Self-Regulatory Organizations; New York Stock Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Exchange Rule 103A (Specialist Stock Reallocation and Member Education and Performance) and Exchange Rule 103B (Specialist Stock Allocation), 38267-38270 [E8-15067]
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Federal Register / Vol. 73, No. 129 / Thursday, July 3, 2008 / Notices
proposed rule change become operative
immediately.14
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
the rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2008–49 on the
subject line.
mstockstill on PROD1PC66 with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2008–49. 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, on official business days between
the hours of 10 a.m. and 3 p.m. Copies
of the 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–
2008–49 and should be submitted on or
before July 24, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–15066 Filed 7–2–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58036; File No. SR–NYSE–
2008–51]
Self-Regulatory Organizations; New
York Stock Exchange, LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Exchange Rule 103A (Specialist Stock
Reallocation and Member Education
and Performance) and Exchange Rule
103B (Specialist Stock Allocation)
June 26, 2008.
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 June 24,
2008, the New York Stock Exchange,
LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been substantially prepared by the
Exchange. The Exchange has designated
the proposed rule change as ‘‘noncontroversial’’ under Section
19(b)(3)(A)(iii) 3 of the Act and Rule
19b–4(f)(6) thereunder,4 which renders
the proposal effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to extend to
September 30, 2008, the moratorium on
the administration of the Specialist
Performance Evaluation Questionnaire
(‘‘SPEQ’’) pursuant to Exchange Rule
103A and the use of the SPEQ pursuant
14 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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16:46 Jul 02, 2008
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PO 00000
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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38267
to Exchange Rule 103B (‘‘Moratorium’’),
which was implemented on June 8,
2007. In addition, the Exchange
proposes to continue to suspend the use
of SuperDot turnaround for orders
received and the use of responses to
administrative messages as objective
measures in the assessment of specialist
performance during the Moratorium.
The Exchange further proposes that the
SPEQ and Order Reports/Administrative
Responses continue to be removed from
the criteria used to commence a
specialist performance improvement
action during the Moratorium.
The text of the proposed rule changes
is available on the Exchange’s Web site
(https://www.nyse.com), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change. The text of
these statements may be examined at
the places specified in Item IV below.
NYSE has prepared summaries, set forth
in Sections A, B, and C below, of the
most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to extend to
September 30, 2008, the Moratorium on
the administration of the SPEQ pursuant
to Exchange Rule 103A and the use of
the SPEQ pursuant to Exchange Rule
103B, which was implemented on June
8, 2007 and extended through June 31,
2008.5
In addition, the Exchange proposes
that the use of SuperDot turnaround for
orders received and responses to
administrative messages continue to be
removed from the objective measures
used in the assessment of specialist
performance pursuant to Exchange Rule
103B or as criteria used to commence
specialist performance improvement
action pursuant to Exchange Rule 103A
during the Moratorium.
5 See Securities Exchange Act Release Nos. 55852
(June 4, 2007), 72 FR 31868 (June 8, 2007) (NYSE–
2007–47) (‘‘Original Request’’); 57184 (January 22,
2008), 73 FR 5254 (January 29, 2008) (NYSE–2008–
02); and 57591 (April 1, 2008), 73 FR 18838 (April
7, 2008) (NYSE–2008–21).
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Federal Register / Vol. 73, No. 129 / Thursday, July 3, 2008 / Notices
mstockstill on PROD1PC66 with NOTICES
SPEQ
Prior to June 2007, pursuant to
Exchange Rule 103A, on a quarterly
basis, the Exchange distributed a
twenty-question survey known as the
SPEQ to eligible Floor brokers 6 to
evaluate specialist performance during
the quarter immediately prior to the
distribution of the SPEQ. Initially, this
subjective feedback provided critical
information to assist the Exchange in
maintaining the quality of the NYSE
market.
However, the Exchange believed that
the SPEQ no longer adequately allowed
a Floor broker to assess the electronic
interaction between the specialist and
the Floor broker. The Hybrid Market
provided Floor brokers and specialists
with electronic trading tools that have
resulted in less personal and verbal
contact between Floor brokers and
specialists. Currently, the majority of
transactions executed on the Exchange
are done through electronic executions.
In addition, the dramatic increase in
transparency with respect to the Display
Book through, among other things,
Exchange initiatives like NYSE
OPENBOOKTM 7 (‘‘OPENBOOK’’) has
decreased the need for the Floor broker
to obtain market information verbally
from the specialist. This increased
transparency gives all market
participants, both on and off the Floor,
a greater ability to see and react to
market changes.
The questions on the SPEQ did not
take into account the operation of the
electronic tools available in the Hybrid
Market. The SPEQ did not provide Floor
brokers with a means to evaluate
specialist performance under the
current market model. As a result of the
more electronic interaction between
Floor brokers and specialists, Floor
brokers were unable to assess specialist
performance using the SPEQ.
