Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to Rules 13 (“Definitions of Orders”) and 17 (“Use of Exchange Facilities”), 18707-18710 [E7-6962]

Download as PDF Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices 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: BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION 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–2006–109 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. pwalker on PROD1PC71 with NOTICES For the Commission, by the Division of Market Regulation, pursuant to delegated authority.21 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–7008 Filed 4–12–07; 8:45 am] [Release No. 34–55590; File No. SR–NYSE– 2007–29] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to Rules 13 (‘‘Definitions of Orders’’) and 17 (‘‘Use of Exchange Facilities’’) April 5, 2007. 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 March 16, 2007, the New York Stock Exchange All submissions should refer to File LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with Number SR–NASD–2006–109. This file the Securities and Exchange number should be included on the subject line if e-mail is used. To help the Commission (‘‘Commission’’) the proposed rule change as described in Commission process and review your Items I and II below, which Items have comments more efficiently, please use only one method. The Commission will been substantially prepared by the post all comments on the Commission’s Exchange. On April 5, 2007, NYSE filed Amendment No. 1 to the proposed rule Internet Web site (http://www.sec.gov/ change. The Exchange has filed the rules/sro.shtml). Copies of the proposal as a ‘‘non-controversial’’ rule submission, all subsequent change pursuant to Section 19(b)(3)(A) amendments, all written statements of the Act 3 and Rule 19b–4(f)(6) with respect to the proposed rule thereunder,4 which renders it effective change that are filed with the upon filing with the Commission. The Commission, and all written Commission is publishing this notice to communications relating to the solicit comments on the proposed rule proposed rule change between the change, as amended, from interested Commission and any person, other than persons. those that may be withheld from the I. Self-Regulatory Organization’s public in accordance with the Statement of the Terms of Substance of provisions of 5 U.S.C. 552, will be the Proposed Rule Change available for inspection and copying in the Commission’s Public Reference The Exchange is proposing to amend Room. Copies of such filing will also be Exchange Rules 13 (‘‘Definitions of Orders’’) and 17 (‘‘Use of Exchange available for inspection and copying at Facilities’’) in order to establish a the principal office of NASD. All mechanism to route orders to away comments received will be posted market centers when that market center without change; the Commission does is displaying the national best bid and not edit personal identifying offer in accordance with Exchange Rules information from submissions. You and Regulation NMS under the Act 5 should submit only information that you wish to make available publicly. All (‘‘Reg. NMS’’). The Exchange further proposes to have its order router submissions should refer to the File facilitate the acceptance of executions Number SR–NASD–2006–109 and that result in an odd-lot or a sub-penny should be submitted on or before May 4, 2007. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 17 CFR 242.600 et seq. 3 15 21 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 18707 execution. The text of the proposed rule change is available at NYSE, the Commission’s Public Reference Room, and www.nyse.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, 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. 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 The Exchange is proposing to amend Exchange Rules 13 and 17 to establish a mechanism to route orders to away market centers (‘‘Routing Broker’’) when that market center is displaying the national best bid and offer in accordance with Exchange Rules and Reg. NMS. Through this filing the Exchange further proposes to have its Routing Broker facilitate the acceptance of executions that result in an odd-lot 6 or a sub-penny 7 execution after the Routing Broker routed an Exchange order to an away market center. The Exchange intends to use its broker-dealer affiliate,8 Archipelago Securities LLC (‘‘ArcaSec’’), as its 6 Odd-lot orders are orders for a size less than the standard unit (round lot) of trading, which is 100 shares for most stocks, although some stocks trade in 10 share units. 7 The Exchange notes that trading centers that provide sub-penny executions are currently developing order types that allow market participants to request a non-sub-penny execution. The Exchange states that the Routing Broker will perform this function only until such time as needed for the creation of these new order types and the completion of any systems modifications associated with the handling of the new order types. 8 On February 27, 2006, the Commission approved the Exchange’s business combination with Archipelago Holdings, Inc. (‘‘Merger’’). See Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR–NYSE–2005–77). Pursuant to the Merger, NYSE Group, Inc. became the overall parent company of the Exchange and Archipelago Holdings, Inc. NYSE Group, Inc. operates two securities exchanges: The Exchange and NYSE Arca, Inc. (formerly known as the Archipelago Exchange, or ArcaEx, and the Pacific Exchange). ArcaSec remains a wholly owned subsidiary of Archipelago Holdings, Inc. and is therefore an affiliate of the Exchange. E:\FR\FM\13APN1.SGM 13APN1 18708 Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices pwalker on PROD1PC71 with NOTICES Routing Broker 9 to route orders,10 subject to Exchange rules and Reg. NMS, to away market centers displaying protected bids and protected offers, as defined in Rule 600(b)(57) of Reg. NMS. The Exchange believes that the Routing Broker will offer an efficient mechanism for the Exchange to route orders to away market centers for execution in compliance with Exchange Rules and Reg. NMS. Pursuant to the proposed rule, Exchange systems will provide the Routing Broker with routing instructions to route orders to other market centers and report such executions back to the Exchange. The Exchange states that the Routing Broker cannot change the terms of an order or the routing instructions, nor does the Routing Broker have any discretion about where to route an order. The Exchange states that the Routing Broker will operate as a ‘‘facility’’ 11 of the Exchange in that it will serve as a ‘‘system of communication to or from’’ 12 the Exchange. When an order must be routed to an away market center for execution, Exchange systems will affix all order handling information to the order. Exchange systems will 9 In the event the Exchange seeks to use another entity as its Routing Broker, the Exchange understands that it would be required to obtain Commission approval. 