Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 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, 52201-52202 [E6-14529]

Download as PDF Federal Register / Vol. 71, No. 170 / Friday, September 1, 2006 / Notices the Commission’s Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of NSCC and on NSCC’s Web site at http:// www.nscc.com. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NSCC– 2006–07 and should be submitted on or before September 22, 2006. For the Commission by the Division of Market Regulation, pursuant to delegated authority.10 Nancy M. Morris, Secretary. [FR Doc. E6–14528 Filed 8–31–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54362; File No. SR–NYSE– 2006–07] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 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 sroberts on PROD1PC70 with NOTICES August 25, 2006. I. Introduction On February 16, 2006, the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change 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. On April 27, 2006, NYSE filed Amendment No. 1 to the proposed rule change. The proposed rule change, as amended, was published for comment 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Aug<31>2005 18:06 Aug 31, 2006 Jkt 208001 in the Federal Register on May 16, 2006.3 The Commission received one comment letter 4 and a letter from NYSE that responded to the issues raised by the commenter.5 On August 17, 2006, NYSE filed Amendment No. 2 to the proposed rule change.6 This order approves the proposed rule change, as amended by Amendment No. 1. Simultaneously, the Commission is providing notice of filing of Amendment No. 2 and granting accelerated approval of Amendment No. 2. II. Description of the Proposal 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 proposes 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’’) displayed by another market center. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 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 No. SR–NYSE–2006–07 on the subject line. 3 See Securities Exchange Act Release No. 53782 (May 10, 2006), 71 FR 28399. 4 See e-mail from George Rutherfurd to the Commission, dated April 24, 2006 (‘‘Rutherfurd Letter’’). 5 Letter to Nancy M. Morris, Secretary, Commission, from Mary Yeager, Assistant Secretary, NYSE, dated July 20, 2006 (‘‘NYSE Response Letter’’). 6 Amendment No. 2 clarifies that a specialist’s ability to effect destabilizing dealer account transactions when matching the national best bid or offer applies when the national best bid or offer is established by another market center. PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 52201 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.s All submissions should refer to File Number 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 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 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 September 22, 2006. IV. Discussion After careful consideration, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange 7 and, in particular, the requirements of Section 6 of the Act.8 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,9 which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, and processing information 7 In approving this proposed rule change, as amended, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f. 9 15 U.S.C. 78f(b)(5). E:\FR\FM\01SEN1.SGM 01SEN1 sroberts on PROD1PC70 with NOTICES 52202 Federal Register / Vol. 71, No. 170 / Friday, September 1, 2006 / Notices with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The commenter asserted that the proposed rule change is unnecessary because the current rules work well to protect the public and the integrity of the price discovery mechanism.10 The commenter expressed concern that removing the requirement for Floor Official approval would diminish the check and balance system that ensures that a specialist matching an away bid or offer is appropriate under the circumstances. The commenter also challenged the Exchange’s argument that the proposed rule change is consistent with certain current practices in which specialists are permitted to match away bids and offers, as with exchange traded funds (‘‘ETFs’’). The commenter argued that, because ETFs are derivatively and objectively priced and the Exchange is not the primary market or price setting mechanism for ETFs, as it is for equities, the proposed rule change would not be appropriate for equity securities. In response to the commenter’s argument that Floor Official approval is a necessary safeguard against specialist over-reaching, the Exchange asserted that specialist transactions for their own account are still subject to certain Exchange Rules including ‘‘a specialist’s affirmative and negative obligations, a responsibility to maintain a two-sided market with quotations that are timely and accurately reflect market conditions, and a duty to ensure that a specialist’s principal transactions are designed to contribute to the maintenance of price continuity with reasonable depth.’’ 11 The Exchange argued that a Floor Official’s approval of a destabilizing transaction for a specialist’s proprietary account is only one part of the test to determine whether a specialist’s proprietary transaction is proper. The Exchange also stated that it would continue to surveil specialists’ proprietary transactions for compliance with the Exchange’s Rules.12 In addition, the Exchange believed that there is no basis for the commenter’s argument that that ‘‘[p]rices are not objectively determined * * *’’ with respect to transactions in non-ETF equity securities and that ‘‘most investors look to prices prevailing 10 See 11 See Rutherford Letter, supra note 4. NYSE Response Letter, supra note 5, at 1. 12 Id. VerDate Aug<31>2005 16:21 Aug 31, 2006 Jkt 208001 in the primary market, not nominal bids/offers in tertiary markets.’’ 13 The Exchange argued that the Commission’s Order Protection Rule in Regulation NMS 14 undermines the validity of the commenter’s assertion.15 Further, the Exchange believed that ‘‘investors and specialists will review pricing information from several sources and assign each source the weight they consider proper in making a trade or investing decision.’’ 16 The Exchange also believed that the proposed rule change to permit certain specialist trades at the NBBO price without requiring Floor Official approval gives the specialist increased flexibility to keep the Exchange’s market competitive.17 Amending NYSE Rules 104.10(5) and (6) to permit specialists to effect a destabilizing proprietary trade in an equity security at a price that matches the current NBBO should result in specialists following the market as set by the independent judgment of other market participants. The Commission believes that removing these restrictions should enhance the specialist’s ability to make competitive markets. The Commission agrees with the Exchange that the proposed rule change does not relieve specialists of their obligations under Federal securities laws or NYSE Rules.18 A specialist’s ability to effect proprietary transactions remains limited under the Act and NYSE Rules. The Commission notes that the Exchange is obligated to surveil its specialists to ensure their compliance with the Act and the Exchange’s Rules. Accelerated Approval of Amendment No. 2 The Commission finds good cause to approve Amendment No. 2 to the proposed rule change, as amended, prior to the thirtieth day after Amendment No. 2 is published for comment in the Federal Register pursuant to Section 19(b)(2) of the Act.19 Amendment No. 2 clarifies that a specialist’s ability to effect destabilizing dealer account transactions when matching the NBBO applies when the NBBO is established by another market center. The Commission finds that Amendment No. 2 provides clarification in the rule text as to the intent of the proposed rule filing. For these reasons, the Commission believes that good 13 Id. 14 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 15 See NYSE Response Letter, supra note 5, at 2. 16 Id. at 2. 17 Id. at 2. 18 Id. at 2. 19 15 U.S.C 78s(b)(2). PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 cause exists to accelerate approval of Amendment No. 2. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,20 that the proposed rule change (File No. SR– NYSE–2006–07), as amended by Amendment No. 1 thereto, be, and hereby is, approved, and that Amendment No. 2 thereto, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.21 Nancy M. Morris, Secretary. [FR Doc. E6–14529 Filed 8–31–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54368; File No. SR–NYSE– 2005–58] Self-Regulatory Organizations; New York Stock Exchange, Inc. (n/k/a New York Stock Exchange LLC); Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to Exchange Rule 312(f) Regarding Changes Within Member Organizations August 25, 2006. I. Introduction On August 15, 2005, the New York Stock Exchange, Inc. (n/k/a New York Stock Exchange LLC) (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change and on May 5, 2006, NYSE filed Amendment No. 1 to the proposed rule change.3 The proposed rule change, as amended, concerns amendments to Rule 312(f) to, among other changes, permit the recommendation of purchases and sales of shares of companies controlled by and under common control with member organizations (other than MAPs), subject to appropriate customer disclosure of the relationship. The 20 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 replaced the rule text in the original filing in its entirety and proposed to clarify that Rule 312(f) applies only to non-investment grade debt and equity securities. Amendment No. 1 also added Material Associated Persons (‘‘MAPs’’), as that term is used in Rule 17h–1T of the Exchange Act, to the class of persons for whose securities the solicitation of trades is prohibited. 21 17 E:\FR\FM\01SEN1.SGM 01SEN1