The questions posed to the Floor
brokers on the SPEQ required Floor
6 The Exchange believed that conscientious
participation in the SPEQ process was a critical
element in the Exchange’s program for evaluating
the overall performance of its specialists. All
eligible Floor brokers were required to participate
in the process and evaluate from one to three
specialist units each quarter. Floor brokers were
selected to participate in the SPEQ process based
on broker badge data submitted in accordance with
audit trail requirements. Brokers who intentionally
failed or refused to participate in the SPEQ process
were potentially subject to disciplinary action,
including the imposition of a summary fine
pursuant to Exchange Rule 476A.
7 OPENBOOK Online Database is an Exchange
online service that allows subscribers to view the
contents of the specialist book for any stock at any
given point in the day, or over a period of time.
Results are returned in an Excel spreadsheet.
OPENBOOK Online Database is a historical
database with data stored online for a 12-month
period.
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brokers to opine on the specialists’
ability to offer single price executions
and specialists’ ability to provide
notification to Floor brokers of market
changes in particular stocks. In the
current more electronic market,
specialists are unable to offer single
price executions and the relative speed
of executions makes it virtually
impossible for specialists to notify
brokers of changes in a particular
security.
Given the above, the SPEQ no longer
served as a meaningful measure of
specialist performance.
Objective Measures
The Exchange further requests that
during the extension of the Moratorium,
allocations of newly listed securities on
the Exchange continue to be based on
the objective measures identified in
Exchange Rule 103B,8 with the
exception of SuperDot turnaround for
orders received and response to
administrative messages.
As explained in the Original Request
and previously requested extensions,
SuperDot turnaround for orders
received and response to administrative
messages no longer provides meaningful
objective standards to evaluate
specialist performance in the Hybrid
Market. Specifically, in the more
electronic Hybrid Market, orders
received by Exchange systems that are
marketable upon entry are eligible to be
immediately and automatically
executed by Exchange systems. As such,
SuperDot turnaround no longer
provided a meaningful objective
measure of a specialist’s performance.
Furthermore, in the current more
electronic market, the Exchange systems
automatically respond to the majority of
the administrative messages. Today,
there are two administrative messages
that require a manual response from
specialists. These are messages that
require the specialist to provide status
information on market orders and stop
orders. With regard to requests for the
status of stop orders, the specialists are
no longer capable of providing this
8 Pursuant to Exchange Rule 103B, specialist
dealer performance is measured in terms of
participation (TTV); stabilization; capital
utilization, which is the degree to which the
specialist unit uses its own capital in relation to the
total dollar value of trading in the unit’s stocks; and
near neighbor analysis, which is a measure of
specialist performance and market quality
comparing performance in a stock to performance
of stocks that have similar market characteristics.
Additional objective measures pursuant to
Exchange Rule 103B are those measures included
in Exchange Rule 103A which are: (a) Timeliness
of regular openings; (b) promptness in seeking Floor
official approval of a non-regulatory delayed
opening; (c) timeliness of DOT turnaround; and (d)
response to administrative messages.
PO 00000
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information. In December 2006,
following Commission approval,9 the
Exchange changed its stop order
handling process. Stop orders are no
longer visible to the part of the NYSE
Display Book that the specialist ‘‘sees.’’
When a transaction on the Exchange
results in the election of a stop order
that had been received prior to such
transaction, the elected stop order is
sent as a market order 10 to the Display
Book and the specialist’s system
employing algorithms, where it is
handled in the same way as any other
market order. The specialist, therefore,
is unable to provide any information
regarding the status of stop orders.
Market orders are eligible to receive
immediate and automatic execution on
the Exchange. The immediate and
automatic execution of market orders
eliminates the need for the specialists to
respond to the administrative request
for the status of market orders. In
practice, a customer that submits a
market order will likely receive a report
of execution before the administrative
message requesting the status of the
market order has been printed and read
by the specialist.
This change has had a minimal
impact on Exchange customers. In the
past few years, the average number of
administrative messages received on a
daily basis has steadily declined. The
Exchange believes that immediate and
automatic execution of orders will
virtually eliminate administrative
messages that require a manual response
from a specialist. As a result, a
specialist’s ability to respond to
administrative messages no longer
provides a meaningful measure of
specialists’ performance during the
Moratorium.
Given the above, the Exchange seeks
to continue suspension of the use of
both measures as criteria used to assess
specialists’ performance during the
extension of the Moratorium.
