Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to a Pilot Program Beginning on May 12, 2006 and Ending on October 31, 2006 or Sooner, To Implement Certain Hybrid Market Changes and Amend Certain Changes to Approved Hybrid Market Rules, 28732-28735 [E6-7459]

Download as PDF 28732 Federal Register / Vol. 71, No. 95 / Wednesday, May 17, 2006 / Notices 15A(b)(6) of the Act,8 in particular, in that it is designed to promote just and equitable principles of trade and to remove impediments to and perfect the mechanism of a free and open market and a national market system. Specifically, Nasdaq notes that the proposal offers users of the INET System additional flexibility in selecting the most appropriate routing strategy for their orders. B. Self-Regulatory Organization’s Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will result in 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 Written comments were neither solicited nor received. mstockstill on PROD1PC61 with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Nasdaq has designated the foregoing rule change, as amended, as a ‘‘noncontroversial’’ rule change pursuant to Section 19(b)(3)(A) of the Act 9 and Rule 19b–4(f)(6) thereunder 10 because the rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; or (iii) become operative for 30 days from the day 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. Nasdaq has requested that the Commission waive the requirement that the rule change not become operative for 30 days after the date of the filing. The Commission hereby grants the request. The Commission believes that waiving the 30-day operative delay for the proposed rule change, as amended, is consistent with the protection of investors and the public interest because the proposal would give INET System users two, additional options for routing their orders and, therefore, should be implemented without delay. For this reason, the Commission designates the proposal to be effective and operative upon filing with the Commission.11 8 15 U.S.C. 78o–3(b)(6). U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b–4(f)(6). 11 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). 9 15 VerDate Aug<31>2005 15:08 May 16, 2006 Jkt 208001 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the 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.12 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 rulecomments@sec.gov. Please include File Number SR–NASD–2006–053 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASD–2006–053. 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. Copies of such filing also will be available for inspection and copying at the principal office of Nasdaq. All 12 The effective date of the original proposed rule change is April 21, 2006 and the effective date of Amendment No. 1 is May 5, 2006. For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change, as amended, under Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on May 5, 2006, the date on which the Exchange submitted Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C). PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 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–NASD–2006–053 and should be submitted on or before June 7, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.13 Jill M. Peterson, Assistant Secretary. [FR Doc. E6–7462 Filed 5–16–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53791; File No. SR–NYSE– 2006–33] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to a Pilot Program Beginning on May 12, 2006 and Ending on October 31, 2006 or Sooner, To Implement Certain Hybrid Market Changes and Amend Certain Changes to Approved Hybrid Market Rules May 11, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 10, 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 and II below, which Items have been prepared by the Exchange. The Exchange filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change consists of amendments to NYSE rules governing trading in pilot securities (‘‘Pilot 13 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 1 15 E:\FR\FM\17MYN1.SGM 17MYN1 Federal Register / Vol. 71, No. 95 / Wednesday, May 17, 2006 / Notices Securities’’) pursuant to a pilot program (the ‘‘Pilot’’). The text of the proposed rule change is available on the Exchange’s Web site (http://www.nyse.com), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The NYSE HYBRID MARKET SM was proposed in SR–NYSE–2004–05 and Amendment Nos. 1, 2, 3, 5, 6, 7, and 8 5 thereto and approved on March 22, 2006 6 (‘‘Hybrid Market filings’’ or ‘‘Hybrid’’). The Hybrid Market filings, as approved, set forth the Exchange’s plan to provide mechanisms for more electronic trading via NYSE Direct+ (‘‘Direct+’’), while retaining the benefits of the auction market. Phase 1 of the Hybrid Market is in the process of being implemented Floor-wide. Other Hybrid Market changes will be implemented in several phases over the next few months. As a result of a merger between Lucent Technologies Inc. (‘‘Lucent’’) and Alcatel, announced on or about March 23, 2006, there has been increased activity in Lucent, a listed security on the Exchange. Much of this activity has been routed to other market centers that have automatic execution facilities with no size and frequency mstockstill on PROD1PC61 with NOTICES 5 See Securities Exchange Act Release Nos. 50173 (August 10, 2004), 69 FR 50407 (August 16, 2004); 50667 (November 15, 2004), 69 FR 67980 (November 22, 2004); and 51906 (June 22, 2005), 70 FR 37463 (June 29, 2005). The Exchange withdrew Amendment No. 4 and replaced it with Amendment No. 5. See also Amendment No. 6 filed on September 16, 2005, Amendment No. 7 filed on October 11, 2005, and Amendment No. 8 filed on March 14, 2006. 6 See Securities Exchange Act Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006) (‘‘Hybrid Market approval order’’). VerDate Aug<31>2005 15:08 May 16, 2006 Jkt 208001 restrictions.7 In order to remain competitive with other market centers in Lucent, the Exchange proposes a Pilot that would implement immediately certain of the Hybrid Market changes approved but scheduled for implementation in later phases. In addition, the Exchange proposes certain amendments, as outlined below, to other approved rules for the purposes of the Pilot. This Pilot would include only Lucent. The Exchange may seek to include other securities in the Pilot for similar reasons. In the event the Exchange seeks to do so, the Exchange will amend the Pilot by filing a proposed rule change with the Commission indicating the proposed additions and notify its membership of such additions, if approved. The Pilot would commence on May 12, 2006, and would terminate on October 31, 2006 or earlier, upon notice to the Commission and Exchange membership. An Information Memo would be issued and posted on the Exchange’s Web site announcing the Pilot. Moreover, the Exchange intends to have available at all times during the Pilot two versions of the operating settings—the new version that would be operational and the original, pre-Pilot version. If a problem develops during the Pilot, the Exchange will be able to revert to the pre-Pilot settings within an average time of two minutes or less. In the event systems or other problems arise with the Pilot that adversely impact investors or impede the Exchange’s ability to maintain a fair and orderly market, the Exchange will immediately terminate the Pilot in whole or in part, as appropriate, and return trading to operations under NYSE rules applicable at the time of such termination. Rules Applicable to the Pilot The following rules are applicable during the Pilot. The Exchange has designated these rules with a ‘‘P’’ in the proposed rule text.8 In addition, during the Pilot, all other Exchange rules will apply as they do to other securities traded on the Exchange.9 Furthermore, 7 See Exchange Rules 1000 and 1005, as in effect today. 8 The previous Hybrid Market pilot which put into operation Phase 1 of the Exchange’s Hybrid Market initiative also designated rules with a ‘‘P.’’ This pilot terminated upon Commission approval of the Hybrid Market. Roll out of Phase 1 Floor-wide to all Exchange-listed securities began March 24, 2006. See also Securities Exchange Act Release No. 52954 (December 14, 2005), 70 FR 75519 (December 20, 2005); see also Information Memos 05–98 (December 14, 2005) and 06–14 (March 23, 2006). 9 Phase 1 was implemented in Lucent on April 5, 2006. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 28733 functions and rules to be implemented in future phases of Hybrid, as described in the Hybrid Market filings and approval order, will apply to the Pilot when implemented in the normal course of business. For this reason, the Exchange has kept the numbering of these Pilot rules consistent with and parallel to the Hybrid Market approved rules, except for the addition of the ‘‘P’’ designation. Where the Pilot rules are different from the Hybrid Market rules, the Pilot rules shall govern with respect to the Pilot securities. Definition of Auto Ex Order (Rule 13(P)) In the Hybrid Market filings, the Exchange defined an auto ex order in Rule 13, in part, as ‘‘a market order designated for automatic execution or a limit order to buy (sell) priced at or above (below) the Exchange best offer (bid) at the time such order is routed to the Display Book. ’’ In addition, the Commission approved the Exchange’s proposal to eliminate the 1,099 share restriction for auto ex orders. Although the Hybrid Market filings have been approved, this change has not yet been implemented. For purposes of this Pilot, the Exchange proposes to: (i) Provide that auto ex orders in Pilot securities may be entered as market and limit orders in an amount greater than 1,099 shares; (ii) Add a maximum order size of 3 million shares for auto ex orders; 10 and (iii) Include that all market orders,11 not only those market orders specifically designated as such, are eligible for automatic execution.12 The Exchange believes that in the case of highly liquid securities, such as Lucent, this proposed change will benefit customers entering market orders, allowing them the opportunity to get a better and faster execution rather than requiring them to wait for a manual execution by a specialist. Where an incoming auto ex market order that exhausts all liquidity at the best bid (offer) remains unfilled, the specialist will manually handle the 10 This would allow the Exchange to provide for a phased-in raising of order size eligibility, up to a maximum of 3,000,000 shares. Each raising of order size eligibility shall be preceded by advance notice to the Exchange’s membership. The Exchange intends to begin the Pilot with a maximum order size of 1,000,000 shares, which is the same as NYSE Archipelago’s (‘‘Arca’’) automatic execution facility’s maximum order size. 11 In the Hybrid Market filings, market orders need to be designated auto ex in order to be treated so. The Exchange recognizes that a separate 19b-4 filing is required in order for this provision to be applicable beyond the Pilot. 12 See proposed Exchange Rule 13(a)(i)(P) and (a)(P). E:\FR\FM\17MYN1.SGM 17MYN1 28734 Federal Register / Vol. 71, No. 95 / Wednesday, May 17, 2006 / Notices remainder of the market order.13 Where an auto ex limit order or residual thereof cannot be immediately executed, it shall be displayed as a limit order on the Display Book. 14 As stated above, as other parts of Rule 13 amended by the Hybrid Market filings are implemented in the normal course of business, the Exchange proposes that they will apply to the Pilot. mstockstill on PROD1PC61 with NOTICES Definition of a Market Order—Rule 13(P) The Hybrid Market filings provided that ‘‘a market order designated for automatic execution is an auto ex order and shall be executed in accordance with, and to the extent provided by, Exchange Rules 1000–1004.’’ For purposes of the Pilot, and as described above, this definition is proposed to be amended to state that all market orders are auto ex orders, even if they are not designated for automatic execution. NYSE Direct+—Automatic Executions— Rules 1000(P) and 1005.10(P) The Exchange proposes to add Rule 1000.10(P) which describes the unique rules applicable to the Pilot and the Pilot’s start and end dates. In the Hybrid Market filings, the Exchange deleted the first three sentences of Exchange Rule 1000 and added (a) as a paragraph designation. The Exchange proposes to implement these amendments for purposes of the Pilot. In addition, the Exchange added language to reflect that automatic executions may take place with respect to reserve interest, orders on the Display Book outside the Exchange published quotation during sweeps and with floor broker agency file interest and specialist interest. The Exchange is not proposing to implement this change to Rule 1000 at this time. Accordingly, automatic executions will continue to be executed against only displayed interest.15 In addition, the Exchange proposes to implement Exchange Rule 1000(d) to set forth how auto ex market and limit orders would be handled during the Pilot; auto ex orders would trade with all liquidity at the best bid (offer). Where there is residual, it shall trade with available contra-side interest.16 In addition, as noted above, where an incoming auto ex market order that exhausts all liquidity at the best bid (offer) remains unfilled, the specialist will manually handle the remainder of the market order.17 proposed Exchange Rule 1000(d)(v)(A)(P). proposed Exchange Rule 1000(d)(v)(P). 15 See proposed Exchange Rule 1000(a)(P). 16 See proposed Exchange Rules 1000(d)(i)–(ii)(P). 