Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Exchange Rules 103A and 103B, 31868-31871 [E7-11079]
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31868
Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices
President of the Exchange may increase
the CQL for a particular product. In this
regard, the President of the Exchange
may increase the CQL in exceptional
circumstances, which are defined in the
rule as ‘‘substantial trading volume,
whether actual or expected.’’ 6 The
effect of an increase in the CQL is
procompetitive in that it increases the
number of market participants that may
quote electronically in a product. The
purpose of this filing is to increase the
CQL in the following two option classes:
Option Class
Current CQL
Imergent Inc. (IIG) ...............................................................................................................................................................
Neurochem, Inc. (NRMX) ....................................................................................................................................................
There has been substantial trading
volume in these option classes recently.
Increasing the CQL in these classes will
enable the Exchange to enhance the
liquidity offered, thereby offering
deeper and more liquid markets.
2. Statutory Basis
CBOE believes the proposed rule
change is consistent with the Act and
the rules and regulations under the Act
applicable to a national securities
exchange and, in particular, the
requirements of section 6(b) of the Act.7
Specifically, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 8 requirements that
the rules of an exchange be designed to
promote just and equitable principles of
trade, to prevent fraudulent and
manipulative acts and, in general, to
protect investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
The Exchange neither received nor
solicited written comments on the
proposal.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
will take effect upon filing with the
Commission pursuant to Section
19(b)(3)(A)(i) of the Act 9 and Rule 19b–
4(f)(1) thereunder,10 because it
constitutes a stated policy, practice, or
interpretation with respect to the
6 ‘‘Any actions taken by the President of the
Exchange pursuant to this paragraph will be
submitted to the SEC in a rule filing pursuant to
Section 19(b)(3)(A) of the Exchange Act.’’ Rule
8.3A.01(c).
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meaning, administration, or
enforcement of an existing rule.
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
New
CQL
30
35
40
45
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the CBOE. 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–CBOE–2007–51 and should
be submitted on or before June 29, 2007.
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2007–51 on the
subject line.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–11080 Filed 6–7–07; 8:45 am]
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–CBOE–2007–51. 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 (https://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
SECURITIES AND EXCHANGE
COMMISSION
U.S.C. 78(f)(b).
U.S.C. 78(f)(b)(5).
9 15 U.S.C. 78s(b)(3)(A)(i).
10 17 CFR 240.19b–4(f)(1).
BILLING CODE 8010–01–P
[Release No. 34–55852; File No. SR–NYSE–
2007–47]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change Relating to
Exchange Rules 103A and 103B
June 4, 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 May 22,
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
7 15
11 17
8 15
1 15
PO 00000
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices
been substantially prepared by the
Exchange. The Exchange has designated
the proposed rule change as ‘‘noncontroversial’’ under Section
19(b)(3)(A)(iii) 3 of the Act and Rule
19b–4(f)(6) thereunder,4 which renders
the proposal effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a moratorium
on the administration of the Specialist
Performance Evaluation Questionnaire
(‘‘SPEQ’’) pursuant to Exchange rule
103A and the use of the SPEQ pursuant
to Rule 103B. In addition, the Exchange
proposes that the use of SuperDot
turnaround for orders received (‘‘Order
Reports’’) and responses to
administrative messages
(‘‘Administrative Responses’’) not be
used as objective measures in the
assessment of specialist performance
during the moratorium. The Exchange
further proposes that the SPEQ and
Order Reports/Administrative
Responses no longer serve as criteria for
a specialist performance improvement
action during the moratorium.
The text of the proposed rule changes
is available on the Exchange’s Web site
(https://www.nyse.com), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change. 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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes an immediate
moratorium on the administration and
use of the SPEQ and Order Reports/
Administrative Responses to commence
on the date of publication in the Federal
3 15
4 17
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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Register of the formal submission of the
Rule 19b–4 filing by the NYSE to the
Commission to amend Exchange Rules
103A and 103B and ending no later than
December 31, 2007 (‘‘Moratorium’’). In
addition, the Exchange proposes that
the use of Order Reports/Administrative
Responses not be used as objective
measures in the assessment of specialist
performance during the Moratorium
pursuant to Exchange Rule 103B or used
as criteria for a specialist performance
improvement action pursuant to
Exchange Rule 103A.
