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]

Download as PDF 32386 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 cprice-sewell on PROD1PC67 with NOTICES 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). VerDate Aug<31>2005 11:38 Jun 11, 2007 Jkt 211001 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 (http://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 (http://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 PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 E:\FR\FM\12JNN1.SGM 12JNN1 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 cprice-sewell on PROD1PC67 with NOTICES 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 (http://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. VerDate Aug<31>2005 11:38 Jun 11, 2007 Jkt 211001 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). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 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 E:\FR\FM\12JNN1.SGM 12JNN1 32388 Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Notices cprice-sewell on PROD1PC67 with NOTICES 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). VerDate Aug<31>2005 11:38 Jun 11, 2007 Jkt 211001 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 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 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 (http://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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the 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 E:\FR\FM\12JNN1.SGM U.S.C. 78s(b)(2). 12JNN1 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) cprice-sewell on PROD1PC67 with NOTICES 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 VerDate Aug<31>2005 11:38 Jun 11, 2007 Jkt 211001 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 http://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). PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 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.
---------------------------------------------------------------------------

    \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 
(http://www.nyse.com), at the Exchange's Office of the Secretary, 
and at the Commission's Public Reference Room.
---------------------------------------------------------------------------

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

    \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.
---------------------------------------------------------------------------

    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 (http://
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 (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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