17 See proposed Exchange Rule 1000(d)(v)(A)(P). Finally, the Exchange is not seeking to implement as part of the Pilot at this time the amendments to Hybrid Market Rules 1000(a)(i)–(vi). The current NYSE Direct+ rules will continue to govern when automatic executions are not available. As noted above, the approved amendments to these rules will be implemented in a later phase. Should the Pilot still be active at the time of their implementation, the amended Hybrid Market version of these rules will apply to the Pilot, upon notice to the Exchange membership. In the Hybrid Market filings, the Exchange proposed to rescind Rule 1005. This amendment has been approved by the Commission, but has not yet been implemented. Exchange Rule 1005 provides that ‘‘an auto ex order for any account in which the same person is directly or indirectly interested may only be entered at intervals of no less than 30 seconds between entry of each such order in a stock,’’ unless certain conditions are met. The Exchange proposes to implement this rescission with respect to the Pilot.18 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 19 in general, and furthers the objectives of Section 6(b)(5) of the Act 20 in particular, in that it is 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 the proposed rule change is also designed to support the principles of Section 11A(a)(1) of the Act 21 in that it seeks to assure economically efficient execution of securities transactions, make it practicable for brokers to execute investors’ orders in the best market, and provide an opportunity for investors’ orders to be executed without the participation of a dealer. 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. 13 See 14 See VerDate Aug<31>2005 15:08 May 16, 2006 Jkt 208001 18 See proposed Exchange Rule 1005.10(P). U.S.C. 78f(b). 20 15 U.S.C. 78f(b)(5). 21 15 U.S.C. 78k–1(a)(1). 19 15 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing 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) by its terms, become operative for 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, it has become effective pursuant to Section 19(b)(3)(A) of the Act 22 and Rule 19b–4(f)(6) thereunder.23 A proposed rule change filed under Rule 19b–4(f)(6) normally may not become operative prior to 30 days after the date of filing. However, Rule 19b– 4(f)(6)(iii) 24 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 and designate the proposed rule change immediately operative upon filing. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because the Pilot may enhance competition in this highly liquid security by allowing NYSE to modify its automatic execution system for this security.25 Accordingly, the Commission designates the proposal to be effective and operative upon filing with the Commission.26 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 22 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 24 17 CFR 240.19b–4(f)(6)(iii). 25 The Exchange represented that it would not implement the specialist algorithmic function in the Pilot until the Exchange develops guidance to clarify how it expects specialists to comply with NYSE Rule 104. Telephone conversation between Nancy Reich, Vice President, NYSE, and Kelly M. Riley, Assistant Director, Division of Market Regulation, Commission, on May 10, 2006. See also footnote 382 of the Hybrid Market approval order, supra note 6. 26 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. 15 U.S.C. 78c(f). 23 17 E:\FR\FM\17MYN1.SGM 17MYN1 Federal Register / Vol. 71, No. 95 / Wednesday, May 17, 2006 / Notices 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 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.27 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6–7459 Filed 5–16–06; 8:45 am] BILLING CODE 8010–01–P 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 mstockstill on PROD1PC61 with NOTICES • 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–2006–33 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53789; File No. SR–NYSE– 2006–05] Self-Regulatory Organizations; New York Stock Exchange, Inc. (n/k/a New York Stock Exchange LLC); Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Amendments to the Interpretation of NYSE Rule 345 (Employees— Registration, Approval, Records) May 11, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 Paper Comments (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February • Send paper comments in triplicate 17, 2006, the New York Stock Exchange, to Nancy M. Morris, Secretary, Inc.3 (n/k/a New York Stock Exchange Securities and Exchange Commission, LLC) (‘‘NYSE’’ or ‘‘Exchange’’) filed 100 F Street, NE., Washington, DC with the Securities and Exchange 20549–1090. Commission (‘‘SEC’’ or ‘‘Commission’’) All submissions should refer to File the proposed rule change as described Number SR–NYSE–2006–33. This file in Items I, II, and III below, which Items number should be included on the have been prepared by the NYSE. On subject line if e-mail is used. To help the May 3, 2006, NYSE filed Amendment Commission process and review your No. 1 to the proposed rule change.4 The comments more efficiently, please use Commission is publishing this notice to only one method. The Commission will solicit comments on the proposed rule post all comments on the Commission’s change, as amended, from interested Internet Web site (http://www.sec.gov/ persons. rules/sro.shtml). Copies of the I. Self-Regulatory Organization’s submission, all subsequent Statement of the Terms of Substance of amendments, all written statements the Proposed Rule Change with respect to the proposed rule The NYSE is filing with the SEC a change that are filed with the proposed amendment to Interpretation Commission, and all written (a)/02 (‘‘Independent Contractors’’) of communications relating to the NYSE Rule 345 (‘‘Employees— proposed rule change between the Commission and any person, other than Registration, Approval, Records’’). The proposed rule change would reduce the those that may be withheld from the filing requirements in connection with public in accordance with the the establishment of an ‘‘independent provisions of 5 U.S.C. 552, will be contractor’’ relationship between a available for inspection and copying in natural person, who is required to be the Commission’s Public Reference Room. Copies of such filing also will be registered pursuant to NYSE Rule 345, and a member organization. available for inspection and copying at The text of the proposed rule change the principal office of the Exchange. All is available on the Exchange’s Web site comments received will be posted (http://www.nyse.com), at the principal without change; the Commission does not edit personal identifying 27 17 CFR 200.30–3(a)(12). information from submissions. You 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. should submit only information that 3 The Exchange is now known as the New York you wish to make available publicly. All Stock Exchange LLC. See Securities Exchange Act submissions should refer to File Release No. 53382 (February 27, 2006), 71 FR 11251 Number SR–NYSE–2006–33 and should (March 6, 2006). be submitted on or before June 7, 2006. 4 See Amendment No. 1. VerDate Aug<31>2005 15:08 May 16, 2006 Jkt 208001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 28735 office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the NYSE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The NYSE 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 (a) Background. Over the years, registered persons and member organizations have on occasion entered into arrangements wherein the registered person is designated an ‘‘independent contractor’’ of the member organization. Such arrangements are often pursued due to tax planning considerations on the part of the individual and/or cost saving considerations on the part of the organization. Specifically, persons asserting independent contractor status may be eligible for certain tax benefits, especially with respect to retirement planning. On the other hand, some member organizations have structured their business model so that certain overhead costs (e.g., office rent, secretarial services, etc.) are borne by the registered representative in the context of an independent contractor arrangement. NYSE Rule 345(a) requires that natural persons performing certain prescribed duties on behalf of a member organization be registered with and qualified by the Exchange.5 The Interpretation of NYSE Rule 345(a) 6 permits a registered representative to assert the status of ‘‘independent contractor’’ provided that any registered representative associated with a member organization who is so designated be 5 NYSE Rule 345(a) states that ‘‘[n]o * * * member organization shall permit any natural person to perform regularly the duties customarily performed by (i) a registered representative, (ii) a securities lending representative, (iii) a securities trader or (iv) a direct supervisor of (i), (ii) or (iii) above, unless such person shall have been registered with, qualified by and is acceptable to the Exchange.’’ 6 See NYSE Interpretation Handbook, Rule 345(a)/02. E:\FR\FM\17MYN1.SGM 17MYN1