SPEQ
Pursuant to Exchange Rule 103A, on
a quarterly basis, the Exchange
distributes a twenty question survey
known as the SPEQ to eligible Floor
brokers 5 to evaluate specialist
performance during the quarter
immediately prior to the distribution of
the SPEQ. Initially, this subjective
feedback provided critical information
to assist the Exchange in maintaining
the quality of the NYSE market.
However, the current SPEQ no longer
adequately allows the Floor broker to
assess the electronic interaction
between the specialist and the Floor
broker. The Hybrid Market provided
Floor brokers and specialists with
electronic trading tools that have
resulted in less personal and verbal
contact between Floor brokers and
specialists. Currently approximately
90% of the transactions executed on the
Exchange are done through electronic
executions.
In addition, the dramatic increase in
transparency with respect to the Display
Book through, among other things,
Exchange initiatives like Exchange
OPENBOOKTM 6 (‘‘OPENBOOK’’) has
decreased the need for the Floor broker
to obtain market information verbally
from the specialist. This increased
transparency gives all market
participants, both on and off the Floor,
5 The Exchange believed that conscientious
participation in the SPEQ process was a critical
element in the Exchange’s program for evaluating
the overall performance of its specialists. All
eligible Floor brokers are required to participate in
the process and evaluate from one to three
specialist units each quarter. Floor brokers are
selected to participate in the SPEQ process based
on broker badge data submitted in accordance with
audit trail requirements. Brokers who intentionally
fail or refuse to participate in the SPEQ process may
be subject to disciplinary action, including the
imposition of a summary fine pursuant to Exchange
Rule 476A.
6 OPENBOOK Online Database is an Exchange
online service that allows subscribers to view the
contents of the specialist book for any stock at any
given point in the day, or over a period of time.
Results are returned in an Excel spreadsheet.
OPENBOOK Online Database is a historical
database with data stored online for a 12-month
period.
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31869
a greater ability to see and react to
market changes.
The questions on the SPEQ do not
take into account the operation of the
electronic tools available in the Hybrid
Market. The SPEQ does not provide
Floor brokers with a means to evaluate
specialist performance under the
current market model. As a result of the
more electronic interaction between
Floor brokers and specialists, Floor
brokers are unable to assess specialist
performance using the current SPEQ.
The questions posed to the Floor
brokers on the SPEQ require Floor
brokers to opine on the specialists’
ability to offer single price executions
and specialists’ ability to provide
notification to Floor brokers of market
changes in particular stocks. In the
current Hybrid Market, specialists are
unable to offer single price executions
and the relative speed of executions
makes it virtually impossible for
specialist to notify brokers of changes in
a particular security.
Given the above, the SPEQ no longer
serves as a meaningful measure of
specialist performance. As such, the
Exchange proposes an immediate
Moratorium on the administration and
use of the SPEQ in order to provide the
Exchange with an opportunity to review
its entire specialist allocation policy.
Objective Measures
The Exchange further requests that
during the Moratorium, allocations of
newly listed securities on the Exchange
continue to be based on the objective
measures identified in Exchange Rule
103B,7 with the exception of SuperDot
turnaround for orders received and
response to administrative messages.
As a result of the Hybrid Market,
SuperDot turnaround for orders
received and response to administrative
messages no longer provide meaningful
objective standards to evaluate
specialist performance. Specifically, in
the current more electronic Hybrid
Market, orders received by Exchange
systems that are marketable upon entry
are eligible to be immediately and
7 Pursuant to Exchange Rule 103B, specialist
dealer performance is measured in terms of
participation (TTV); stabilization; capital
utilization, which is the degree to which the
specialist unit uses its own capital in relation to the
total dollar value of trading in the unit’s stocks; and
near neighbor analysis, which is a measure of
specialist performance and market quality
comparing performance in a stock to performance
of stocks that have similar market characteristics.
Additional objective measures pursuant to
Exchange Rule 103B are those measures included
in Exchange Rule 103A which are: (a) Timeliness
of regular openings; (b) promptness in seeking Floor
official approval of a non-regulatory delayed
opening; (c) timeliness of DOT turnaround; and (d)
response to administrative messages.