Performance Improvement Actions
Similarly, during the extension of the
Moratorium, the Exchange seeks to
continue suspending the use of the
SPEQ and Order Reports/Administrative
Reports as criteria for the
implementation of a performance
improvement action pursuant to
Exchange Rule 103A. Exchange Rule
103A(b) provides that:
The Market Performance Committee shall
initiate a Performance Improvement Action
9 See Securities Exchange Act Release No. 54820
(November 27, 2006), 71 FR 70824 (December 6,
2006) (SR–NYSE–2006–65).
10 As used herein, the term ‘‘market order’’ refers
to market orders that are not designated as ‘‘auction
market orders.’’
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Federal Register / Vol. 73, No. 129 / Thursday, July 3, 2008 / Notices
(except in highly unusual or extenuating
circumstances, involving factors beyond the
control of a particular specialist unit, as
determined by formal vote of the Committee)
in any case where a specialist unit’s
performance falls below such standards as
are specified in the Supplementary Material
to this rule. The objective of a Performance
Improvement Action shall be to improve a
specialist unit’s performance where the unit
has exhibited one or more significant
weaknesses, or has exhibited an overall
pattern of weak performance that indicates
the need for general improvement.
Prior to June 2007, the SPEQ and
Order Reports/Administrative Reports
were two criteria included in the
standards specified in Exchange Rule
103A Supplementary Material. Given
that SPEQ and Order Reports/
Administrative Reports no longer
provided significant objective measures
of specialists’ performance in the
Hybrid Market, the Exchange sought to
suspend the use of both measures as
criteria for the implementation of a
performance improvement action during
the Moratorium. Through this filing, the
Exchange seeks to continue this
suspension for the duration of the
Moratorium.
Creation of a New Process
The Exchange intends to establish a
quantifiable measure in order to
determine a specialist unit’s eligibility
to participate in the new Allocation
Process. The Exchange intends to
formally submit a proposal to the
Commission to amend Exchange rules
that govern the allocation of securities
to specialist units and other related
rules by the end of June 2008.
The Exchange believes that the use of
a single objective measure to determine
specialist unit eligibility for allocation
will create a more efficient process that
is consistent with the Exchange’s
current more electronic trading
environment.
mstockstill on PROD1PC66 with NOTICES
Conclusion
The Exchange therefore requests to
extend the Moratorium on the
administration of the SPEQ pursuant to
Exchange Rule 103A and the use of the
SPEQ pursuant to Exchange Rule 103B
until September 30, 2008. In addition,
the Exchange proposes to continue to
suspend the use of SuperDot turnaround
for orders received and the use of
responses to administrative messages as
objective measures in the assessment of
specialist performance during the
Moratorium. The Exchange further
proposes that the SPEQ and Order
Reports/Administrative Responses
continue to be removed from the criteria
used to commence a specialist
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16:46 Jul 02, 2008
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performance improvement action during
the Moratorium.
2. Statutory Basis
The Exchange believes that the basis
under the Act for this proposed rule
change is the requirement under Section
6(b)(5) 11 that an Exchange have rules
that are designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The proposed rule
change also is designed to support the
principles of Section 11A(a)(1) 12 in that
it seeks to assure economically efficient
execution of securities transactions,
make it practicable for brokers to
execute investors’ orders in the best
market and provide an opportunity for
investors’ orders to be executed without
the participation of a dealer. Due to the
Exchange’s transition to a more
electronic market, the current SPEQ,
SuperDot turnaround for orders
received and response to administrative
messages no longer provide meaningful
objective standards to evaluate
specialist performance in the Hybrid
Market. The Exchange requests this
continued extension of the Moratorium
to determine whether elimination of the
SPEQ as well as SuperDot turnaround
for orders received and response to
administrative messages as objective
measures would remove an impediment
to a free and open electronic market
which would result in the more
economically efficient execution of
securities transactions. Given the
current trend to a more electronically
based market, the Exchange believes
that the use of more objective and
detailed measures will promote healthy
competition between specialist units
and ultimately result in better marketmaking for Exchange customers.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
PO 00000
11 15
12 15
U.S.C. 78f(b)(5).
U.S.C. 78k–1(a)(1).
Frm 00098
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Sfmt 4703
38269
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 13 and
subparagraph (f)(6) of Rule 19b–4
thereunder.14
A proposed rule change filed under
19b–4(f)(6) normally may not become
operative prior to 30 days after the date
of filing.15 However, Rule 19b–
4(f)(6)(iii) 16 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has requested that the
Commission waive the five-day prefiling
requirement and the 30-day preoperative delay and designate the
proposed rule change to become
operative upon filing.
The Commission believes that
waiving the five-day prefiling
requirement and the 30-day operative
delay is consistent with the protection
of investors and the public interest
because it would allow the Exchange to
extend the Moratorium without
interruption. The Commission
designates the proposal to become
effective and operative upon filing.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in the furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
13 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6)(iii).
