Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 4 to Proposed Rule Change and Order Granting Accelerated Approval of Proposed Rule Change as Modified by Amendment Nos. 2, 3, and 4 Relating to NYSE Rules 134 and 411, 32386-32389 [E7-11188]
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Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Notices
qualification.’’ 11 The proposed change
removes the term ‘‘going concern
qualification,’’ which is undefined in
the accounting literature, and replaces it
with language from Statement on
Auditing Standard Number 59, which
relates to the auditor’s consideration of
an entity’s ability to continue as a going
concern. Nasdaq believes that this
clarification will remove confusion as to
when the rule applies.
Disclosure of Non-Conforming
Governance Practices
Nasdaq requires that foreign private
issuers disclose all non-conforming
governance practices in their Form F–1,
20–F, or 40–F.12 Nasdaq proposes to
expand the existing Nasdaq rule to
allow this disclosure to be made either
in the Form F–1, 20–F, or 40–F, as
applicable, or, in the alternative, the
foreign private issuer may provide these
disclosures in English on its Web site.
If, however, the disclosure is only
available on the foreign private issuer’s
Web site, the proposal requires that the
issuer’s annual report and registration
statement should state this fact and
provide the Web address at which the
information may be obtained.13
2. Statutory Basis
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Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,14 in
general, and with Section 6(b)(5) of the
Act,15 in particular. The proposed rule
change would allow additional methods
of disclosure for Nasdaq-listed
companies, thereby reducing costs for
those companies, and allowing them to
rely on technology to provide
information to investors in a timelier
manner. As such, the proposed rule
change is designed to prevent
fraudulent and manipulative acts and
practices, 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.
11 Conversation between Arnold Golub, Associate
General Counsel, The Nasdaq Stock Market, Inc.,
Raymond Lombardo, Special Counsel, Division of
Market Regulation (‘‘Division’’), Commission, and
Molly Kim, Special Counsel, Division, Commission,
on April 26, 2007.
12 Nasdaq Rule 4350(a)(1) and IM–4350–6.
13 Conversation between Arnold Golub, Associate
General Counsel, The Nasdaq Stock Market, Inc.,
Raymond Lombardo, Special Counsel, Division,
Commission, and Molly Kim, Special Counsel,
Division, Commission, on May 31, 2007.
14 15 U.S.C. 78f.
15 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
A. By order approve such proposed
rule change, or
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2006–045 on the
subject line.
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of Nasdaq. All
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–NASDAQ–2006–045 and
should be submitted on or before July 3,
2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.16
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–11267 Filed 6–11–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55859; File No. SR–NYSE–
2006–28]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Amendment No. 4 to
Proposed Rule Change and Order
Granting Accelerated Approval of
Proposed Rule Change as Modified by
Amendment Nos. 2, 3, and 4 Relating
to NYSE Rules 134 and 411
June 5, 2007.
I. Introduction
On May 2, 2006, the New York Stock
Paper Comments
Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
• Send paper comments in triplicate
filed with the Securities and Exchange
to Nancy M. Morris, Secretary,
Commission (‘‘Commission’’), pursuant
Securities and Exchange Commission,
to Section 19(b)(1) of the Securities
Station Place, 100 F Street, NE.,
Exchange Act of 1934, as amended
Washington, DC 20549–1090.
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 a
All submissions should refer to File
proposed rule change to amend NYSE
Number SR–NASDAQ–2006–045. This
Rules 134 (Differences and Omissionsfile number should be included on the
Cleared Transactions) and 411
subject line if e-mail is used. To help the (Erroneous Reports). On September 22,
Commission process and review your
2006, NYSE filed Amendment No. 1 to
comments more efficiently, please use
the proposed rule change. On February
only one method. The Commission will 20, 2007, NYSE filed Amendment No. 2
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
rules/sro.shtml). Copies of the
2 17 CFR 240.19b–4.
submission, all subsequent
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Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Notices
to the proposed rule change. The
proposed rule change as modified by
Amendment No. 2 was published for
comment in the Federal Register on
March 6, 2007.3 The Commission
received no comments on the proposal.