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automatically executed by Exchange
systems. As such, SuperDot turnaround
no longer provides a meaningful
objective measure of a specialist’s
performance. The Exchange therefore
seeks to remove SuperDot turnaround as
an objective measure of specialist
performance during the Moratorium.
Furthermore, in the current Hybrid
Market the Exchange system
automatically responds to the majority
of the administrative messages. Today,
there are two administrative messages
that require a manual response from
specialists. These are messages that
require the specialist to provide status
information on market orders and stop
orders. With regard to requests for the
status of stop orders, the specialists are
no longer capable of providing this
information. In December 2006,
following Commission approval,8 the
Exchange changed its stop order
handling process. Stop orders are no
longer visible to the part of the NYSE
Display Book that the specialist ‘‘sees.’’
When a transaction on the Exchange
results in the election of a stop order
that had been received prior to such
transaction, the elected stop order is
sent as a market order 9 to the Display
Book and the specialist’s system
employing algorithms where it is
handled in the same way as any other
market order. The specialist therefore is
unable to provide any information
regarding the status of stop orders.
Currently, market orders are eligible
to receive immediate and automatic
execution on the Exchange. The
immediate and automatic execution of
market orders eliminates the need for
the specialists to respond to the
administrative request for the status of
market orders. In practice, a customer
that submits a market order will likely
receive a report of execution before the
administrative message requesting the
status of the market order has been
printed and read by the specialist.
The Exchange anticipates that this
change will have a minimal impact on
its customers. In the past few years, the
average number of administrative
messages received on a daily basis has
steadily declined. The Exchange
believes that immediate and automatic
execution of orders will virtually
eliminate administrative messages that
require a manual response from a
specialist. As a result, a specialist’s
ability to respond to administrative
messages no longer provides a
8 See Securities Exchange Act Release No. 54820
(November 27, 2006), 71 FR 70824 (December 6,
2006) (SR–NYSE–2006–65).
9 As used herein, the term ‘‘market order’’ refers
to market orders that are not designated as ‘‘auction
market orders.’’
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18:14 Jun 07, 2007
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meaningful measure of specialists’
performance during the Moratorium.
The Exchange therefore seeks to remove
the response to administrative messages
as a measure of specialist performance
during the Moratorium.
Given that SuperDot turnaround and
responses to administrative messages no
longer provide significant objective
measures of specialists’ performance in
the Hybrid Market, the Exchange seeks
to suspend the use of both measures as
criteria used to access specialists’
performance during the Moratorium.
Performance Improvement Actions
Similarly, during the Moratorium, the
Exchange seeks to suspend the use of
the SPEQ and Order Reports/
Administrative Reports as criteria for
the implementation of a performance
improvement action pursuant to
Exchange Rule 103A. Exchange Rule
103A(b) provides that:
The Market Performance Committee shall
initiate a Performance Improvement Action
(except in highly unusual or extenuating
circumstances, involving factors beyond the
control of a particular specialist unit, as
determined by formal vote of the Committee)
in any case where a specialist unit’s
performance falls below such standards as
are specified in the Supplementary Material
to this rule. The objective of a Performance
Improvement Action shall be to improve a
specialist unit’s performance where the unit
has exhibited one or more significant
weaknesses, or has exhibited an overall
pattern of weak performance that indicates
the need for general improvement.
The SPEQ and Order Reports/
Administrative Reports are two criteria
included in the standards specified in
Exchange Rule 103A Supplementary
Material. Given that SPEQ and Order
Reports/Administrative Reports no
longer provide significant objective
measures of specialists’ performance in
the Hybrid Market, the Exchange seeks
to suspend the use of both measures as
criteria for the implementation of a
performance improvement action during
the Moratorium.
Creation of a New Process
During the Moratorium, the Exchange
will analyze how specialists function in
the Hybrid market in order to determine
which objective standards accurately
assess and measure the specialists’
performance of its market-making
function. Using newly identified
objective measures, the Exchange will
formally submit a proposal to the
Commission, no later than August 1,
2007, to amend Exchange rules that
govern the allocation of securities to
specialist firms and other related rules.