10 Currently ArcaSec performs two functions for NYSE Arca, Inc. ArcaSec acts as the outbound order routing facility of NYSE Arca, Inc. See Securities Exchange Act Release No. 52497 (September 22, 2005), 70 FR 56949 (September 29, 2005) (SR–PCX– 2005–90); see also Securities Exchange Act Release No. 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) (SR–PCX–00–25). The Exchange states that, currently, the NASD is responsible for carrying out the oversight and enforcement responsibilities for ArcaSec as the designated examining authority designated by the Commission pursuant to Rule 17d–1 of the Act with the responsibility for examining the Routing Broker for compliance with the applicable financial responsibility rules. The Exchange states that it intends to enter into a 17d–2 agreement with a regulator other than the Exchange or any of its affiliates to regulate its outbound router. In addition, on March 12, 2007, the Commission authorized ArcaSec to act as a marketing agent on behalf of NYSE Arca Tech 100 Index and NYSE Arca Tech 100 ETF. This business activity has no connection to ArcaSec’s facility functions as described above. See Securities Exchange Act Release No. 55442 (March 12, 2007), 72 FR 12654 (March 16, 2007) (SR–NYSEArca–2007–09). 11 The term ‘‘facility’’ as defined in Section 3(a)(2) of the Act, as amended, provides, * * * when used with respect to an exchange includes its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service. See 15 U.S.C. 78c(a)(2). 12 Id. VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 automatically transmit the order and the relevant order handling information to the Routing Broker. In turn, the Routing Broker will facilitate the delivery of the received order to the destination away market. The Routing Broker will obtain receipts of executions and deliver those receipts of executions back to Exchange systems. In particular, and without limitation, under the Act, the Exchange will be responsible for filing with the Commission rule changes and fees relating to the functions performed by the Routing Broker for the Exchange and will be subject to exchange nondiscrimination requirements. Furthermore, the books, records, premises, officers, agents, directors, and employees of the Routing Broker, as a facility of the Exchange, shall be deemed to be the books, records, premises, officers, agents, directors, and employees of the Exchange for purposes of, and subject to oversight pursuant to, the Act. The books and records of the Routing Broker as a facility of the Exchange shall be subject at all times to inspection and copying by the Exchange and the Commission. In addition to routing orders to away market centers, the Routing Broker will facilitate the acceptance of executions that results in an odd-lot or a sub-penny execution as Exchange systems are unable to accept such executions after the Routing Broker routes an Exchange order to an away market center. Currently, odd-lot orders on the Exchange are executed in a trading system that is separate from the Exchange system responsible for the execution of round-lot orders (‘‘odd-lot trading platform’’). The Exchange oddlot trading platform executes all oddlots orders against the specialist as the contra party separate from the trading system that is responsible for the execution of round lot orders. Since odd-lot orders are handled in a separate trading system, the Exchange systems that are responsible for the execution of round lot orders are unable to accept receipts of execution in odd-lots at the present time. Similarly, the Exchange has chosen not to quote and trade in sub-penny increments when permitted under Reg. NMS. In order to process receipts of odd-lot and sub-penny executions from an away market, the Exchange proposes to have the Routing Broker facilitate the handling of such odd-lot and sub-penny execution. Specifically, if the Routing Broker is in receipt of an odd-lot execution in response to the Exchange’s routing of a round lot order, it will assume the odd-lot position. The PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 Routing Broker will then sell/buy the requested number of round lot shares to the Exchange member. The Routing Broker will perform this adjustment to each odd-lot execution in order to transmit a round lot execution to the Exchange. The Routing Broker will afford the Exchange order (i.e. for the Exchange member) the most favorable execution price based on the odd-lot execution(s) received by the Routing Broker from the away market. With regard to a sub-penny execution, the Routing Broker will perform an adjustment to each sub-penny execution. Specifically, the Routing Broker will round down for each buy order and up for each sell order and transmit a round penny execution to the Exchange order. Again, the Routing Broker will afford the Exchange order the most favorable execution price based on the sub-penny execution received by the Routing Broker from the away market. The Routing Broker will liquidate positions assumed as a result of the services provided to the Exchange. This service provided by the Routing Broker with regard to odd-lot and sub-penny executions is not intended to operate as a means to generate revenue. Rather, the Routing Broker is providing an additional service to the Exchange in order to facilitate the receipt of odd-lot and sub-penny executions from away market centers. To that end, it is the intent of the Routing Broker to be flat in all positions at the end of each trading day.13 The Routing Broker will incorporate an automated system to immediately assist in the liquidation (acquisition) for any residual long (short) positions. To mitigate financial risk 14 to the Routing Broker, registered trading personnel of the Routing Broker may be required to manually assist, as soon as practicable, in the liquidation (acquisition) of such positions when, due to the