On March 22, 2007, NYSE filed
Amendment No. 3 to the proposed rule
change.4 On May 30, 2007, NYSE filed
Amendment No. 4 to the proposed rule
change.5 This order approves the
proposed rule change, as modified by
Amendment Nos. 2, 3, and 4, on an
accelerated basis.
II. Description
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A. Current Practice
Currently, recognized trading errors
fall into two categories. The first
category applies to held 6 and not held 7
orders and includes trades that are
mistakenly executed outside the written
order instructions. These types of errors
encompass situations where the
transaction was incorrectly executed: (i)
In the wrong security; (ii) on the wrong
side of the market; (iii) outside of the
price instructions; (iv) for a quantity
greater than specified in the
instructions; or (v) duplicating a prior
execution of the same original order.
The second category of trading errors
currently applies only to held orders
and involves situations where a held
order was executable in the prevailing
market but the Floor broker failed to
take advantage of the opportunity to
execute the order at that time.
Under the current NYSE rules and
interpretations, a Floor broker may use
his or her error account to ‘‘assume or
acquire’’ a position as a result of a
recognized trading error so that the
customer receives the trade he or she
would have received had the recognized
trading error not occurred. However, a
Floor broker is not permitted to use his
or error account in cases involving
3 See Securities Exchange Act Release No. 55361
(February 27, 2007), 72 FR 9985 (‘‘Notice’’).
4 In Amendment No. 3, the Exchange made
technical changes to the rule text of the proposed
rule change to correctly identify the numbering of
NYSE Rule 134(g)(i) and (ii) as proposed new text.
These technical changes were reflected in the
Notice. See footnote 5 of the Notice. This is a
technical amendment and is not subject to notice
and comment.
5 In Amendment No. 4, the Exchange made
changes to the rule text of the proposed rule change
to clarify the meaning of the term ‘‘system
malfunction’’ contained in proposed NYSE Rule
134(h). The text of Amendment No. 4 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.
6 A ‘‘held’’ order is a market or limit order that
the broker must execute as instructed without
discretion as to the time of an execution.
7 A ‘‘not held’’ order is a market or limit order
that gives the broker both time and price discretion
to attempt to get the best possible execution.
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trading errors that are not recognized by
the Exchange. Instead, in such cases, a
Floor broker would generally issue a
difference check 8 or offer a commission
adjustment to resolve any monetary
disadvantage suffered by the customer.9
According to the Exchange, the issuance
of the difference check or commission
adjustment ultimately is not in the best
interest of the customer because the
administrative cost associated with the
processing of the difference check or
commission adjustment ultimately is
borne by the customer and thus the
remedy does not serve to make the
customer whole. In addition, according
to the Exchange, many institutional
investors do not want the administrative
burden of processing a difference check
or commission adjustment as a result of
the Floor broker’s failure to execute a
not held order due to administrative
mistake or system malfunction.
B. Proposed Amendments to NYSE Rule
134 (Differences and Omissions-Cleared
Transactions
The Exchange proposes to amend
NYSE Rule 134 to codify the first
category of recognized trading errors.
Specifically, NYSE Rule 134(g) would
define a trading error to include
situations when an order is executed
outside of a customer’s instructions as
entered in the electronic order tracking
systems 10 of the Exchange. Types of
recognized trading errors would
include, but are not limited to, the
execution of a held or not held order: (i)
In the incorrect security; (ii) on the
wrong side of the market; (iii) at a price
outside the price instructions; (iv) for a
quantity of shares greater than the
amount of shares specified in the order
instructions; or (v) the execution of an
order in duplicate.11 In addition, Rule
134(g)(ii) would expand the type of
recognized trading errors to include
situations where a member fails to
execute a not held order because he or
she committed an error as to symbol,
side or price in the execution of said
order.12
The Exchange also proposes to add
Rule 134(h)(i) to codify the second
category of recognized trading errors
covering situations where the Floor
broker failed to execute a held order that
was executable in the prevailing
market.13
The Exchange also proposes to add
Rule 134(h)(ii) to the second category of
recognized trading errors to cover those
situations where a Floor broker failed to
execute a not held order, in whole or in
part, because the order was lost,
misplaced or the order remains
unexecuted as a result of a system
malfunction.14 In addition to previously
sanctioned uses of a Floor broker’s error
account, a Floor broker would now be
allowed utilize his or her error account,
under NYSE Rule 134(j)(ii), to execute a
customer’s not held order in alignment
with the Consolidated Tape, when the
not held order remains unexecuted as a
result of the order being lost or
misplaced or as a result of a system
malfunction.15 To prevent abuse of the
proposed new rules, the Exchange is
also amending NYSE Rule 134(d)(iii) to
require a Floor broker to keep
contemporaneous records documenting
the circumstances surrounding errors. A
Floor broker would be required to make
and keep a time stamped record 16 of the
error including supporting
documentation of the error.17 In
addition, the Member Firm Regulation
Division of NYSE Regulation, Inc.