The Exchange believes that the use of
objective measures will provide for a
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more significant comparison of
specialist performance. It is anticipated
that the use of more objective and
detailed measures will promote healthy
competition between specialists firms
and ultimately result in better marketmaking for Exchange customers.
2. Statutory Basis
The Exchange believes that the basis
under the Act for this proposed rule
change is the requirement under Section
6(b)(5) 10 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 also is designed to support the
principles of Section 11A(a)(1) 11 in that
it seeks to assure economically efficient
execution of securities transactions,
make it practicable for brokers to
execute investors’ orders in the best
market and provide an opportunity for
investors’ orders to be executed without
the participation of a dealer.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 12 and
subparagraph (f)(6) of Rule 19b–4
thereunder.13
A proposed rule change filed under
19b–4(f)(6) normally may not become
10 15
U.S.C. 78f(b)(5).
U.S.C. 78k–1(a)(1).
12 15 U.S.C. 78s(b)(3)(A).
13 17 CFR 240.19b–4(f)(6).
11 15
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Federal Register / Vol. 72, No. 110 / Friday, June 8, 2007 / Notices
operative prior to 30 days after the date
of filing.14 However, Rule 19b–
4(f)(6)(iii) 15 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 satisfied the five-day
prefiling requirement.16 In addition, the
Exchange has requested that the
Commission waive the 30-day preoperative delay and designate the
proposed rule change to become
operative upon filing.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because it would allow the Exchange to
immediately implement this proposal
and thus the Exchange would not need
to rely on factors that no longer provide
significant objective measures of
specialists’ performance in the Hybrid
Market. The Commission notes that the
Exchange expects to file a proposed rule
change under Section 19(b) of the Act 17
by August 1, 2007, which would amend
Exchange rules that govern the
allocation of securities to specialist
firms and other related rules. The
Commission designates the proposal to
become effective and operative upon
filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in the furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2007–47 on the
subject line.
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14 17
BILLING CODE 8010–01–P
SOCIAL SECURITY ADMINISTRATION
[DOCKET No: SSA–2007–0047]
Privacy Act of 1974, as Amended;
Computer Matching Program SSA/
Department of Homeland Security
(DHS) Match 1010
AGENCY:
Social Security Administration
(SSA).
Notice of a renewed computer
matching program, which is expected to
begin August 1, 2007.
16 Id.
17 15
U.S.C. 78s(b).
purposes only of waiving the 30-day
operative delay, the Commission has considered the
impact of the proposed rule on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
18 For
19:26 Jun 07, 2007
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.19
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–11079 Filed 6–7–07; 8:45 am]
ACTION:
CFR 240.19b–4(f)(6)(iii).
15 Id.
VerDate Aug<31>2005
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–2007–47. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of 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–2007–47 and should
be submitted on or before June 29, 2007.
Jkt 211001
SUMMARY: In accordance with the
provisions of the Privacy Act, as
19 17
PO 00000
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31871
amended, this notice announces a
computer matching program that SSA
conducts with DHS.
SSA will file a report of the
subject matching program with the
Committee on Homeland Security and
Governmental Affairs of the Senate, the
Committee on Government Reform of
the House of Representatives, and the
Office of Information and Regulatory
Affairs, Office of Management and
Budget (OMB). The matching program
will be effective as indicated below.
DATES:
Interested parties may
comment on this notice either by
telefaxing to (410) 965–8582 or by
writing to the Associate Commissioner,
Office of Income Security Programs, 252
Altmeyer Building,6401 Security
Boulevard, Baltimore, MD 21235–6401.
All comments received will be available
for public inspection at this address.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
The
Associate Commissioner for Income
Security Programs as shown above.