Agencies

[Federal Register Volume 71, Number 95 (Wednesday, May 17, 2006)]
[Notices]
[Pages 28732-28735]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-7459]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53791; File No. SR-NYSE-2006-33]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to a Pilot Program Beginning on May 12, 2006 and Ending on 
October 31, 2006 or Sooner, To Implement Certain Hybrid Market Changes 
and Amend Certain Changes to Approved Hybrid Market Rules

May 11, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 10, 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 and 
II below, which Items have been prepared by the Exchange. The Exchange 
filed the proposed rule change pursuant to Section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed 
rule change effective upon filing with the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of amendments to NYSE rules 
governing trading in pilot securities (``Pilot

[[Page 28733]]

Securities'') pursuant to a pilot program (the ``Pilot'').
    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.nyse.com), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The NYSE HYBRID MARKET SM was proposed in SR-NYSE-2004-
05 and Amendment Nos. 1, 2, 3, 5, 6, 7, and 8 \5\ thereto and approved 
on March 22, 2006 \6\ (``Hybrid Market filings'' or ``Hybrid''). The 
Hybrid Market filings, as approved, set forth the Exchange's plan to 
provide mechanisms for more electronic trading via NYSE Direct+[supreg] 
(``Direct+''), while retaining the benefits of the auction market. 
Phase 1 of the Hybrid Market is in the process of being implemented 
Floor-wide. Other Hybrid Market changes will be implemented in several 
phases over the next few months.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release Nos. 50173 (August 10, 
2004), 69 FR 50407 (August 16, 2004); 50667 (November 15, 2004), 69 
FR 67980 (November 22, 2004); and 51906 (June 22, 2005), 70 FR 37463 
(June 29, 2005). The Exchange withdrew Amendment No. 4 and replaced 
it with Amendment No. 5. See also Amendment No. 6 filed on September 
16, 2005, Amendment No. 7 filed on October 11, 2005, and Amendment 
No. 8 filed on March 14, 2006.
    \6\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353 (March 31, 2006) (``Hybrid Market approval 
order'').
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    As a result of a merger between Lucent Technologies Inc. 
(``Lucent'') and Alcatel, announced on or about March 23, 2006, there 
has been increased activity in Lucent, a listed security on the 
Exchange. Much of this activity has been routed to other market centers 
that have automatic execution facilities with no size and frequency 
restrictions.\7\ In order to remain competitive with other market 
centers in Lucent, the Exchange proposes a Pilot that would implement 
immediately certain of the Hybrid Market changes approved but scheduled 
for implementation in later phases. In addition, the Exchange proposes 
certain amendments, as outlined below, to other approved rules for the 
purposes of the Pilot.
---------------------------------------------------------------------------

    \7\ See Exchange Rules 1000 and 1005, as in effect today.
---------------------------------------------------------------------------

    This Pilot would include only Lucent. The Exchange may seek to 
include other securities in the Pilot for similar reasons. In the event 
the Exchange seeks to do so, the Exchange will amend the Pilot by 
filing a proposed rule change with the Commission indicating the 
proposed additions and notify its membership of such additions, if 
approved.
    The Pilot would commence on May 12, 2006, and would terminate on 
October 31, 2006 or earlier, upon notice to the Commission and Exchange 
membership. An Information Memo would be issued and posted on the 
Exchange's Web site announcing the Pilot.
    Moreover, the Exchange intends to have available at all times 
during the Pilot two versions of the operating settings--the new 
version that would be operational and the original, pre-Pilot version. 
If a problem develops during the Pilot, the Exchange will be able to 
revert to the pre-Pilot settings within an average time of two minutes 
or less.
    In the event systems or other problems arise with the Pilot that 
adversely impact investors or impede the Exchange's ability to maintain 
a fair and orderly market, the Exchange will immediately terminate the 
Pilot in whole or in part, as appropriate, and return trading to 
operations under NYSE rules applicable at the time of such termination.