would include a review of these records
during the course of its routine member
firm examinations. The burden of proof
would be on the Floor broker to
substantiate that a legitimate error
occurred.18
12 See
8A
‘‘difference check’’ is a check issued to the
customer by the member to cover the monetary
difference between the execution price and the
price the customer and the member agree was the
proper price.
9 If, at the time the Floor broker identifies the
execution failure, the customer’s order can be
executed in the market at an equal or better price
than the customer could have received had the
order been executed in the prevailing market, then
the Floor broker will execute the order. In the event
the market is adverse to the customer’s interest at
the time the error is identified, under the current
rules and interpretation, the remedy is to have the
Floor broker issue a difference check or offer a
commission reduction to address any disadvantage
to the customer. See NYSE Regulation, Information
Memorandum 02–19, issued April 17, 2002,
clarifying the application of NYSE Rules 134, 411,
and 407A.
10 See NYSE Rule 123(e).
11 See proposed NYSE Rule 134(g)(i).
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32387
proposed NYSE Rule 134(g)(ii).
proposed NYSE Rule 134(h)(i).
14 See proposed NYSE Rule 134(h)(ii). In
Amendment No. 4 the Exchange added language to
the proposed rule text to clarify that a system
malfunction refers to the failure of physical
equipment, devices and/or programming employed
by the Floor broker or otherwise provided by the
Exchange and used in the execution of orders.
15 See proposed NYSE Rule 134(j)(ii).
16 See proposed NYSE Rule 134(i).
17 The record must include the date and time of
the error, the date and time the error was
discovered, the size of the error, the stock in which
the error occurred, the original instructions, the
names of all involved parties including the client
and any upstairs trader, a detailed narrative of how
the error occurred, detail narrative of discussions
with relevant parties, the steps taken to correct the
error and the ultimate resolution of the error. See
proposed NYSE Rule 134(j)(iii).
18 See proposed NYSE Rule 134(j)(iii).
13 See
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Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Notices
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C. Proposed Amendments to NYSE Rule
411
When a Floor broker commits an error
as to security, side or price, there are
instances where the Floor broker issues
a report to the customer as a result of
the execution. Currently, pursuant to
NYSE Rule 411, in instances where a
Floor broker issued a report to a
customer based on a transaction that
was made outside of the customer’s
instructions on a not held order, the
Floor broker would be required to
rescind the report, thus leaving the
customer’s order unexecuted and
disadvantaging the customer. To allow
the Floor broker to utilize his or her
error account or the error account of the
member organization to alleviate any
disadvantage to the customer, the
Exchange proposes to amend NYSE
Rule 411 to allow a Floor broker to treat
‘‘erroneous reports’’ 19 as ‘‘erroneous
trades’’ when the Floor broker
committed an error as to security, side,
or price.
Pursuant to the proposed rule change,
a Floor broker would be permitted to
treat an ‘‘erroneous report’’ as an
‘‘erroneous trade’’ when the price and
size of the order would have been
executable in the market at or near the
time of the erroneous transaction.
Specifically, the erroneous report based
on a transaction that was made in error
as to security, side or price would stand,
provided that the price and size of the
erroneous report were within the range
of prices and sizes in the specified
security reported to the NYSE portion of
the Consolidated Tape on the day in
which the order was executed.20 The
Floor broker would be required to report
the error to the customer, including
explaining to the customer whether the
error was favorable or unfavorable to the
customer.21 The Floor broker also
would be required to document on a
trade-by-trade basis, the name of the
individual authorized to accept the
erroneous report for the customer, the
amount of the error and whether the
error was favorable to the customer.22
The Floor broker would then treat the
erroneous report as though it was an
erroneous trade and his or her error
account would become the opposite
side to the report.23 In addition, the
Floor broker would assume any loss
incurred and any profit that resulted
would be paid to the New York Stock
19 An ‘‘erroneous report’’ is a report of an
execution that is incorrect as to stock, price or
whether an execution actually took place.
