgment of other market participants.4 Similarly, the Exchange believes that amending NYSE Rules 104.10(5) and (6) to permit specialists to effect a destabilizing proprietary trade in an equity security at a price established independent of the specialist should not be viewed as leading the market. The Exchange states that the standard of each specialist proprietary trade meeting the test of reasonable necessity would continue to apply to any such destabilizing trade. 4 See Securities Exchange Act Release No. 49087 (January 15, 2004), 69 FR 3622 (January 26, 2004) (SR–Amex–2002–116) (‘‘[T]he Commission believes that because ETFs are priced derivatively, an Exchange specialist would not be able to manipulate the pricing of an ETF.’’). E:\FR\FM\16MYN1.SGM 16MYN1 Federal Register / Vol. 71, No. 94 / Tuesday, May 16, 2006 / Notices In addition, the Exchange notes that the time required to obtain Floor Official approval for such transactions can have the effect of delaying trading and could result in inferior execution prices for customer orders. Finally, the Exchange believes that removing these restrictions should enhance the specialist’s ability to make competitive markets since the trades would be done at prices matching the then current national best bid or offer. (B) Institute proceedings to determine whether the proposed rule change should be disapproved. 2. Statutory Basis Electronic Comments The Exchange believes that the basis under the Act for this proposed rule change is the requirement under section 6(b)(5) 5 that an exchange have rules that are 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. • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–NYSE–2006–07 on the subject line. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that the proposed rule change, as amended, would not 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 The Exchange has not solicited, and does not intend to solicit, comments regarding the proposed rule change, as amended. The Exchange has not received any unsolicited written comments from members or other interested parties. sroberts on PROD1PC70 with NOTICES 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 Exchange consents, the Commission shall: (A) By order approve such proposed rule change, or 5 15 U.S.C. 78f(b)(5). VerDate Aug<31>2005 16:06 May 15, 2006 Jkt 208001 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: 28401 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.6 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6–7453 Filed 5–15–06; 8:45 am] BILLING CODE 8010–01–P SOCIAL SECURITY ADMINISTRATION Program: Cooperative Agreements for Work Incentives Planning and Assistance Projects; Program Announcement No. SSA–OESP–06–1 Social Security Administration. Announcement of the availability of fiscal year 2006 cooperative agreement funds and request for applications. AGENCY: ACTION: SUMMARY: The Social Security Administration (SSA) announces its Paper Comments intention to competitively award cooperative agreements to establish • Send paper comments in triplicate community-based work incentives to Nancy M. Morris, Secretary, planning and assistance projects in Securities and Exchange Commission, every State, the District of Columbia, Station Place, 100 F Street, NE., Puerto Rico, Guam, the Northern Washington, DC 20549–1090. Mariana Islands, American Samoa, and the U.S. Virgin Islands. (Throughout All submissions should refer to File this announcement, the term ‘‘’State’’’ Number SR–SR–NYSE–2006–07. This will be used to refer to all U.S. States, file number should be included on the subject line if e-mail is used. To help the the District of Columbia, Puerto Rico, Guam, the Northern Mariana Islands, Commission process and review your American Samoa, and the U.S. Virgin comments more efficiently, please use only one method. The Commission will Islands.) The purpose of these projects is to post all comments on the Commissions disseminate accurate information to Internet Web site (http://www.sec.gov/ beneficiaries with disabilities (including rules/sro.shtml). Copies of the transition-to-work aged youth) about submission, all subsequent work incentives programs and issues amendments, all written statements related to such programs, to enable them with respect to the proposed rule to make informed choices about change that are filed with the working and whether or when to assign Commission, and all written their Ticket to Work, as well as how communications relating to the available work incentives can facilitate proposed rule change between the their transition into the workforce. The Commission and any person, other than ultimate goal of the work incentives those that may be withheld from the planning and assistance projects is to public in accordance with the assist SSA beneficiaries with disabilities provisions of 5 U.S.C. 552, will be succeed in their return to work efforts. available for inspection and copying in DATES: The closing date for receipt of the Commission’s Public Reference cooperative agreement applications Room. Copies of such filing also will be under this announcement is July 1, available for inspection and copying at 2006. Prospective applicants are also the principal office of the NYSE. All asked to submit, preferably by May 30, comments received will be posted 2006, an e-mail, a fax, post card, or without change; the Commission does letter of intent that includes (1) the not edit personal identifying program announcement number (SSA– information from submissions. You OESP–06–1) and title (Work Incentives should submit only information that Planning and Assistance Program); (2) you wish to make available publicly. All the name of the agency or organization submissions should refer to File that is applying; and (3) the name, Number SR–NYSE–2006–07 and should mailing address, e-mail address, be submitted on or before June 6, 2006. telephone number, and fax number for the organization’s contact person. This 6 17 CFR 200.30–3(a)(12). notice of intent is not binding, and does PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 E:\FR\FM\16MYN1.SGM 16MYN1