Rules Applicable to the Pilot

    The following rules are applicable during the Pilot. The Exchange 
has designated these rules with a ``P'' in the proposed rule text.\8\ 
In addition, during the Pilot, all other Exchange rules will apply as 
they do to other securities traded on the Exchange.\9\ Furthermore, 
functions and rules to be implemented in future phases of Hybrid, as 
described in the Hybrid Market filings and approval order, will apply 
to the Pilot when implemented in the normal course of business. For 
this reason, the Exchange has kept the numbering of these Pilot rules 
consistent with and parallel to the Hybrid Market approved rules, 
except for the addition of the ``P'' designation. Where the Pilot rules 
are different from the Hybrid Market rules, the Pilot rules shall 
govern with respect to the Pilot securities.
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    \8\ The previous Hybrid Market pilot which put into operation 
Phase 1 of the Exchange's Hybrid Market initiative also designated 
rules with a ``P.'' This pilot terminated upon Commission approval 
of the Hybrid Market. Roll out of Phase 1 Floor-wide to all 
Exchange-listed securities began March 24, 2006. See also Securities 
Exchange Act Release No. 52954 (December 14, 2005), 70 FR 75519 
(December 20, 2005); see also Information Memos 05-98 (December 14, 
2005) and 06-14 (March 23, 2006).
    \9\ Phase 1 was implemented in Lucent on April 5, 2006.
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Definition of Auto Ex Order (Rule 13(P))

    In the Hybrid Market filings, the Exchange defined an auto ex order 
in Rule 13, in part, as ``a market order designated for automatic 
execution or a limit order to buy (sell) priced at or above (below) the 
Exchange best offer (bid) at the time such order is routed to the 
Display Book.[supreg] '' In addition, the Commission approved the 
Exchange's proposal to eliminate the 1,099 share restriction for auto 
ex orders. Although the Hybrid Market filings have been approved, this 
change has not yet been implemented.
    For purposes of this Pilot, the Exchange proposes to:
    (i) Provide that auto ex orders in Pilot securities may be entered 
as market and limit orders in an amount greater than 1,099 shares;
    (ii) Add a maximum order size of 3 million shares for auto ex 
orders; \10\ and
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    \10\ This would allow the Exchange to provide for a phased-in 
raising of order size eligibility, up to a maximum of 3,000,000 
shares. Each raising of order size eligibility shall be preceded by 
advance notice to the Exchange's membership. The Exchange intends to 
begin the Pilot with a maximum order size of 1,000,000 shares, which 
is the same as NYSE Archipelago's (``Arca'') automatic execution 
facility's maximum order size.
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    (iii) Include that all market orders,\11\ not only those market 
orders specifically designated as such, are eligible for automatic 
execution.\12\
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    \11\ In the Hybrid Market filings, market orders need to be 
designated auto ex in order to be treated so. The Exchange 
recognizes that a separate 19b-4 filing is required in order for 
this provision to be applicable beyond the Pilot.
    \12\ See proposed Exchange Rule 13(a)(i)(P) and (a)(P).
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    The Exchange believes that in the case of highly liquid securities, 
such as Lucent, this proposed change will benefit customers entering 
market orders, allowing them the opportunity to get a better and faster 
execution rather than requiring them to wait for a manual execution by 
a specialist.
    Where an incoming auto ex market order that exhausts all liquidity 
at the best bid (offer) remains unfilled, the specialist will manually 
handle the

[[Page 28734]]

remainder of the market order.\13\ Where an auto ex limit order or 
residual thereof cannot be immediately executed, it shall be displayed 
as a limit order on the Display Book.[supreg] \14\
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    \13\ See proposed Exchange Rule 1000(d)(v)(A)(P).
    \14\ See proposed Exchange Rule 1000(d)(v)(P).
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    As stated above, as other parts of Rule 13 amended by the Hybrid 
Market filings are implemented in the normal course of business, the 
Exchange proposes that they will apply to the Pilot.

Definition of a Market Order--Rule 13(P)

    The Hybrid Market filings provided that ``a market order designated 
for automatic execution is an auto ex order and shall be executed in 
accordance with, and to the extent provided by, Exchange Rules 1000-
1004.'' For purposes of the Pilot, and as described above, this 
definition is proposed to be amended to state that all market orders 
are auto ex orders, even if they are not designated for automatic 
execution.