Agencies

[Federal Register Volume 71, Number 170 (Friday, September 1, 2006)]
[Notices]
[Pages 52201-52202]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14529]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54362; File No. SR-NYSE-2006-07]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto 
and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 2 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

 August 25, 2006.

I. Introduction

    On February 16, 2006, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change 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. On April 27, 2006, 
NYSE filed Amendment No. 1 to the proposed rule change. The proposed 
rule change, as amended, was published for comment in the Federal 
Register on May 16, 2006.\3\ The Commission received one comment letter 
\4\ and a letter from NYSE that responded to the issues raised by the 
commenter.\5\ On August 17, 2006, NYSE filed Amendment No. 2 to the 
proposed rule change.\6\ This order approves the proposed rule change, 
as amended by Amendment No. 1. Simultaneously, the Commission is 
providing notice of filing of Amendment No. 2 and granting accelerated 
approval of Amendment No. 2.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 53782 (May 10, 
2006), 71 FR 28399.
    \4\ See e-mail from George Rutherfurd to the Commission, dated 
April 24, 2006 (``Rutherfurd Letter'').
    \5\ Letter to Nancy M. Morris, Secretary, Commission, from Mary 
Yeager, Assistant Secretary, NYSE, dated July 20, 2006 (``NYSE 
Response Letter'').
    \6\ Amendment No. 2 clarifies that a specialist's ability to 
effect destabilizing dealer account transactions when matching the 
national best bid or offer applies when the national best bid or 
offer is established by another market center.
---------------------------------------------------------------------------

II. Description of the Proposal

    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 
proposes 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'') displayed by another market center.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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.s

All submissions should refer to File Number 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 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 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 
September 22, 2006.