nature of the security (e.g. high-priced securities that trade with a wide spread) and its trading pattern or volatile market conditions, liquidation (acquisition) is not immediately possible. Below are examples of how the Routing Broker is intended to operate. ODD–LOT Executions Example 1: Exchange member Firm X enters an order on the Exchange to buy 100 13 Absent any unusual market conditions or the timing of such trades (for example, the execution of the order at 15:59:59) it is intended that the Routing Broker will be flat in all positions at the end of each trading day. 14 Any and all loses incurred during the facilitation of odd-lot and sub-penny executions will be assumed by the Routing Broker as part of the routing service provided. E:\FR\FM\13APN1.SGM 13APN1 pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices shares of ABC at $20.00. Exchange systems transmit the order with order handling instructions to the Routing Broker. The Routing Broker then transmits the order with the order handling instructions received from the Exchange systems to market center A. The Routing Broker receives reports of two odd-lot executions from market center A. The first report of execution is for 30 shares executed at a price of $20.00. The second report of execution completes the original order with an execution of the remaining 70 shares at a price of $20.00. The Routing Broker will sell 100 shares to Exchange member Firm X at $20.00 and use the oddlots received from market center A to offset the position. The Routing Broker’s position is flat. Example 2: Exchange member Firm X enters an order on the Exchange to buy 100 shares of ABC at $20.00. The Exchange systems transmit the order with order handling instructions to the Routing Broker. The Routing Broker then transmits the order with the order handling instructions received from the Exchange systems to market center A. The Routing Broker receives two odd-lot fills from market center A. The first report is for 30 shares executed at a price of $19.99. The second report of execution completes the original with an execution of the remaining 70 shares at a price of $20.00. The Routing Broker sells 100 shares to Firm X at $19.99 and uses the odd-lots to offset the position. The Routing Broker’s position is flat, with a loss of $0.70. Example 3: Exchange member Firm X enters an order on the Exchange to buy 100 shares of ABC at $20.00. The Exchange systems transmit the order with order handling instructions to the Routing Broker. The Routing Broker then transmits the order with the order handling instructions received from the Exchange systems to market center A. The Routing Broker receives an odd-lot fill of only 30 shares at $20.00 and a report of cancellation for the remaining 70 shares of the original order. The Routing Broker will sell 100 shares to Firm X at $20.00. In turn, the Routing Broker will then go into the market to buy 70 shares of ABC. The Routing Broker receives a fill of 70 at $20.05. The Routing Broker will then use both odd-lots positions to offset the position taken as a result of handling the order of Firm X. The Routing Broker’s position is flat, with a loss of $3.50. Example 4: Exchange member Firm X enters an order on the Exchange to buy 100 shares of ABC at $20.00. The Exchange systems transmit the order with order handling instructions to the Routing Broker. The Routing Broker then transmits the order with the order handling instructions received from the Exchange systems to market center A. The Routing Broker receives an odd-lot fill of only 30 shares at $20.00 and a report of cancellation for the remaining 70 shares of the original order. The Routing Broker will sell 100 shares to Firm X at $20.00. In turn, the Routing Broker will then go into the market to buy 70 shares of ABC. The Routing Broker receives a fill of 70 at $19.99. The Routing Broker will then use both odd-lots positions to offset the position taken as a result of handling the order of Firm X. The VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 18709 Routing Broker’s position is flat, with a profit of $0.70. B. Self-Regulatory Organization’s Statement on Burden on Competition SUB-PENNY Executions The Exchange 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. Example 1: Exchange member Firm X enters an order on the Exchange to buy 100 shares of ABC at $20.00. The Exchange’s best offer is $19.98. Market Center A is displaying a best offer at $19.97. Market Center A also offers a mid-point match execution process that may result in a trade price that includes sub-pennies. The Exchange systems transmit the order with order handling instructions to the Routing Broker. The Routing Broker then transmits the order with the order handling instructions received from Exchange systems to market center A. The Routing Broker receives a fill of 100 shares at $19.975 due to a mid-point cross occurring at market center A. The Routing Broker will sell 100 shares to member Firm X at $19.97 and uses the fill of 100 shares at $19.975 to offset the position. The Routing Broker will be flat, with a loss of $0.50. The use of the Routing Broker to route orders to another market center will be optional. In the event a member organization does not want to use the Routing Broker it must enter an immediate-or-cancel order or any such other order type available on the Exchange that is not eligible for routing. All bids and offers entered on the Exchange that are routed to other market centers via the Routing Broker which result in an execution shall be binding on the member organization that entered such bid and offer. The Routing Broker will not engage in any business for the Exchange other than its outbound router and facilitation functions as described above. In the event the Exchange seeks to have the Routing Broker engage in any other activities, it understands that the ability of the Routing Broker to engage in such new business activity would require Commission approval. The Exchange believes that the abovedescribed operation of the Routing Broker will serve as the most economically efficient execution of securities transactions. Furthermore, the Routing Broker is necessary for the Exchange to comply with its obligations pursuant to Reg. NMS. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirement under Section 6(b)(5) of the Act 15 that an exchange have rules that are 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 proposed rule change is also designed to support the principles of Section 11A(a)(1) 16 in that it seeks to assure economically efficient execution of securities transactions. 