20 See proposed NYSE Rule 411(a)(iv)(1).
21 See proposed NYSE Rule 411(a)(iv)(2).
22 See proposed NYSE Rule 411(a)(iv)(3).
23 See proposed NYSE Rule 411(a)(iv)(4).
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Exchange Foundation 24 as currently
required by NYSE Rule 411(a)(ii)(5).
Thus, any disadvantage would be borne
by the Floor broker who was responsible
for committing the error, and not by the
customer.
III. Discussion
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.25 In particular, the
Commission believes that the proposal
is consistent with Section 6(b)(5) of the
Act,26 which require that the rules of an
exchange be designed to promote just
and equitable principles of trade,
remove impediments to, and perfect the
mechanism of, a free and open market
and a national market system, and, in
general, protect investors and the public
interest. The Commission believes that
the proposed rules provide for a fair,
transparent, and reasonable process in
which NYSE Floor brokers can correct
trading errors. In particular, the
Commission believes that it is
appropriate for the Exchange to codify
and thus make transparent its processes
regarding the use of a Floor Broker’s
error account. The Commission notes
that the proposed rule change is
designed to provide Floor brokers with
greater flexibility in using error
accounts to correct trading errors in a
manner that is less burdensome for
customers. The Commission also notes
that the proposed rule change includes
recordkeeping requirements that will
help the Exchange to monitor any
potential abuse of the rule.
Pursuant to Section 19(b)(2) of the
Act,27 the Commission finds good cause
for approving the proposal prior to the
thirtieth day after the publication of the
proposal, as modified by Amendment
No. 4, in the Federal Register. The
revision to the proposed rule change
made by Amendment No. 4 does not
raise any novel or substantive regulatory
issues, and simply clarifies the meaning
of a term in the proposed rule change.
Therefore, the Commission finds good
cause for approving the amended
proposal on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the proposed rule
24 See
proposed NYSE Rule 411(a)(iv)(5).
approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
26 15 U.S.C. 78f(b)(5).
27 15 U.S.C. 78s(b)(2).
25 In
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change, as modified by Amendment No.
4, 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–2006–28 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2006–28. 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 the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSE–2006–28 and should
be submitted on or before July 3, 2007.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,28 that the
proposed rule change (SR–NYSE–2006–
28), as modified by Amendment Nos. 2,
3, and 4, is hereby approved on an
accelerated basis.
28 15
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Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.29
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–11188 Filed 6–11–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55846; File No. SR–
NYSEArca–2007–48; SR–NYSEArca–2007–
49]
Self-Regulatory Organizations; NYSE
Arca, Inc. and NYSE Arca Equities,
Inc.; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Changes Relating to an Increase in the
Frequency of the Short Interest
Reporting Requirements for Equity
Trading Permit Holders and Options
Trading Permit Holders
June 1, 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 24,
2007, NYSE Arca, Inc. (‘‘Exchange’’ or
‘‘NYSE Arca’’), by itself and through its
wholly owned subsidiary NYSE Arca
Equities, Inc. (‘‘NYSE Arca Equities’’),
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule changes as described in
Items I, II, and III below, which Items
have been substantially prepared by the
Exchange. The Exchange filed the
proposals as ‘‘non-controversial’’ rule
changes under Rule 19b–4(f)(6) under
the Act,3 which rendered the proposals
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule changes
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Changes
A. NYSE Arca Equities Rule 4.5(e)
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The Exchange proposes to amend
NYSE Arca Equities Rule 4.5(e) to
reflect the Commission’s adoption of
Regulation SHO.4 By this filing, the
Exchange also shall clarify the short
interest reporting requirements of
Equity Trading Permit (‘‘ETP’’) Holders 5
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
4 See Securities Exchange Act Release No. 34–
50103 (July 28, 2004), 69 FR 48008 (August 6,
2004). See also 17 CFR 240.200 et seq.
