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, 52202-52204 [E6-14563]

Download as PDF 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 Federal Register / Vol. 71, No. 170 / Friday, September 1, 2006 / Notices proposed rule change, as amended, was published for comment in the Federal Register on May 26, 2006.4 The Commission received two comment letters on the proposal.5 On August 11, 2006, NYSE filed a response to the S&C Letter.6 This order approves the proposed rule change, as amended. II. Description of the Proposed Rule Change NYSE Rule 312(f) (the ‘‘Rule’’), in pertinent part, currently prohibits a member organization from soliciting transactions in its own publicly traded securities and from making any recommendations with respect to its publicly traded securities or the securities issued by any corporation controlling, controlled by or under common control with such member corporation (i.e., the securities of any parent, sister, or subsidiary corporation relative to the member organization). The Exchange’s regulatory experience relative to Rule 312(f) has generally involved determinations as to the existence, or not, of a control relationship involving a member organization among the complicated interrelationships of, and equity investments by, financial organizations. The purpose of the proposed rule change is to retain a process for mitigating conflicts of interest that may arise when recommending the securities of companies in which a member organization may have an interest, while also reducing burdens on the industry and the Exchange with respect to making determinations regarding the existence of a control relationship by establishing clearer standards and reducing interpretative questions. (i) Proposed Codification To Exclude Investment Grade Debt From Rule 312(f) sroberts on PROD1PC70 with NOTICES NYSE has interpreted Rule 312(f) to apply only to non-investment grade debt and equity securities.7 This proposal would codify that interpretation. 4 See Securities Exchange Act Release No. 53840 (May 19, 2006), 71 FR 30458 (May 26, 2006). 5 See letter from John Ramsay, Managing Director, Deputy General Counsel, Citigroup Global Markets Inc. (‘‘Citigroup’’), to Nancy M. Morris, Secretary, SEC, dated June 16, 2006 (the ‘‘Citigroup Letter’’) and letter from Sullivan & Cromwell LLP (‘‘S&C’’) to Nancy M. Morris, Secretary, SEC, dated June 16, 2006 (the ‘‘S&C Letter’’). 6 See letter from Mary Yeager, Assistant Secretary, NYSE, to Catherine McGuire, Chief Counsel, Division of Market Regulation, SEC, dated August 11, 2006 (the ‘‘NYSE Response’’). 7 Another common interpretive inquiry with respect to Rule 312(f) involves, and NYSE anticipates would continue to involve, a determination as to whether the security in question has ‘‘debt-like characteristics.’’ The Exchange has generally interpreted Rule 312(f) restrictions to not apply to investment grade debt VerDate Aug<31>2005 16:21 Aug 31, 2006 Jkt 208001 (ii) Proposed Expansion To Include All Non-Investment Grade Debt and Equity Securities The proposed rule change would also broaden the application of the Rule to all non-investment grade debt and equity securities, including privately placed issues. The current Rule’s prohibition applies only to publicly traded securities. In addition, the proposed rule change would extend the prohibition against solicited transactions to the noninvestment grade debt and equity securities of companies controlling member organizations (e.g., parent companies) and MAPs. By their nature, MAPs can substantially influence a registered broker-dealer, and the inclusion of such entities along with controlling organizations 8 acts to limit inevitable conflicts of interest. (iii) Proposed Amendment To Permit Certain Recommendations If Disclosed Finally, the proposed rule change would 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 (e.g., any recommendation would be subject to a requirement to disclose to the customer the existence and nature of the control relationship at the time of recommendation).9 The Exchange states that for these types of relationships disclosure is likely to function as an adequate method for addressing the conflicts of interest that could arise with respect to a member’s recommendation to buy or sell securities of many affiliated entities. The Exchange proposes to retain the prohibition on the recommendation of purchases in the securities of the member organization, any controlling organization or a MAP given the greater potential for a conflict of interest inherent in such relationships. and securities that function as investment grade debt. The interpretation as to whether a security functions as investment grade debt is based on the totality of the circumstances, e.g., (1) Whether the shares of stock have fixed dividends; (2) whether the shares of stock are non-participatory in common dividends; (3) whether the shares of stock have limited voting rights; and (4) whether the shares of stock are non-convertible into common stock. 8 See NYSE Rule 2. 9 See proposed Rule 312(f)(2). If the disclosure at the time of the recommendation is not made in writing, then the member must also provide this disclosure in writing prior to the completion of the transaction. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 52203 III. Summary of Comments Received and NYSE Response The Commission received two comment letters (the Citigroup Letter and the S&C Letter) on the proposal and a response to the S&C Letter by NYSE.10 The Citigroup Letter expresses support for the proposed changes to Rule 312(f). The S&C Letter generally expresses support for the proposed rule change, but also notes reservations regarding: (1) The expansion of the Rule 312(f) restrictions to non-public securities, and (2) the prohibitions contained in Rule 312(f)(1) concerning solicitation of transactions in the securities of a member organization, its parent or a MAP.11 In responding to S&C’s reservation regarding the extension of the coverage of Rule 312(f) to non-publicly traded securities, NYSE states that there is a ‘‘need to assure coverage of all postdistribution transactions by member organizations in affiliated securities, and not solely those which are sold pursuant to public offerings.’’ 