15 15 16 15 PO 00000 U.S.C. 78f(b)(5). U.S.C. 78k–1(a)(1). Frm 00090 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 forgoing rule change does not: (1) Significantly affect the protection of investors or the public interest; (2) impose any significant burden on competition; and (3) become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 17 and Rule 19b– 4(f)(6) thereunder.18 A proposed rule change filed under 19b–4(f)(6) normally may not become operative prior to 30 days after the date of filing.19 However, Rule 19b– 4(f)(6)(iii) 20 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. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because such waiver would permit NYSE to immediately use the Routing Broker to route orders to other trading centers to prevent trade-troughs of protected quotations in NMS stocks.21 For this reason, the Commission designates the proposed rule change to 17 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 19 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 19b–4(f)(6)(iii) requires that a self-regulatory organization submit to the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. NYSE has satisfied the five-day prefiling notice requirement. 20 Id. 21 The Commission notes that NYSE’s proposed Rule 17(b) is substantially similar to Rule 2.11 of the National Stock Exchange, Inc. 18 17 E:\FR\FM\13APN1.SGM 13APN1 18710 Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices be operative upon filing with the Commission.22 At any time within 60 days of the filing of such proposed rule change the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors or otherwise in furtherance of the purposes of the Act.23 available for inspection and copying at the principal office of 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–2007–29 and should be submitted on or before May 4, 2007. 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: For the Commission, by the Division of Market Regulation, pursuant to delegated authority.24 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–6962 Filed 4–12–07; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSE–2007–29 on the subject line. SECURITIES AND EXCHANGE COMMISSION 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–2007–29. 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 the filing also will be BILLING CODE 8010–01–P [Release No. 34–55594; File No. SR–NYSE– 2005–48] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendments No. 1, 2, 3, and 4 Thereto to Proposed Rule Change to Amend Rule 619 Pertaining to Subpoenas for the Production of Documents and Appearances of Witnesses April 6, 2007. On July 13, 2005, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) a proposed rule change to amend NYSE Rule 619, pertaining to subpoenas for the production of documents and appearance of witnesses. The proposed rule change was published for comment in the Federal Register on September 26, 2005,3 and the Commission received no comments on the proposal. On April 18, 2006, November 2, 2006, December 22, 2006, and February 8, 2007, the NYSE filed Amendments No. 1, 2, 3, and 4, respectively, to revise the rule change as described in Items I, II, and III below, which Items have been prepared by the NYSE.4 The 2417 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 52468 (Sept. 19, 2005), 70 FR 56201 (Sept. 26, 2005). 4 Amendment No. 1 clarified that only the arbitrator(s) may issue subpoenas and delineated the manner in which a party may request the issuance of a subpoena. Amendment No. 2 established a time frame for the parties to make and respond to objections to the requested subpoena and clarified that the arbitrator(s) may not rule on pwalker on PROD1PC71 with NOTICES 1 15 22 For the 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). 2315 U.S.C. 78s(b)(3)(C). For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposal, the Commission considers the period to commence on April 5, 2007, the date on which the Exchange submitted Amendment No. 1. VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NYSE is proposing to revise Rule 619, which pertains to subpoenas for the production of documents and the appearance of witnesses. Below is the text of the proposed rule change. Proposed new language is italicized and proposed deletions are in brackets. * * * * * (a) to (e) No change. (f) Subpoenas. (1) The arbitrator(s) [and any counsel of record to the proceedings] may issue subpoenas for the production of documents or the appearance of witnesses [shall have the power of the subpoena process as provided by law. All parties shall be given a copy of the subpoena upon its issuance. The parties shall produce witnesses and present proofs to the fullest extent possible without resort to the subpoena process.] The party who requests a subpoena must make a written request asking the arbitrator(s) to issue a subpoena. The request, along with the requested draft subpoena must be served directly on each other party in a manner that is reasonably expected to cause the request and the requested subpoena to be delivered to all parties on the same day. The requesting party may not serve the request or the requested draft subpoena on a non-party. The request and the requested subpoena must also be filed with the Director of Arbitration, with additional copies for each arbitrator, at the same time and in the same manner in which they are served on the parties. The parties shall produce witnesses and present proof at the hearing whenever possible without using subpoenas. (2) In the event a party receiving such a request objects to the scope or propriety of the subpoena, that party shall, within 10 days of service of the request, file with the Director of Arbitration, with copies to all other parties, written objections, including additional copies for each arbitrator. The party seeking the subpoena may respond thereto within five days of receipt of the objection. The arbitrator(s) appointed shall rule promptly on the such a request until this time period has elapsed. Amendment No. 3 made technical changes to the rule and clarified that the arbitrator(s) must receive copies of any objections to the issuance of a subpoena. Amendment No. 4 clarified that a party requesting a subpoena may not serve the request or the draft subpoena on a non-party. E:\FR\FM\13APN1.SGM 13APN1