SUPPLEMENTARY INFORMATION:
A. General
The Computer Matching and Privacy
Protection Act of 1988 (Public Law
(Pub. L.) 100–503), amended the Privacy
Act (5 U.S.C. 552a) by describing the
manner in which computer matching
involving Federal agencies could be
performed and adding certain
protections for individuals applying for
and receiving Federal benefits. Section
7201 of the Omnibus Budget
Reconciliation Act of 1990 (Pub. L. 101–
508) further amended the Privacy Act
regarding protections for such
individuals. The Privacy Act, as
amended, regulates the use of computer
matching by Federal agencies when
records in a system of records are
matched with other Federal, State, or
local government records. It requires
Federal agencies involved in computer
matching programs to:
(1) Negotiate written agreements with
the other agency or agencies
participating in the matching programs;
(2) Obtain the approval of the
matching agreement by the Data
Integrity Boards (DIB) of the
participating Federal agencies;
(3) Publish notice of the computer
matching program in the Federal
Register;
(4) Furnish detailed reports about
matching programs to Congress and
OMB;
(5) Notify applicants and beneficiaries
that their records are subject to
matching; and
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]]>Agencies
[Federal Register Volume 72, Number 110 (Friday, June 8, 2007)]
[Notices]
[Pages 31868-31871]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-11079]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55852; File No. SR-NYSE-2007-47]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Exchange Rules 103A and 103B
June 4, 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 May 22, 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
[[Page 31869]]
been substantially prepared by the Exchange. The Exchange has
designated the proposed rule change as ``non-controversial'' under
Section 19(b)(3)(A)(iii) \3\ of the Act and Rule 19b-4(f)(6)
thereunder,\4\ which renders the proposal effective upon filing with
the Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\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 proposes a moratorium on the administration of the
Specialist Performance Evaluation Questionnaire (``SPEQ'') pursuant to
Exchange rule 103A and the use of the SPEQ pursuant to Rule 103B. In
addition, the Exchange proposes that the use of SuperDot turnaround for
orders received (``Order Reports'') and responses to administrative
messages (``Administrative Responses'') not be used as objective
measures in the assessment of specialist performance during the
moratorium. The Exchange further proposes that the SPEQ and Order
Reports/Administrative Responses no longer serve as criteria for a
specialist performance improvement action during the moratorium.
The text of the proposed rule changes is available on the
Exchange's Web site (https://www.nyse.com), at the Exchange's Office of
the Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change. 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 proposes an immediate moratorium on the administration
and use of the SPEQ and Order Reports/Administrative Responses to
commence on the date of publication in the Federal Register of the
formal submission of the Rule 19b-4 filing by the NYSE to the
Commission to amend Exchange Rules 103A and 103B and ending no later
than December 31, 2007 (``Moratorium''). In addition, the Exchange
proposes that the use of Order Reports/Administrative Responses not be
used as objective measures in the assessment of specialist performance
during the Moratorium pursuant to Exchange Rule 103B or used as
criteria for a specialist performance improvement action pursuant to
Exchange Rule 103A.
SPEQ
Pursuant to Exchange Rule 103A, on a quarterly basis, the Exchange
distributes a twenty question survey known as the SPEQ to eligible
Floor brokers \5\ to evaluate specialist performance during the quarter
immediately prior to the distribution of the SPEQ. Initially, this
subjective feedback provided critical information to assist the
Exchange in maintaining the quality of the NYSE market.
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\5\ The Exchange believed that conscientious participation in
the SPEQ process was a critical element in the Exchange's program
for evaluating the overall performance of its specialists. All
eligible Floor brokers are required to participate in the process
and evaluate from one to three specialist units each quarter. Floor
brokers are selected to participate in the SPEQ process based on
broker badge data submitted in accordance with audit trail
requirements. Brokers who intentionally fail or refuse to
participate in the SPEQ process may be subject to disciplinary
action, including the imposition of a summary fine pursuant to
Exchange Rule 476A.
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However, the current SPEQ no longer adequately allows the Floor
broker to assess the electronic interaction between the specialist and
the Floor broker. The Hybrid Market provided Floor brokers and
specialists with electronic trading tools that have resulted in less
personal and verbal contact between Floor brokers and specialists.
Currently approximately 90% of the transactions executed on the
Exchange are done through electronic executions.
In addition, the dramatic increase in transparency with respect to
the Display Book through, among other things, Exchange initiatives like
Exchange OPENBOOKTM \6\ (``OPENBOOK'') has decreased the
need for the Floor broker to obtain market information verbally from
the specialist. This increased transparency gives all market
participants, both on and off the Floor, a greater ability to see and
react to market changes.