5 See NYSE Arca Equities Rule 1.1(n).
1 15
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as prescribed by Rule 4.5(e). While the
changes to the reporting requirements of
ETP Holders pursuant to this proposal
will be effective upon filing, the changes
will become operative in September
2007, consistent with the requirements
of other representative organizations of
the Intermarket Surveillance Group
(‘‘ISG’’).6 The text of the proposed rule
change is available at the Exchange, at
the Commission’s Public Reference
Room, and at www.nyse.com.
B. NYSE Arca Rule 4.5(f)
The Exchange also proposes to amend
NYSE Arca Rule 4.5(f) to reflect the
Commission’s adoption of Regulation
SHO.7 By this filing, the Exchange also
shall clarify the short interest reporting
requirements of Options Trading Permit
(‘‘OTP’’) Holders 8 and OTP Firms.9
While the changes to the reporting
requirements of OTP Holders and OTP
Firms pursuant to this proposal will be
effective upon filing, the changes will
become operative in September 2007,
consistent with the requirements of
other representative organizations of the
ISG.10 The text of the proposed rule
change is available at the Exchange, at
the Commission’s Public Reference
Room, and at https://www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Changes
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule changes
and discussed any comments it received
on the proposed rule changes. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization 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
Changes
1. Purpose
a. NYSE Arca Equities Rule 4.5(e)
The Exchange proposes to make
certain minor technical amendments to
6 See ISG Notice to Members 2007–01 (March 15,
2007), and American Stock Exchange Notice REG
2007–19 (March 16, 2007).
7 See Securities Exchange Act Release No. 34–
50103 (July 28, 2004), 69 FR 48008 (August 6,
2004). See also 17 CFR 240.200 et seq.
8 See NYSE Arca Rule 1.1(q).
9 See NYSE Arca Rule 1.1(r).
10 See ISG Notice to Members 2007–01 (March 15,
2007), and American Stock Exchange Notice REG
2007–19 (March 16, 2007).
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32389
NYSE Arca Equities Rule 4.5(e),
Periodic Reports, as such rule makes
references to rules under the Act that
are no longer in effect. Specifically, Rule
4.5(e) makes reference to ‘‘short’’ sales,
as defined by Rule 3b–3 under the
Act.11 In light of the adoption of
Regulation SHO, the Exchange shall
make the appropriate change to its rule
text to remove references to Rule 3b–3
under the Act and correctly identify
Rule 200(a) under the Act 12 where such
definition of short sales may be found.
Further, Rule 4.5(e) exempts ETP
Holders from reporting short positions if
such a position resulted from a sale
specified in clause (9) of paragraph (e)
of Rule 10a–1 under the Act. Since
clause (9) has been removed from Rule
10a–1(e) under the Act, the exemption
to ETP Holders is no longer applicable,
and shall be removed as a reference
with NYSE Arca Equities Rule 4.5(e).
Additionally, the Exchange proposes
to increase the frequency of periodic
reports that ETP Holders must submit to
the Exchange concerning short positions
in securities, as prescribed by NYSE
Arca Equities Rule 4.5(e), from monthly
to twice per month. This increase in the
frequency of such reports is consistent
with similar changes recently approved
by the Commission for the National
Association of Securities Dealers, Inc.
(‘‘NASD’’), the New York Stock
Exchange LLC (‘‘NYSE’’), and the
American Stock Exchange LLC
(‘‘Amex’’).13
The Exchange shall implement the
new periodic reporting requirements for
short positions of ETP Holders in
September 2007 to be consistent with
the increased reporting requirements of
other self-regulatory organizations.14
b. NYSE Arca Rule 4.5(f)
The Exchange proposes to make
certain minor technical amendments to
NYSE Arca Rule 4.5(f), Periodic Reports,
as such rule makes references to rules
under the Act that are no longer in
effect. Specifically, Rule 4.5(f) makes
reference to ‘‘short’’ sales, as defined by
Rule 3b–3 under the Act.15 In light of
the adoption of Regulation SHO by the
Commission, the Exchange shall make
the appropriate change to its rule text to
remove references to Rule 3b–3 under
the Act and correctly identify Rule
11 See
17 CFR 240.3b–3.
17 CFR 240.200(a).
13 See Securities Exchange Act Release No. 34–
55406 (March 6, 2007), 72 FR 11071 (March 12,
2007) (SR–NASD–2006–131; SR–NYSE–2006–111;
SR–Amex–2007–05).