12 NYSE also expresses the view that the proposed change will not impose a significant burden on trading in nonpublicly traded securities.13 In responding to S&C’s reservation regarding the prohibitions contained in Rule 312(f)(1), NYSE states that it ‘‘respectfully disagree[s] with the suggestion that the prohibition against the solicitation of transactions in the securities of the member organization, parent or [MAP] is at present unwarranted [because] [t]he conflicts which the original rule was written to prevent have not disappeared.’’ 14 NYSE also clarifies that ‘‘[i]t is not the transaction which is prohibited, but rather the recommendation of the transaction; the Rule allows unsolicited transactions.’’ 15 IV. Discussion and Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Exchange Act, and the rules and regulations thereunder applicable to a national securities exchange, and in particular, with the requirements of Section 6(b)(5) 16 of the Exchange Act. 10 S&C Letter. See also NYSE Response. Because the Citigroup Letter did not express any disagreement with the proposed rule change, the NYSE Response does not address the Citigroup Letter. 11 S&C Letter. 12 NYSE Response. 13 Id. 14 Id. 15 Id. 16 15 U.S.C. 78f(b)(5). E:\FR\FM\01SEN1.SGM 01SEN1 52204 Federal Register / Vol. 71, No. 170 / Friday, September 1, 2006 / Notices Section 6(b)(5) requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and national market system, and in general, to protect investors and the public interest. Section 3(f) of the Exchange Act also requires, among other things, whenever there is a requirement to consider or determine whether an action is necessary or appropriate in the public interest, to also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. The Commission believes that the proposed rule change, as amended, will act to assure adequate and continuing protection for investors while promoting efficiency, competition, and capital formation by permitting 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, by expanding restrictions on effecting solicited transactions to include nonpublic securities, and by codifying NYSE interpretations as described above. V. Conclusions It is therefore ordered, pursuant to Section 19(b)(2) of the Act,17 that the proposed rule change (SR–NYSE–2005– 58), as amended, be, and hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.18 Nancy M. Morris, Secretary. [FR Doc. E6–14563 Filed 8–31–06; 8:45 am] BILLING CODE 8010–01–P DEPARTMENT OF STATE [Public Notice 5534] sroberts on PROD1PC70 with NOTICES Culturally Significant Object Imported for Exhibition Determinations: ‘‘Cimabue and Early Italian Devotional Painting’’ Summary: Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs 17 15 18 17 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). VerDate Aug<31>2005 16:21 Aug 31, 2006 Jkt 208001 Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the object to be included in the exhibition ‘‘Cimabue and Early Italian Devotional Painting,’’ imported from abroad for temporary exhibition within the United States, is of cultural significance. The object is imported pursuant to a loan agreement with the foreign owner or custodian. I also determine that the exhibition or display of the exhibit object at The Frick Collection, New York, New York, from on or about October 3, 2006, until on or about December 31, 2006, and at possible additional venues yet to be determined, is in the national interest. Public Notice of these Determinations is ordered to be published in the Federal Register. For Further Information Contact: For further information, including a description of the exhibit object, contact Paul Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202/453–8052). The address is U.S. Department of State, SA– 44, 301 4th Street, SW., Room 700, Washington, DC 20547–0001. Dated: August 25, 2006. C. Miller Crouch, Principal Deputy Assistant Secretary for Educational and Cultural Affairs, Department of State. [FR Doc. E6–14546 Filed 8–31–06; 8:45 am] BILLING CODE 4710–05–P DEPARTMENT OF STATE [Public Notice 5535] Culturally Significant Objects Imported for Exhibition Determinations: ‘‘Domenico Tiepolo (1727–1804): A New Testament’’ Summary: Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the objects to be included in the exhibition ‘‘Domenico Tiepolo (1727–1804): A New Testament,’’ imported from abroad PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to loan agreements with the foreign owners or custodians. I also determine that the exhibition or display of the exhibit objects at The Frick Collection, New York, New York, from on or about October 24, 2006, until on or about January 7, 2007, and at possible additional venues yet to be determined, is in the national interest. Public Notice of these Determinations is ordered to be published in the Federal Register. For Further Information Contact: For further information, including a list of the exhibit objects, contact Wolodymyr Sulzynsky, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202/453–8050). The address is U.S. Department of State, SA– 44, 301 4th Street, SW., Room 700, Washington, DC 20547–0001. Dated: August 25, 2006. C. Miller Crouch, Principal Deputy Assistant Secretary for Educational and Cultural Affairs, Department of State. [FR Doc. E6–14541 Filed 8–31–06; 8:45 am] BILLING CODE 4710–05–P DEPARTMENT OF STATE [Public Notice 5537] Culturally Significant Objects Imported for Exhibition Determinations: ‘‘Eye On Europe: Prints, Books, and Multiples, 1960—Now’’ Summary: Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the objects to be included in the exhibition ‘‘Eye On Europe: Prints, Books, and Multiples, 1960—Now’’ imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to a loan agreement with the foreign owners or custodians. I also determine that the exhibition or display of the exhibit objects at The Museum of Modern Art, New York, New York, from on or about October 10, 2006, until on or about January 1, 2007, and at possible additional venues yet to be determined, E:\FR\FM\01SEN1.SGM 01SEN1