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\6\ OPENBOOK Online Database is an Exchange online service that
allows subscribers to view the contents of the specialist book for
any stock at any given point in the day, or over a period of time.
Results are returned in an Excel spreadsheet. OPENBOOK Online
Database is a historical database with data stored online for a 12-
month period.
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The questions on the SPEQ do not take into account the operation of
the electronic tools available in the Hybrid Market. The SPEQ does not
provide Floor brokers with a means to evaluate specialist performance
under the current market model. As a result of the more electronic
interaction between Floor brokers and specialists, Floor brokers are
unable to assess specialist performance using the current SPEQ.
The questions posed to the Floor brokers on the SPEQ require Floor
brokers to opine on the specialists' ability to offer single price
executions and specialists' ability to provide notification to Floor
brokers of market changes in particular stocks. In the current Hybrid
Market, specialists are unable to offer single price executions and the
relative speed of executions makes it virtually impossible for
specialist to notify brokers of changes in a particular security.
Given the above, the SPEQ no longer serves as a meaningful measure
of specialist performance. As such, the Exchange proposes an immediate
Moratorium on the administration and use of the SPEQ in order to
provide the Exchange with an opportunity to review its entire
specialist allocation policy.
Objective Measures
The Exchange further requests that during the Moratorium,
allocations of newly listed securities on the Exchange continue to be
based on the objective measures identified in Exchange Rule 103B,\7\
with the exception of SuperDot turnaround for orders received and
response to administrative messages.
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\7\ Pursuant to Exchange Rule 103B, specialist dealer
performance is measured in terms of participation (TTV);
stabilization; capital utilization, which is the degree to which the
specialist unit uses its own capital in relation to the total dollar
value of trading in the unit's stocks; and near neighbor analysis,
which is a measure of specialist performance and market quality
comparing performance in a stock to performance of stocks that have
similar market characteristics. Additional objective measures
pursuant to Exchange Rule 103B are those measures included in
Exchange Rule 103A which are: (a) Timeliness of regular openings;
(b) promptness in seeking Floor official approval of a non-
regulatory delayed opening; (c) timeliness of DOT turnaround; and
(d) response to administrative messages.
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As a result of the Hybrid Market, SuperDot turnaround for orders
received and response to administrative messages no longer provide
meaningful objective standards to evaluate specialist performance.
Specifically, in the current more electronic Hybrid Market, orders
received by Exchange systems that are marketable upon entry are
eligible to be immediately and
[[Page 31870]]
automatically executed by Exchange systems. As such, SuperDot
turnaround no longer provides a meaningful objective measure of a
specialist's performance. The Exchange therefore seeks to remove
SuperDot turnaround as an objective measure of specialist performance
during the Moratorium.
Furthermore, in the current Hybrid Market the Exchange system
automatically responds to the majority of the administrative messages.
Today, there are two administrative messages that require a manual
response from specialists. These are messages that require the
specialist to provide status information on market orders and stop
orders. With regard to requests for the status of stop orders, the
specialists are no longer capable of providing this information. In
December 2006, following Commission approval,\8\ the Exchange changed
its stop order handling process. Stop orders are no longer visible to
the part of the NYSE Display Book[supreg] that the specialist ``sees.''
When a transaction on the Exchange results in the election of a stop
order that had been received prior to such transaction, the elected
stop order is sent as a market order \9\ to the Display Book and the
specialist's system employing algorithms where it is handled in the
same way as any other market order. The specialist therefore is unable
to provide any information regarding the status of stop orders.
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\8\ See Securities Exchange Act Release No. 54820 (November 27,
2006), 71 FR 70824 (December 6, 2006) (SR-NYSE-2006-65).
\9\ As used herein, the term ``market order'' refers to market
orders that are not designated as ``auction market orders.''
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Currently, market orders are eligible to receive immediate and
automatic execution on the Exchange. The immediate and automatic
execution of market orders eliminates the need for the specialists to
respond to the administrative request for the status of market orders.
In practice, a customer that submits a market order will likely receive
a report of execution before the administrative message requesting the
status of the market order has been printed and read by the specialist.