14 See supra note 6.
15 See 17 CFR 240.3b–3.
12 See
E:\FR\FM\12JNN1.SGM
12JNN1
]]>Agencies
[Federal Register Volume 72, Number 112 (Tuesday, June 12, 2007)]
[Notices]
[Pages 32386-32389]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-11188]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55859; File No. SR-NYSE-2006-28]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Amendment No. 4 to Proposed Rule Change and Order
Granting Accelerated Approval of Proposed Rule Change as Modified by
Amendment Nos. 2, 3, and 4 Relating to NYSE Rules 134 and 411
June 5, 2007.
I. Introduction
On May 2, 2006, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934, as amended (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend NYSE Rules 134
(Differences and Omissions-Cleared Transactions) and 411 (Erroneous
Reports). On September 22, 2006, NYSE filed Amendment No. 1 to the
proposed rule change. On February 20, 2007, NYSE filed Amendment No. 2
[[Page 32387]]
to the proposed rule change. The proposed rule change as modified by
Amendment No. 2 was published for comment in the Federal Register on
March 6, 2007.\3\ The Commission received no comments on the proposal.
On March 22, 2007, NYSE filed Amendment No. 3 to the proposed rule
change.\4\ On May 30, 2007, NYSE filed Amendment No. 4 to the proposed
rule change.\5\ This order approves the proposed rule change, as
modified by Amendment Nos. 2, 3, and 4, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 55361 (February 27,
2007), 72 FR 9985 (``Notice'').
\4\ In Amendment No. 3, the Exchange made technical changes to
the rule text of the proposed rule change to correctly identify the
numbering of NYSE Rule 134(g)(i) and (ii) as proposed new text.
These technical changes were reflected in the Notice. See footnote 5
of the Notice. This is a technical amendment and is not subject to
notice and comment.
\5\ In Amendment No. 4, the Exchange made changes to the rule
text of the proposed rule change to clarify the meaning of the term
``system malfunction'' contained in proposed NYSE Rule 134(h). The
text of Amendment No. 4 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.
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II. Description
A. Current Practice
Currently, recognized trading errors fall into two categories. The
first category applies to held \6\ and not held \7\ orders and includes
trades that are mistakenly executed outside the written order
instructions. These types of errors encompass situations where the
transaction was incorrectly executed: (i) In the wrong security; (ii)
on the wrong side of the market; (iii) outside of the price
instructions; (iv) for a quantity greater than specified in the
instructions; or (v) duplicating a prior execution of the same original
order. The second category of trading errors currently applies only to
held orders and involves situations where a held order was executable
in the prevailing market but the Floor broker failed to take advantage
of the opportunity to execute the order at that time.
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\6\ A ``held'' order is a market or limit order that the broker
must execute as instructed without discretion as to the time of an
execution.
\7\ A ``not held'' order is a market or limit order that gives
the broker both time and price discretion to attempt to get the best
possible execution.
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Under the current NYSE rules and interpretations, a Floor broker
may use his or her error account to ``assume or acquire'' a position as
a result of a recognized trading error so that the customer receives
the trade he or she would have received had the recognized trading
error not occurred. However, a Floor broker is not permitted to use his
or error account in cases involving trading errors that are not
recognized by the Exchange. Instead, in such cases, a Floor broker
would generally issue a difference check \8\ or offer a commission
adjustment to resolve any monetary disadvantage suffered by the
customer.\9\ According to the Exchange, the issuance of the difference
check or commission adjustment ultimately is not in the best interest
of the customer because the administrative cost associated with the
processing of the difference check or commission adjustment ultimately
is borne by the customer and thus the remedy does not serve to make the
customer whole. In addition, according to the Exchange, many
institutional investors do not want the administrative burden of
processing a difference check or commission adjustment as a result of
the Floor broker's failure to execute a not held order due to
administrative mistake or system malfunction.