Agencies

[Federal Register Volume 71, Number 94 (Tuesday, May 16, 2006)]
[Notices]
[Pages 28399-28401]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-7453]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53782; File No. SR-NYSE-2006-07]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Amend Exchange Rule 104 Regarding the Requirement That Specialists 
Obtain Floor Official Approval for Destabilizing Dealer Account 
Transactions That Match the National Best Bid or Offer

May 10, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 16, 2006, the 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, II, 
and III below, which Items have been prepared by the NYSE. On April 27, 
2006, NYSE 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made technical corrections 
to the rule text of the proposed rule change.
---------------------------------------------------------------------------

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

    The Exchange is proposing to amend NYSE Rule 104 (Dealings by 
Specialists) to permit specialists to effect destabilizing dealer 
account transactions when matching the national best bid or offer 
without requiring that they obtain Floor Official approval.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

Dealings by Specialists

Rule 104

No change in (a) through .10(4)

    (5)(i) Transactions on the Exchange for his own account of a member 
acting as specialist are to be effected in a reasonable and orderly 
manner in relation to the condition of the general market, the market 
in the particular stock and the adequacy of the specialist's position 
to the immediate and reasonably anticipated needs of the round-lot and 
the odd-lot market. The following types of transactions to establish or 
increase a position are not to be effected except when they are 
reasonably necessary to render the specialist's position adequate to 
such needs:
    (A) A purchase at a price above the last sale in the same session:
    (B) The purchase of more than 50% of the stock offered in the 
market at a price equal to the last sale where such transaction would 
be on a ``zero plus tic'' (i.e., the last sale price was above the 
previous different regular way sale price); and
    (C) Failing to reoffer or rebid where necessary after effecting 
transactions described in (A) and (B) above.
    Transactions of these types may, nevertheless, be effected with the 
approval of a Floor Official or in less active markets where they are 
an essential part of a proper course of dealings and where the amount 
of stock involved and the price change, if any, are normal in relation 
to the market.
    (ii) Notwithstanding the provisions of subparagraphs (5)(i)(A) and 
(B) above, whenever a specialist effects a principal purchase of a 
[speciality] specialty stock, in another participating market center 
through ITS, at or above the price at which he holds orders to sell 
that stock, such orders which remain unexecuted on the Floor must be 
filled by the specialist buying the stock for his own account, at the 
same price at which he effected his principal transaction through ITS 
unless, effecting such a principal transaction on the Floor, at that 
price, would (a) be inconsistent with the maintenance of fair and 
orderly markets; or (b) result in the election of stop orders.
    (iii) Whenever a specialist effects a principal sale of a specialty 
stock, in

[[Page 28400]]

another participating market center through ITS, at or below the price 
at which he holds orders to buy that stock, such orders which remain 
unexecuted on the Floor must be filled by the specialist by selling the 
stock for his own account, at the same price at which be effected his 
principal transaction through ITS subject to the same conditions as set 
forth in (ii)(a) and (b) above and provided further that effecting such 
a principal transaction on the Floor, at that price, would not be 
precluded by the short selling rules, or would not result in a sale to 
a stabilizing bid.
    (iv) Notwithstanding the provisions of (5)(i)(A) and (B) above, a 
specialist may effect a principal purchase of a specialty security to 
establish or increase a position at a price above the last sale in the 
same session at a price that matches the then current national best bid 
or, in the case of a sale, that matches the then current national best 
offer.
    (6)(i) Transactions on the Exchange by a specialist for his own 
account in liquidating or decreasing his position in a specialty stock 
are to be effected in a reasonable and orderly manner in relation to 
the condition of the general market, the market in the particular stock 
and the adequacy of the specialist's positions to the immediate and 
reasonably anticipated needs of the round-lot and the odd-lot market 
and in this connection:
    (A) The specialist may liquidate a position by selling stock on a 
direct minus tick or by purchasing stock on a direct plus tick only if 
such transactions are reasonably necessary in relation to the 
specialist's overall position in the stocks in which he is 
registered[;] , and the specialist has obtained the prior approval of a 
Floor Official;
    (B) The specialist may liquidate a position by selling a security 
on a direct or zero minus tick or by purchasing a security on a direct 
or zero plus tick without the need to obtain Floor Official approval if 
such transaction is effected at a price that matches the then current 
national best bid or offer;
    [(B)] (C) The specialist should maintain a fair and orderly market 
during liquidation and, after reliquifying, should re-enter the market 
to offset imbalances between supply and demand. The selling of stock on 
a direct minus tick or a zero minus tick, or the purchasing of stock on 
a direct plus tick or a zero plus tick should be effected in 
conjunction with the specialist's re-entry in the market on the 
opposite side of the market from the liquidating transaction where the 
imbalance of supply and demand indicates that immediately succeeding 
transactions may result in a lower price (following the specialist's 
sale of stock on a direct minus tick or a zero minus tick) or a higher 
price (following the specialist's purchase of stock on a direct plus 
tick or a zero plus tick). During any period of volatile or unusual 
market conditions resulting in a significant price movement in the 
subject security, the specialist's transactions in re-entering the 
market following a liquidating transaction effected by selling stock on 
a direct minus tick or zero minus tick, or purchasing stock on a direct 
plus tick or zero plus tick, should, at a minimum, reflect the 
specialist's usual level of dealer participation in the subject 
security. During such periods of unusual price movement in a security, 
any series of such transactions which may be effected in a brief period 
of time should be accompanied by the specialist's re-entry in the 
market and effecting transactions which reflect a significant degree of 
dealer participation;
    [(C)] (D) Transactions by a specialist for his or her dealer 
account in liquidating or decreasing a position in a specialty security 
must yield parity to and may not claim precedence based on size over a 
customer order in the crowd upon the request of the member representing 
such order, where such request has been documented as a term of the 
order, to the extent of the volume of such order that has been included 
in the quote prior to the transaction. However, this provision shall 
not apply to automatic executions involving the specialist dealer 
account.
    (ii) Notwithstanding the provisions of subparagraph (6)(i)(A) 
above, whenever a specialist effects a principal purchase (sale) of a 
specialty stock, in another participating market center through ITS, at 
or above (at or below) the price at which he holds orders to sell (buy) 
that stock, such orders which remain unexecuted on the Floor must be 
filled by the specialist by buying (selling) the stock for his own 
account, at the same price at which he effected his principal 
transaction through ITS subject to the same conditions as set forth in 
subparagraphs (5)(ii) and (iii) above.