The Exchange anticipates that this change will have a minimal
impact on its customers. In the past few years, the average number of
administrative messages received on a daily basis has steadily
declined. The Exchange believes that immediate and automatic execution
of orders will virtually eliminate administrative messages that require
a manual response from a specialist. As a result, a specialist's
ability to respond to administrative messages no longer provides a
meaningful measure of specialists' performance during the Moratorium.
The Exchange therefore seeks to remove the response to administrative
messages as a measure of specialist performance during the Moratorium.
Given that SuperDot turnaround and responses to administrative
messages no longer provide significant objective measures of
specialists' performance in the Hybrid Market, the Exchange seeks to
suspend the use of both measures as criteria used to access
specialists' performance during the Moratorium.
Performance Improvement Actions
Similarly, during the Moratorium, the Exchange seeks to suspend the
use of the SPEQ and Order Reports/Administrative Reports as criteria
for the implementation of a performance improvement action pursuant to
Exchange Rule 103A. Exchange Rule 103A(b) provides that:
The Market Performance Committee shall initiate a Performance
Improvement Action (except in highly unusual or extenuating
circumstances, involving factors beyond the control of a particular
specialist unit, as determined by formal vote of the Committee) in
any case where a specialist unit's performance falls below such
standards as are specified in the Supplementary Material to this
rule. The objective of a Performance Improvement Action shall be to
improve a specialist unit's performance where the unit has exhibited
one or more significant weaknesses, or has exhibited an overall
pattern of weak performance that indicates the need for general
improvement.
The SPEQ and Order Reports/Administrative Reports are two criteria
included in the standards specified in Exchange Rule 103A Supplementary
Material. Given that SPEQ and Order Reports/Administrative Reports no
longer provide significant objective measures of specialists'
performance in the Hybrid Market, the Exchange seeks to suspend the use
of both measures as criteria for the implementation of a performance
improvement action during the Moratorium.
Creation of a New Process
During the Moratorium, the Exchange will analyze how specialists
function in the Hybrid market in order to determine which objective
standards accurately assess and measure the specialists' performance of
its market-making function. Using newly identified objective measures,
the Exchange will formally submit a proposal to the Commission, no
later than August 1, 2007, to amend Exchange rules that govern the
allocation of securities to specialist firms and other related rules.
The Exchange believes that the use of objective measures will
provide for a more significant comparison of specialist performance. It
is anticipated that the use of more objective and detailed measures
will promote healthy competition between specialists firms and
ultimately result in better market-making for Exchange customers.
2. Statutory Basis
The Exchange believes that the basis under the Act for this
proposed rule change is the requirement under Section 6(b)(5) \10\ 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 also is designed to support the principles of Section
11A(a)(1) \11\ in that it seeks to assure economically efficient
execution of securities transactions, make it practicable for brokers
to execute investors' orders in the best market and provide an
opportunity for investors' orders to be executed without the
participation of a dealer.
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\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days after the date of filing, or such shorter time as the Commission
may designate if consistent with the protection of investors and the
public interest, the proposed rule change has become effective pursuant
to Section 19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) of Rule
19b-4 thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become
[[Page 31871]]
operative prior to 30 days after the date of filing.\14\ However, Rule
19b-4(f)(6)(iii) \15\ 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 satisfied the five-day prefiling
requirement.\16\ In addition, the Exchange has requested that the
Commission waive the 30-day pre-operative delay and designate the
proposed rule change to become operative upon filing.
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\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ Id.
\16\ Id.
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
because it would allow the Exchange to immediately implement this
proposal and thus the Exchange would not need to rely on factors that
no longer provide significant objective measures of specialists'
performance in the Hybrid Market. The Commission notes that the
Exchange expects to file a proposed rule change under Section 19(b) of
the Act \17\ by August 1, 2007, which would amend Exchange rules that
govern the allocation of securities to specialist firms and other
related rules. The Commission designates the proposal to become
effective and operative upon filing.\18\
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\17\ 15 U.S.C. 78s(b).
\18\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the impact of the proposed rule on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in the furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2007-47 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-2007-47. 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 (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of 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-2007-47 and should be submitted on or before June 29, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-11079 Filed 6-7-07; 8:45 am]
BILLING CODE 8010-01-P