Agencies

[Federal Register Volume 71, Number 170 (Friday, September 1, 2006)]
[Notices]
[Pages 52202-52204]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14563]


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

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

[[Page 52203]]

proposed rule change, as amended, was published for comment in the 
Federal Register on May 26, 2006.\4\ The Commission received two 
comment letters on the proposal.\5\ On August 11, 2006, NYSE filed a 
response to the S&C Letter.\6\ This order approves the proposed rule 
change, as amended.
---------------------------------------------------------------------------

    \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.
    \4\ See Securities Exchange Act Release No. 53840 (May 19, 
2006), 71 FR 30458 (May 26, 2006).
    \5\ See letter from John Ramsay, Managing Director, Deputy 
General Counsel, Citigroup Global Markets Inc. (``Citigroup''), to 
Nancy M. Morris, Secretary, SEC, dated June 16, 2006 (the 
``Citigroup Letter'') and letter from Sullivan & Cromwell LLP 
(``S&C'') to Nancy M. Morris, Secretary, SEC, dated June 16, 2006 
(the ``S&C Letter'').
    \6\ See letter from Mary Yeager, Assistant Secretary, NYSE, to 
Catherine McGuire, Chief Counsel, Division of Market Regulation, 
SEC, dated August 11, 2006 (the ``NYSE Response'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    NYSE Rule 312(f) (the ``Rule''), in pertinent part, currently 
prohibits a member organization from soliciting transactions in its own 
publicly traded securities and from making any recommendations with 
respect to its publicly traded securities or the securities issued by 
any corporation controlling, controlled by or under common control with 
such member corporation (i.e., the securities of any parent, sister, or 
subsidiary corporation relative to the member organization). The 
Exchange's regulatory experience relative to Rule 312(f) has generally 
involved determinations as to the existence, or not, of a control 
relationship involving a member organization among the complicated 
interrelationships of, and equity investments by, financial 
organizations.
    The purpose of the proposed rule change is to retain a process for 
mitigating conflicts of interest that may arise when recommending the 
securities of companies in which a member organization may have an 
interest, while also reducing burdens on the industry and the Exchange 
with respect to making determinations regarding the existence of a 
control relationship by establishing clearer standards and reducing 
interpretative questions.

(i) Proposed Codification To Exclude Investment Grade Debt From Rule 
312(f)

    NYSE has interpreted Rule 312(f) to apply only to non-investment 
grade debt and equity securities.\7\ This proposal would codify that 
interpretation.
---------------------------------------------------------------------------

    \7\ Another common interpretive inquiry with respect to Rule 
312(f) involves, and NYSE anticipates would continue to involve, a 
determination as to whether the security in question has ``debt-like 
characteristics.'' The Exchange has generally interpreted Rule 
312(f) restrictions to not apply to investment grade debt and 
securities that function as investment grade debt. The 
interpretation as to whether a security functions as investment 
grade debt is based on the totality of the circumstances, e.g., (1) 
Whether the shares of stock have fixed dividends; (2) whether the 
shares of stock are non-participatory in common dividends; (3) 
whether the shares of stock have limited voting rights; and (4) 
whether the shares of stock are non-convertible into common stock.
---------------------------------------------------------------------------

(ii) Proposed Expansion To Include All Non-Investment Grade Debt and 
Equity Securities