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\8\ A ``difference check'' is a check issued to the customer by
the member to cover the monetary difference between the execution
price and the price the customer and the member agree was the proper
price.
\9\ If, at the time the Floor broker identifies the execution
failure, the customer's order can be executed in the market at an
equal or better price than the customer could have received had the
order been executed in the prevailing market, then the Floor broker
will execute the order. In the event the market is adverse to the
customer's interest at the time the error is identified, under the
current rules and interpretation, the remedy is to have the Floor
broker issue a difference check or offer a commission reduction to
address any disadvantage to the customer. See NYSE Regulation,
Information Memorandum 02-19, issued April 17, 2002, clarifying the
application of NYSE Rules 134, 411, and 407A.
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B. Proposed Amendments to NYSE Rule 134 (Differences and Omissions-
Cleared Transactions
The Exchange proposes to amend NYSE Rule 134 to codify the first
category of recognized trading errors. Specifically, NYSE Rule 134(g)
would define a trading error to include situations when an order is
executed outside of a customer's instructions as entered in the
electronic order tracking systems \10\ of the Exchange. Types of
recognized trading errors would include, but are not limited to, the
execution of a held or not held order: (i) In the incorrect security;
(ii) on the wrong side of the market; (iii) at a price outside the
price instructions; (iv) for a quantity of shares greater than the
amount of shares specified in the order instructions; or (v) the
execution of an order in duplicate.\11\ In addition, Rule 134(g)(ii)
would expand the type of recognized trading errors to include
situations where a member fails to execute a not held order because he
or she committed an error as to symbol, side or price in the execution
of said order.\12\
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\10\ See NYSE Rule 123(e).
\11\ See proposed NYSE Rule 134(g)(i).
\12\ See proposed NYSE Rule 134(g)(ii).
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The Exchange also proposes to add Rule 134(h)(i) to codify the
second category of recognized trading errors covering situations where
the Floor broker failed to execute a held order that was executable in
the prevailing market.\13\
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\13\ See proposed NYSE Rule 134(h)(i).
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The Exchange also proposes to add Rule 134(h)(ii) to the second
category of recognized trading errors to cover those situations where a
Floor broker failed to execute a not held order, in whole or in part,
because the order was lost, misplaced or the order remains unexecuted
as a result of a system malfunction.\14\ In addition to previously
sanctioned uses of a Floor broker's error account, a Floor broker would
now be allowed utilize his or her error account, under NYSE Rule
134(j)(ii), to execute a customer's not held order in alignment with
the Consolidated Tape, when the not held order remains unexecuted as a
result of the order being lost or misplaced or as a result of a system
malfunction.\15\ To prevent abuse of the proposed new rules, the
Exchange is also amending NYSE Rule 134(d)(iii) to require a Floor
broker to keep contemporaneous records documenting the circumstances
surrounding errors. A Floor broker would be required to make and keep a
time stamped record \16\ of the error including supporting
documentation of the error.\17\ In addition, the Member Firm Regulation
Division of NYSE Regulation, Inc. would include a review of these
records during the course of its routine member firm examinations. The
burden of proof would be on the Floor broker to substantiate that a
legitimate error occurred.\18\
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\14\ See proposed NYSE Rule 134(h)(ii). In Amendment No. 4 the
Exchange added language to the proposed rule text to clarify that a
system malfunction refers to the failure of physical equipment,
devices and/or programming employed by the Floor broker or otherwise
provided by the Exchange and used in the execution of orders.
\15\ See proposed NYSE Rule 134(j)(ii).
\16\ See proposed NYSE Rule 134(i).
\17\ The record must include the date and time of the error, the
date and time the error was discovered, the size of the error, the
stock in which the error occurred, the original instructions, the
names of all involved parties including the client and any upstairs
trader, a detailed narrative of how the error occurred, detail
narrative of discussions with relevant parties, the steps taken to
correct the error and the ultimate resolution of the error. See
proposed NYSE Rule 134(j)(iii).
\18\ See proposed NYSE Rule 134(j)(iii).