IV. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange \7\ and, in particular, the requirements of Section 
6 of the Act.\8\ Specifically, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\9\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, and processing information

[[Page 52202]]

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.
---------------------------------------------------------------------------

    \7\ In approving this proposed rule change, as amended, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The commenter asserted that the proposed rule change is unnecessary 
because the current rules work well to protect the public and the 
integrity of the price discovery mechanism.\10\ The commenter expressed 
concern that removing the requirement for Floor Official approval would 
diminish the check and balance system that ensures that a specialist 
matching an away bid or offer is appropriate under the circumstances. 
The commenter also challenged the Exchange's argument that the proposed 
rule change is consistent with certain current practices in which 
specialists are permitted to match away bids and offers, as with 
exchange traded funds (``ETFs''). The commenter argued that, because 
ETFs are derivatively and objectively priced and the Exchange is not 
the primary market or price setting mechanism for ETFs, as it is for 
equities, the proposed rule change would not be appropriate for equity 
securities.
---------------------------------------------------------------------------

    \10\ See Rutherford Letter, supra note 4.
---------------------------------------------------------------------------

    In response to the commenter's argument that Floor Official 
approval is a necessary safeguard against specialist over-reaching, the 
Exchange asserted that specialist transactions for their own account 
are still subject to certain Exchange Rules including ``a specialist's 
affirmative and negative obligations, a responsibility to maintain a 
two-sided market with quotations that are timely and accurately reflect 
market conditions, and a duty to ensure that a specialist's principal 
transactions are designed to contribute to the maintenance of price 
continuity with reasonable depth.'' \11\ The Exchange argued that a 
Floor Official's approval of a destabilizing transaction for a 
specialist's proprietary account is only one part of the test to 
determine whether a specialist's proprietary transaction is proper. The 
Exchange also stated that it would continue to surveil specialists' 
proprietary transactions for compliance with the Exchange's Rules.\12\
---------------------------------------------------------------------------

    \11\ See NYSE Response Letter, supra note 5, at 1.
    \12\ Id.
---------------------------------------------------------------------------

    In addition, the Exchange believed that there is no basis for the 
commenter's argument that that ``[p]rices are not objectively 
determined * * *'' with respect to transactions in non-ETF equity 
securities and that ``most investors look to prices prevailing in the 
primary market, not nominal bids/offers in tertiary markets.'' \13\ The 
Exchange argued that the Commission's Order Protection Rule in 
Regulation NMS \14\ undermines the validity of the commenter's 
assertion.\15\ Further, the Exchange believed that ``investors and 
specialists will review pricing information from several sources and 
assign each source the weight they consider proper in making a trade or 
investing decision.'' \16\ The Exchange also believed that the proposed 
rule change to permit certain specialist trades at the NBBO price 
without requiring Floor Official approval gives the specialist 
increased flexibility to keep the Exchange's market competitive.\17\
---------------------------------------------------------------------------

    \13\ Id.
    \14\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \15\ See NYSE Response Letter, supra note 5, at 2.
    \16\ Id. at 2.
    \17\ Id. at 2.
---------------------------------------------------------------------------

    Amending NYSE Rules 104.10(5) and (6) to permit specialists to 
effect a destabilizing proprietary trade in an equity security at a 
price that matches the current NBBO should result in specialists 
following the market as set by the independent judgment of other market 
participants. The Commission believes that removing these restrictions 
should enhance the specialist's ability to make competitive markets. 
The Commission agrees with the Exchange that the proposed rule change 
does not relieve specialists of their obligations under Federal 
securities laws or NYSE Rules.\18\ A specialist's ability to effect 
proprietary transactions remains limited under the Act and NYSE Rules. 
The Commission notes that the Exchange is obligated to surveil its 
specialists to ensure their compliance with the Act and the Exchange's 
Rules.
---------------------------------------------------------------------------

    \18\ Id. at 2.
---------------------------------------------------------------------------

Accelerated Approval of Amendment No. 2

    The Commission finds good cause to approve Amendment No. 2 to the 
proposed rule change, as amended, prior to the thirtieth day after 
Amendment No. 2 is published for comment in the Federal Register 
pursuant to Section 19(b)(2) of the Act.\19\ Amendment No. 2 clarifies 
that a specialist's ability to effect destabilizing dealer account 
transactions when matching the NBBO applies when the NBBO is 
established by another market center. The Commission finds that 
Amendment No. 2 provides clarification in the rule text as to the 
intent of the proposed rule filing. For these reasons, the Commission 
believes that good cause exists to accelerate approval of Amendment No. 
2.
---------------------------------------------------------------------------

    \19\ 15 U.S.C 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (File No. SR-NYSE-2006-07), as 
amended by Amendment No. 1 thereto, be, and hereby is, approved, and 
that Amendment No. 2 thereto, be, and hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
Nancy M. Morris,
Secretary.
[FR Doc. E6-14529 Filed 8-31-06; 8:45 am]
BILLING CODE 8010-01-P