Agencies

[Federal Register Volume 72, Number 71 (Friday, April 13, 2007)]
[Notices]
[Pages 18707-18710]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-6962]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55590; File No. SR-NYSE-2007-29]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to Rules 13 (``Definitions of 
Orders'') and 17 (``Use of Exchange Facilities'')

April 5, 2007.
    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 March 16, 2007, 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 substantially prepared by the Exchange. 
On April 5, 2007, NYSE filed Amendment No. 1 to the proposed rule 
change. The Exchange has filed the proposal as a ``non-controversial'' 
rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders it effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 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 Exchange is proposing to amend Exchange Rules 13 (``Definitions 
of Orders'') and 17 (``Use of Exchange Facilities'') in order to 
establish a mechanism to route orders to away market centers when that 
market center is displaying the national best bid and offer in 
accordance with Exchange Rules and Regulation NMS under the Act \5\ 
(``Reg. NMS''). The Exchange further proposes to have its order router 
facilitate the acceptance of executions that result in an odd-lot or a 
sub-penny execution. The text of the proposed rule change is available 
at NYSE, the Commission's Public Reference Room, and www.nyse.com.
---------------------------------------------------------------------------

    \5\ 17 CFR 242.600 et seq.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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. 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
    The Exchange is proposing to amend Exchange Rules 13 and 17 to 
establish a mechanism to route orders to away market centers (``Routing 
Broker'') when that market center is displaying the national best bid 
and offer in accordance with Exchange Rules and Reg. NMS. Through this 
filing the Exchange further proposes to have its Routing Broker 
facilitate the acceptance of executions that result in an odd-lot \6\ 
or a sub-penny \7\ execution after the Routing Broker routed an 
Exchange order to an away market center.
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    \6\ Odd-lot orders are orders for a size less than the standard 
unit (round lot) of trading, which is 100 shares for most stocks, 
although some stocks trade in 10 share units.
    \7\ The Exchange notes that trading centers that provide sub-
penny executions are currently developing order types that allow 
market participants to request a non-sub-penny execution. The 
Exchange states that the Routing Broker will perform this function 
only until such time as needed for the creation of these new order 
types and the completion of any systems modifications associated 
with the handling of the new order types.
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    The Exchange intends to use its broker-dealer affiliate,\8\ 
Archipelago Securities LLC (``ArcaSec''), as its

[[Page 18708]]