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[[Page 32388]]
C. Proposed Amendments to NYSE Rule 411
When a Floor broker commits an error as to security, side or price,
there are instances where the Floor broker issues a report to the
customer as a result of the execution. Currently, pursuant to NYSE Rule
411, in instances where a Floor broker issued a report to a customer
based on a transaction that was made outside of the customer's
instructions on a not held order, the Floor broker would be required to
rescind the report, thus leaving the customer's order unexecuted and
disadvantaging the customer. To allow the Floor broker to utilize his
or her error account or the error account of the member organization to
alleviate any disadvantage to the customer, the Exchange proposes to
amend NYSE Rule 411 to allow a Floor broker to treat ``erroneous
reports'' \19\ as ``erroneous trades'' when the Floor broker committed
an error as to security, side, or price.
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\19\ An ``erroneous report'' is a report of an execution that is
incorrect as to stock, price or whether an execution actually took
place.
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Pursuant to the proposed rule change, a Floor broker would be
permitted to treat an ``erroneous report'' as an ``erroneous trade''
when the price and size of the order would have been executable in the
market at or near the time of the erroneous transaction. Specifically,
the erroneous report based on a transaction that was made in error as
to security, side or price would stand, provided that the price and
size of the erroneous report were within the range of prices and sizes
in the specified security reported to the NYSE portion of the
Consolidated Tape on the day in which the order was executed.\20\ The
Floor broker would be required to report the error to the customer,
including explaining to the customer whether the error was favorable or
unfavorable to the customer.\21\ The Floor broker also would be
required to document on a trade-by-trade basis, the name of the
individual authorized to accept the erroneous report for the customer,
the amount of the error and whether the error was favorable to the
customer.\22\ The Floor broker would then treat the erroneous report as
though it was an erroneous trade and his or her error account would
become the opposite side to the report.\23 \ In addition, the Floor
broker would assume any loss incurred and any profit that resulted
would be paid to the New York Stock Exchange Foundation \24\ as
currently required by NYSE Rule 411(a)(ii)(5). Thus, any disadvantage
would be borne by the Floor broker who was responsible for committing
the error, and not by the customer.
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\20\ See proposed NYSE Rule 411(a)(iv)(1).
\21\ See proposed NYSE Rule 411(a)(iv)(2).
\22\ See proposed NYSE Rule 411(a)(iv)(3).
\23\ See proposed NYSE Rule 411(a)(iv)(4).
\24\ See proposed NYSE Rule 411(a)(iv)(5).
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\25\ In
particular, the Commission believes that the proposal is consistent
with Section 6(b)(5) of the Act,\26\ which require that the rules of an
exchange be designed to promote just and equitable principles of trade,
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system, and, in general, protect investors
and the public interest. The Commission believes that the proposed
rules provide for a fair, transparent, and reasonable process in which
NYSE Floor brokers can correct trading errors. In particular, the
Commission believes that it is appropriate for the Exchange to codify
and thus make transparent its processes regarding the use of a Floor
Broker's error account. The Commission notes that the proposed rule
change is designed to provide Floor brokers with greater flexibility in
using error accounts to correct trading errors in a manner that is less
burdensome for customers. The Commission also notes that the proposed
rule change includes recordkeeping requirements that will help the
Exchange to monitor any potential abuse of the rule.
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\25\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\26\ 15 U.S.C. 78f(b)(5).
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Pursuant to Section 19(b)(2) of the Act,\27\ the Commission finds
good cause for approving the proposal prior to the thirtieth day after
the publication of the proposal, as modified by Amendment No. 4, in the
Federal Register. The revision to the proposed rule change made by
Amendment No. 4 does not raise any novel or substantive regulatory
issues, and simply clarifies the meaning of a term in the proposed rule
change. Therefore, the Commission finds good cause for approving the
amended proposal on an accelerated basis.
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\27\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule change, as modified by Amendment
No. 4, 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-2006-28 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2006-28. 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 the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSE-2006-28 and should be submitted on or before July
3, 2007.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-NYSE-2006-28), as modified
by Amendment Nos. 2, 3, and 4, is hereby approved on an accelerated
basis.
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\28\ 15 U.S.C. 78s(b)(2).
[[Page 32389]]
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-11188 Filed 6-11-07; 8:45 am]
BILLING CODE 8010-01-P