[No change to remainder of Rule]
* * * * *

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 NYSE included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended. 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
    NYSE Rule 104 governs specialists' dealings in their specialty 
stocks. In particular, NYSE Rules 104.10(5) and (6) describe certain 
types of transactions that are not to be effected unless they are 
reasonably necessary to render the specialist's position adequate to 
the needs of the market. In effect, these restrictions generally 
require specialists' transactions for their own accounts to be 
``stabilizing'' (i.e., against the trend of the market) and prohibit 
specialists from making transactions that are ``destabilizing'' (i.e., 
with the market trend by buying on plus ticks and selling on minus 
ticks), except with the approval of a Floor Official.
    The Exchange is proposing to allow specialists to effect 
proprietary transactions on a destabilizing basis for their own account 
when such trades are effected at a price that matches the current 
national best bid or offer (``NBBO''). In certain circumstances today, 
such as trading in exchange traded funds (``ETFs''), specialists are 
not currently restricted under NYSE Rule 104 from effecting proprietary 
destabilizing transactions that bring an ETF into parity with the value 
of the index on which the ETF is based. The Exchange believes that this 
recognizes that specialists are not leading the market through 
proprietary transactions in these instances, but rather following the 
market as set by the independent judgment of other market 
participants.\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 49087 (January 15, 
2004), 69 FR 3622 (January 26, 2004) (SR-Amex-2002-116) (``[T]he 
Commission believes that because ETFs are priced derivatively, an 
Exchange specialist would not be able to manipulate the pricing of 
an ETF.'').
---------------------------------------------------------------------------

    Similarly, the Exchange believes that amending NYSE Rules 104.10(5) 
and (6) to permit specialists to effect a destabilizing proprietary 
trade in an equity security at a price established independent of the 
specialist should not be viewed as leading the market. The Exchange 
states that the standard of each specialist proprietary trade meeting 
the test of reasonable necessity would continue to apply to any such 
destabilizing trade.

[[Page 28401]]

    In addition, the Exchange notes that the time required to obtain 
Floor Official approval for such transactions can have the effect of 
delaying trading and could result in inferior execution prices for 
customer orders.
    Finally, the Exchange believes that removing these restrictions 
should enhance the specialist's ability to make competitive markets 
since the trades would be done at prices matching the then current 
national best bid or offer.
2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is the requirement under section 6(b)(5) \5\ that 
an exchange have rules that are 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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change, as amended, 
would not 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

    The Exchange has not solicited, and does not intend to solicit, 
comments regarding the proposed rule change, as amended. The Exchange 
has not received any unsolicited written comments from members or other 
interested parties.

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 Exchange consents, the Commission shall:
    (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, as amended, 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 No. SR-NYSE-2006-07 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-SR-NYSE-2006-07. 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 Commissions 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. 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-2006-07 and should be submitted on or before June 
6, 2006.
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    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-7453 Filed 5-15-06; 8:45 am]
BILLING CODE 8010-01-P