Routing Broker \9\ to route orders,\10\ subject to Exchange rules and 
Reg. NMS, to away market centers displaying protected bids and 
protected offers, as defined in Rule 600(b)(57) of Reg. NMS. The 
Exchange believes that the Routing Broker will offer an efficient 
mechanism for the Exchange to route orders to away market centers for 
execution in compliance with Exchange Rules and Reg. NMS.
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    \8\ On February 27, 2006, the Commission approved the Exchange's 
business combination with Archipelago Holdings, Inc. (``Merger''). 
See Securities Exchange Act Release No. 53382 (February 27, 2006), 
71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77). Pursuant to the 
Merger, NYSE Group, Inc. became the overall parent company of the 
Exchange and Archipelago Holdings, Inc. NYSE Group, Inc. operates 
two securities exchanges: The Exchange and NYSE Arca, Inc. (formerly 
known as the Archipelago Exchange, or ArcaEx[supreg], and the 
Pacific Exchange). ArcaSec remains a wholly owned subsidiary of 
Archipelago Holdings, Inc. and is therefore an affiliate of the 
Exchange.
    \9\ In the event the Exchange seeks to use another entity as its 
Routing Broker, the Exchange understands that it would be required 
to obtain Commission approval.
    \10\ Currently ArcaSec performs two functions for NYSE Arca, 
Inc. ArcaSec acts as the outbound order routing facility of NYSE 
Arca, Inc. See Securities Exchange Act Release No. 52497 (September 
22, 2005), 70 FR 56949 (September 29, 2005) (SR-PCX-2005-90); see 
also Securities Exchange Act Release No. 44983 (October 25, 2001), 
66 FR 55225 (November 1, 2001) (SR-PCX-00-25). The Exchange states 
that, currently, the NASD is responsible for carrying out the 
oversight and enforcement responsibilities for ArcaSec as the 
designated examining authority designated by the Commission pursuant 
to Rule 17d-1 of the Act with the responsibility for examining the 
Routing Broker for compliance with the applicable financial 
responsibility rules. The Exchange states that it intends to enter 
into a 17d-2 agreement with a regulator other than the Exchange or 
any of its affiliates to regulate its outbound router.
    In addition, on March 12, 2007, the Commission authorized 
ArcaSec to act as a marketing agent on behalf of NYSE Arca Tech 100 
Index and NYSE Arca Tech 100 ETF. This business activity has no 
connection to ArcaSec's facility functions as described above. See 
Securities Exchange Act Release No. 55442 (March 12, 2007), 72 FR 
12654 (March 16, 2007) (SR-NYSEArca-2007-09).
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    Pursuant to the proposed rule, Exchange systems will provide the 
Routing Broker with routing instructions to route orders to other 
market centers and report such executions back to the Exchange. The 
Exchange states that the Routing Broker cannot change the terms of an 
order or the routing instructions, nor does the Routing Broker have any 
discretion about where to route an order.
    The Exchange states that the Routing Broker will operate as a 
``facility'' \11\ of the Exchange in that it will serve as a ``system 
of communication to or from'' \12\ the Exchange. When an order must be 
routed to an away market center for execution, Exchange systems will 
affix all order handling information to the order. Exchange systems 
will automatically transmit the order and the relevant order handling 
information to the Routing Broker. In turn, the Routing Broker will 
facilitate the delivery of the received order to the destination away 
market. The Routing Broker will obtain receipts of executions and 
deliver those receipts of executions back to Exchange systems.
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    \11\ The term ``facility'' as defined in Section 3(a)(2) of the 
Act, as amended, provides, * * * when used with respect to an 
exchange includes its premises, tangible or intangible property 
whether on the premises or not, any right to the use of such 
premises or property or any service thereof for the purpose of 
effecting or reporting a transaction on an exchange (including, 
among other things, any system of communication to or from the 
exchange, by ticker or otherwise, maintained by or with the consent 
of the exchange), and any right of the exchange to the use of any 
property or service. See 15 U.S.C. 78c(a)(2).
    \12\ Id.
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    In particular, and without limitation, under the Act, the Exchange 
will be responsible for filing with the Commission rule changes and 
fees relating to the functions performed by the Routing Broker for the 
Exchange and will be subject to exchange non-discrimination 
requirements.
    Furthermore, the books, records, premises, officers, agents, 
directors, and employees of the Routing Broker, as a facility of the 
Exchange, shall be deemed to be the books, records, premises, officers, 
agents, directors, and employees of the Exchange for purposes of, and 
subject to oversight pursuant to, the Act. The books and records of the 
Routing Broker as a facility of the Exchange shall be subject at all 
times to inspection and copying by the Exchange and the Commission.
    In addition to routing orders to away market centers, the Routing 
Broker will facilitate the acceptance of executions that results in an 
odd-lot or a sub-penny execution as Exchange systems are unable to 
accept such executions after the Routing Broker routes an Exchange 
order to an away market center. Currently, odd-lot orders on the 
Exchange are executed in a trading system that is separate from the 
Exchange system responsible for the execution of round-lot orders 
(``odd-lot trading platform''). The Exchange odd-lot trading platform 
executes all odd-lots orders against the specialist as the contra party 
separate from the trading system that is responsible for the execution 
of round lot orders. Since odd-lot orders are handled in a separate 
trading system, the Exchange systems that are responsible for the 
execution of round lot orders are unable to accept receipts of 
execution in odd-lots at the present time.
    Similarly, the Exchange has chosen not to quote and trade in sub-
penny increments when permitted under Reg. NMS.
    In order to process receipts of odd-lot and sub-penny executions 
from an away market, the Exchange proposes to have the Routing Broker 
facilitate the handling of such odd-lot and sub-penny execution. 
Specifically, if the Routing Broker is in receipt of an odd-lot 
execution in response to the Exchange's routing of a round lot order, 
it will assume the odd-lot position. The Routing Broker will then sell/
buy the requested number of round lot shares to the Exchange member. 
The Routing Broker will perform this adjustment to each odd-lot 
execution in order to transmit a round lot execution to the Exchange. 
The Routing Broker will afford the Exchange order (i.e. for the 
Exchange member) the most favorable execution price based on the odd-
lot execution(s) received by the Routing Broker from the away market.
    With regard to a sub-penny execution, the Routing Broker will 
perform an adjustment to each sub-penny execution. Specifically, the 
Routing Broker will round down for each buy order and up for each sell 
order and transmit a round penny execution to the Exchange order. 
Again, the Routing Broker will afford the Exchange order the most 
favorable execution price based on the sub-penny execution received by 
the Routing Broker from the away market.
    The Routing Broker will liquidate positions assumed as a result of 
the services provided to the Exchange. This service provided by the 
Routing Broker with regard to odd-lot and sub-penny executions is not 
intended to operate as a means to generate revenue. Rather, the Routing 
Broker is providing an additional service to the Exchange in order to 
facilitate the receipt of odd-lot and sub-penny executions from away 
market centers. To that end, it is the intent of the Routing Broker to 
be flat in all positions at the end of each trading day.\13\ The 
Routing Broker will incorporate an automated system to immediately 
assist in the liquidation (acquisition) for any residual long (short) 
positions. To mitigate financial risk \14\ to the Routing Broker, 
registered trading personnel of the Routing Broker may be required to 
manually assist, as soon as practicable, in the liquidation 
(acquisition) of such positions when, due to the nature of the security 
(e.g. high-priced securities that trade with a wide spread) and its 
trading pattern or volatile market conditions, liquidation 
(acquisition) is not immediately possible.
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    \13\ Absent any unusual market conditions or the timing of such 
trades (for example, the execution of the order at 15:59:59) it is 
intended that the Routing Broker will be flat in all positions at 
the end of each trading day.
    \14\ Any and all loses incurred during the facilitation of odd-
lot and sub-penny executions will be assumed by the Routing Broker 
as part of the routing service provided.
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    Below are examples of how the Routing Broker is intended to 
operate.