NYSE Direct+--Automatic Executions--Rules 1000(P) and 1005.10(P)

    The Exchange proposes to add Rule 1000.10(P) which describes the 
unique rules applicable to the Pilot and the Pilot's start and end 
dates.
    In the Hybrid Market filings, the Exchange deleted the first three 
sentences of Exchange Rule 1000 and added (a) as a paragraph 
designation. The Exchange proposes to implement these amendments for 
purposes of the Pilot. In addition, the Exchange added language to 
reflect that automatic executions may take place with respect to 
reserve interest, orders on the Display Book outside the Exchange 
published quotation during sweeps and with floor broker agency file 
interest and specialist interest. The Exchange is not proposing to 
implement this change to Rule 1000 at this time. Accordingly, automatic 
executions will continue to be executed against only displayed 
interest.\15\
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    \15\ See proposed Exchange Rule 1000(a)(P).
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    In addition, the Exchange proposes to implement Exchange Rule 
1000(d) to set forth how auto ex market and limit orders would be 
handled during the Pilot; auto ex orders would trade with all liquidity 
at the best bid (offer). Where there is residual, it shall trade with 
available contra-side interest.\16\ In addition, as noted above, where 
an incoming auto ex market order that exhausts all liquidity at the 
best bid (offer) remains unfilled, the specialist will manually handle 
the remainder of the market order.\17\
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    \16\ See proposed Exchange Rules 1000(d)(i)-(ii)(P).
    \17\ See proposed Exchange Rule 1000(d)(v)(A)(P).
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    Finally, the Exchange is not seeking to implement as part of the 
Pilot at this time the amendments to Hybrid Market Rules 1000(a)(i)-
(vi). The current NYSE Direct+ rules will continue to govern when 
automatic executions are not available. As noted above, the approved 
amendments to these rules will be implemented in a later phase. Should 
the Pilot still be active at the time of their implementation, the 
amended Hybrid Market version of these rules will apply to the Pilot, 
upon notice to the Exchange membership.
    In the Hybrid Market filings, the Exchange proposed to rescind Rule 
1005. This amendment has been approved by the Commission, but has not 
yet been implemented. Exchange Rule 1005 provides that ``an auto ex 
order for any account in which the same person is directly or 
indirectly interested may only be entered at intervals of no less than 
30 seconds between entry of each such order in a stock,'' unless 
certain conditions are met. The Exchange proposes to implement this 
rescission with respect to the Pilot.\18\
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    \18\ See proposed Exchange Rule 1005.10(P).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \19\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \20\ in particular, in that it 
is 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 the proposed 
rule change is also designed to support the principles of Section 
11A(a)(1) of the Act \21\ in that it seeks to assure economically 
efficient execution of securities transactions, make it practicable for 
brokers to execute investors' orders in the best market, and provide an 
opportunity for investors' orders to be executed without the 
participation of a dealer.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78k-1(a)(1).
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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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing 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) 
by its terms, become operative for 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, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \22\ 
and Rule 19b-4(f)(6) thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \24\ 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 and designate the proposed 
rule change immediately operative upon filing. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest because the Pilot may 
enhance competition in this highly liquid security by allowing NYSE to 
modify its automatic execution system for this security.\25\ 
Accordingly, the Commission designates the proposal to be effective and 
operative upon filing with the Commission.\26\
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    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ The Exchange represented that it would not implement the 
specialist algorithmic function in the Pilot until the Exchange 
develops guidance to clarify how it expects specialists to comply 
with NYSE Rule 104. Telephone conversation between Nancy Reich, Vice 
President, NYSE, and Kelly M. Riley, Assistant Director, Division of 
Market Regulation, Commission, on May 10, 2006. See also footnote 
382 of the Hybrid Market approval order, supra note 6.
    \26\ 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. 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

[[Page 28735]]

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-2006-33 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2006-33. 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. Copies of such 
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-2006-33 and should be submitted on or before June 
7, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-7459 Filed 5-16-06; 8:45 am]
BILLING CODE 8010-01-P