    The proposed rule change would also broaden the application of the 
Rule to all non-investment grade debt and equity securities, including 
privately placed issues. The current Rule's prohibition applies only to 
publicly traded securities.
    In addition, the proposed rule change would extend the prohibition 
against solicited transactions to the non-investment grade debt and 
equity securities of companies controlling member organizations (e.g., 
parent companies) and MAPs. By their nature, MAPs can substantially 
influence a registered broker-dealer, and the inclusion of such 
entities along with controlling organizations \8\ acts to limit 
inevitable conflicts of interest.
---------------------------------------------------------------------------

    \8\ See NYSE Rule 2.
---------------------------------------------------------------------------

(iii) Proposed Amendment To Permit Certain Recommendations If Disclosed

    Finally, the proposed rule change would 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 (e.g., any 
recommendation would be subject to a requirement to disclose to the 
customer the existence and nature of the control relationship at the 
time of recommendation).\9\ The Exchange states that for these types of 
relationships disclosure is likely to function as an adequate method 
for addressing the conflicts of interest that could arise with respect 
to a member's recommendation to buy or sell securities of many 
affiliated entities. The Exchange proposes to retain the prohibition on 
the recommendation of purchases in the securities of the member 
organization, any controlling organization or a MAP given the greater 
potential for a conflict of interest inherent in such relationships.
---------------------------------------------------------------------------

    \9\ See proposed Rule 312(f)(2). If the disclosure at the time 
of the recommendation is not made in writing, then the member must 
also provide this disclosure in writing prior to the completion of 
the transaction.
---------------------------------------------------------------------------

III. Summary of Comments Received and NYSE Response

    The Commission received two comment letters (the Citigroup Letter 
and the S&C Letter) on the proposal and a response to the S&C Letter by 
NYSE.\10\ The Citigroup Letter expresses support for the proposed 
changes to Rule 312(f).
---------------------------------------------------------------------------

    \10\ S&C Letter. See also NYSE Response. Because the Citigroup 
Letter did not express any disagreement with the proposed rule 
change, the NYSE Response does not address the Citigroup Letter.
---------------------------------------------------------------------------

    The S&C Letter generally expresses support for the proposed rule 
change, but also notes reservations regarding: (1) The expansion of the 
Rule 312(f) restrictions to non-public securities, and (2) the 
prohibitions contained in Rule 312(f)(1) concerning solicitation of 
transactions in the securities of a member organization, its parent or 
a MAP.\11\
---------------------------------------------------------------------------

    \11\ S&C Letter.
---------------------------------------------------------------------------

    In responding to S&C's reservation regarding the extension of the 
coverage of Rule 312(f) to non-publicly traded securities, NYSE states 
that there is a ``need to assure coverage of all post-distribution 
transactions by member organizations in affiliated securities, and not 
solely those which are sold pursuant to public offerings.'' \12\ NYSE 
also expresses the view that the proposed change will not impose a 
significant burden on trading in non-publicly traded securities.\13\
---------------------------------------------------------------------------

    \12\ NYSE Response.
    \13\ Id.
---------------------------------------------------------------------------

    In responding to S&C's reservation regarding the prohibitions 
contained in Rule 312(f)(1), NYSE states that it ``respectfully 
disagree[s] with the suggestion that the prohibition against the 
solicitation of transactions in the securities of the member 
organization, parent or [MAP] is at present unwarranted [because] [t]he 
conflicts which the original rule was written to prevent have not 
disappeared.'' \14\ NYSE also clarifies that ``[i]t is not the 
transaction which is prohibited, but rather the recommendation of the 
transaction; the Rule allows unsolicited transactions.'' \15\
---------------------------------------------------------------------------

    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------

IV. Discussion and Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act, and the 
rules and regulations thereunder applicable to a national securities 
exchange, and in particular, with the requirements of Section 6(b)(5) 
\16\ of the Exchange Act.

[[Page 52204]]

Section 6(b)(5) requires, among other things, that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and national market system, and in general, to protect investors 
and the public interest. Section 3(f) of the Exchange Act also 
requires, among other things, whenever there is a requirement to 
consider or determine whether an action is necessary or appropriate in 
the public interest, to also consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, and 
capital formation.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change, as amended, 
will act to assure adequate and continuing protection for investors 
while promoting efficiency, competition, and capital formation by 
permitting 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, by expanding restrictions on effecting 
solicited transactions to include non-public securities, and by 
codifying NYSE interpretations as described above.

V. Conclusions

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-NYSE-2005-58), as amended, 
be, and hereby is, approved.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E6-14563 Filed 8-31-06; 8:45 am]
BILLING CODE 8010-01-P