ODD-LOT Executions

    Example 1: Exchange member Firm X enters an order on the 
Exchange to buy 100

[[Page 18709]]

shares of ABC at $20.00. Exchange systems transmit the order with 
order handling instructions to the Routing Broker. The Routing 
Broker then transmits the order with the order handling instructions 
received from the Exchange systems to market center A. The Routing 
Broker receives reports of two odd-lot executions from market center 
A. The first report of execution is for 30 shares executed at a 
price of $20.00. The second report of execution completes the 
original order with an execution of the remaining 70 shares at a 
price of $20.00. The Routing Broker will sell 100 shares to Exchange 
member Firm X at $20.00 and use the odd-lots received from market 
center A to offset the position. The Routing Broker's position is 
flat.
    Example 2: Exchange member Firm X enters an order on the 
Exchange to buy 100 shares of ABC at $20.00. The Exchange systems 
transmit the order with order handling instructions to the Routing 
Broker. The Routing Broker then transmits the order with the order 
handling instructions received from the Exchange systems to market 
center A. The Routing Broker receives two odd-lot fills from market 
center A. The first report is for 30 shares executed at a price of 
$19.99. The second report of execution completes the original with 
an execution of the remaining 70 shares at a price of $20.00. The 
Routing Broker sells 100 shares to Firm X at $19.99 and uses the 
odd-lots to offset the position. The Routing Broker's position is 
flat, with a loss of $0.70.
    Example 3: Exchange member Firm X enters an order on the 
Exchange to buy 100 shares of ABC at $20.00. The Exchange systems 
transmit the order with order handling instructions to the Routing 
Broker. The Routing Broker then transmits the order with the order 
handling instructions received from the Exchange systems to market 
center A. The Routing Broker receives an odd-lot fill of only 30 
shares at $20.00 and a report of cancellation for the remaining 70 
shares of the original order. The Routing Broker will sell 100 
shares to Firm X at $20.00. In turn, the Routing Broker will then go 
into the market to buy 70 shares of ABC. The Routing Broker receives 
a fill of 70 at $20.05. The Routing Broker will then use both odd-
lots positions to offset the position taken as a result of handling 
the order of Firm X. The Routing Broker's position is flat, with a 
loss of $3.50.
    Example 4: Exchange member Firm X enters an order on the 
Exchange to buy 100 shares of ABC at $20.00. The Exchange systems 
transmit the order with order handling instructions to the Routing 
Broker. The Routing Broker then transmits the order with the order 
handling instructions received from the Exchange systems to market 
center A. The Routing Broker receives an odd-lot fill of only 30 
shares at $20.00 and a report of cancellation for the remaining 70 
shares of the original order. The Routing Broker will sell 100 
shares to Firm X at $20.00. In turn, the Routing Broker will then go 
into the market to buy 70 shares of ABC. The Routing Broker receives 
a fill of 70 at $19.99. The Routing Broker will then use both odd-
lots positions to offset the position taken as a result of handling 
the order of Firm X. The Routing Broker's position is flat, with a 
profit of $0.70.

SUB-PENNY Executions

    Example 1: Exchange member Firm X enters an order on the 
Exchange to buy 100 shares of ABC at $20.00. The Exchange's best 
offer is $19.98. Market Center A is displaying a best offer at 
$19.97. Market Center A also offers a mid-point match execution 
process that may result in a trade price that includes sub-pennies. 
The Exchange systems transmit the order with order handling 
instructions to the Routing Broker. The Routing Broker then 
transmits the order with the order handling instructions received 
from Exchange systems to market center A. The Routing Broker 
receives a fill of 100 shares at $19.975 due to a mid-point cross 
occurring at market center A. The Routing Broker will sell 100 
shares to member Firm X at $19.97 and uses the fill of 100 shares at 
$19.975 to offset the position. The Routing Broker will be flat, 
with a loss of $0.50.
    The use of the Routing Broker to route orders to another market 
center will be optional. In the event a member organization does not 
want to use the Routing Broker it must enter an immediate-or-cancel 
order or any such other order type available on the Exchange that is 
not eligible for routing. All bids and offers entered on the 
Exchange that are routed to other market centers via the Routing 
Broker which result in an execution shall be binding on the member 
organization that entered such bid and offer.
    The Routing Broker will not engage in any business for the 
Exchange other than its outbound router and facilitation functions 
as described above. In the event the Exchange seeks to have the 
Routing Broker engage in any other activities, it understands that 
the ability of the Routing Broker to engage in such new business 
activity would require Commission approval.
    The Exchange believes that the above-described operation of the 
Routing Broker will serve as the most economically efficient 
execution of securities transactions. Furthermore, the Routing 
Broker is necessary for the Exchange to comply with its obligations 
pursuant to Reg. NMS.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirement under Section 6(b)(5) of the Act \15\ that an 
exchange have rules that are 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 proposed 
rule change is also designed to support the principles of Section 
11A(a)(1) \16\ in that it seeks to assure economically efficient 
execution of securities transactions.
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

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

    The Exchange 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

    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 forgoing rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of this filing, or such shorter time as the Commission 
may designate, it has become effective pursuant to Section 19(b)(3)(A) 
of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\19\ 
However, Rule 19b-4(f)(6)(iii) \20\ 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. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because such waiver 
would permit NYSE to immediately use the Routing Broker to route orders 
to other trading centers to prevent trade-troughs of protected 
quotations in NMS stocks.\21\ For this reason, the Commission 
designates the proposed rule change to

[[Page 18710]]

be operative upon filing with the Commission.\22\
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    \19\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of filing 
of the proposed rule change, or such shorter time as designated by 
the Commission. NYSE has satisfied the five-day pre-filing notice 
requirement.
    \20\ Id.
    \21\ The Commission notes that NYSE's proposed Rule 17(b) is 
substantially similar to Rule 2.11 of the National Stock Exchange, 
Inc.
    \22\ For the 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).
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    At any time within 60 days of the filing of such proposed rule 
change the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors or otherwise in 
furtherance of the purposes of the Act.\23\
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    \23\15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 60-
day period within which the Commission may summarily abrogate the 
proposal, the Commission considers the period to commence on April 
5, 2007, the date on which the Exchange submitted Amendment No. 1.
---------------------------------------------------------------------------

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-2007-29 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-2007-29. 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 the 
filing also will be available for inspection and copying at the 
principal office of 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-2007-29 and should be submitted on or before May 4, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-6962 Filed 4-12-07; 8:45 am]
BILLING CODE 8010-01-P