16 Id.
17 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
impact of the proposed rule on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
14 17
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Federal Register / Vol. 73, No. 129 / Thursday, July 3, 2008 / Notices
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–2008–51 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2008–51. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of NYSE. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSE–2008–51 and should
be submitted on or before July 24, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–15067 Filed 7–2–08; 8:45 am]
mstockstill on PROD1PC66 with NOTICES
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58050; File No. SR–NYSE–
2008–53]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change Amending
NYSE Rule 123D (Openings and Halts
in Trading) To Provide for a Limited
Exemption for Securities Trading on
the Exchange That Are Part of the
Russell Index Reconstitution
June 27, 2008.
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 June 27,
2008, the New York Stock Exchange
LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been substantially prepared by the
Exchange. NYSE filed the proposed rule
change as a ‘‘non-controversial’’
proposal pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder,4 which renders the proposal
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NYSE proposes to amend NYSE Rule
123D to exempt orders for any security
that is trading on the Exchange on June
27, 2008, and is part of the Russell
Index Reconstitution 5 (a ‘‘Russell
Stock’’), from the provisions of the nonregulatory trading halt condition
designated as ‘‘Sub-penny trading’’ as
set forth in subsection (3) of the rule.
The text of the proposed rule change is
available at the Exchange, the
Commission’s Public Reference Room,
and https://www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 On June 27, 2008, the Russell Investment Group
will reconstitute certain of its indices, including the
Russell 3000 Index and the Russell Microcap
Index.
2 17
18 17
CFR 200.30–3(a)(12).
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concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Through this filing, the Exchange
proposes to amend NYSE Rule 123D to
provide a limited exemption for orders
in a Russell Stock that is trading on the
Exchange on June 27, 2008, and is part
of the Russell Index Reconstitution,
from the provisions of the nonregulatory trading halt condition
designated as ‘‘Sub-penny trading’’
pursuant to NYSE Rule 123D(3).
Background
Pursuant to NYSE Rule 123D(3),
whenever a security trading on the
Exchange is reported on the
consolidated tape during normal trading
hours as having traded at a price of
$1.05 or less, or if a security would open
on the Exchange at a price of $1.05 or
less, trading in the security on the
Exchange shall be immediately halted
due to a ‘‘Sub-penny trading’’ condition.
Once halted for such reason, trading
shall not resume on the Exchange until
the security has traded on another
automated trading center, as defined in
Rule 600(b)(4) of Regulation NMS (‘‘Reg
NMS’’),6 for at least one entire trading
day at a price or prices that are at all
times at or above $1.10. Any such
resumption of trading shall occur at the
beginning of a trading day, so that
normal opening procedures can apply.
In contrast to other trading halts
described in NYSE Rule 123D, a ‘‘Subpenny trading’’ halt is automatic and
does not require the approval of any
Floor Officials. However, if a
determination is made by a Floor
Official that a trade that triggered a halt
because of a ‘‘Sub-penny trading’’
condition was made in error or
otherwise was an anomaly, trading of
the security on the Exchange will
resume immediately. Orders entered
with the Exchange in a security subject
to a ‘‘Sub-penny trading’’ condition halt
will be routed to NYSE Arca, where
they will be handled in accordance with
the rules governing that market. The
6 See
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17 CFR 242.600(b)(4).
03JYN1
]]>Agencies
[Federal Register Volume 73, Number 129 (Thursday, July 3, 2008)]
[Notices]
[Pages 38267-38270]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15067]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58036; File No. SR-NYSE-2008-51]
Self-Regulatory Organizations; New York Stock Exchange, LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Exchange Rule 103A (Specialist Stock Reallocation and
Member Education and Performance) and Exchange Rule 103B (Specialist
Stock Allocation)
June 26, 2008.
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 June 24, 2008, the New York Stock Exchange, LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
The Exchange has designated the proposed rule change as ``non-
controversial'' under Section 19(b)(3)(A)(iii) \3\ of the Act and Rule
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend to September 30, 2008, the
moratorium on the administration of the Specialist Performance
Evaluation Questionnaire (``SPEQ'') pursuant to Exchange Rule 103A and
the use of the SPEQ pursuant to Exchange Rule 103B (``Moratorium''),
which was implemented on June 8, 2007. In addition, the Exchange
proposes to continue to suspend the use of SuperDot turnaround for
orders received and the use of responses to administrative messages as
objective measures in the assessment of specialist performance during
the Moratorium. The Exchange further proposes that the SPEQ and Order
Reports/Administrative Responses continue to be removed from the
criteria used to commence a specialist performance improvement action
during the Moratorium.
The text of the proposed rule changes is available on the
Exchange's Web site (https://www.nyse.com), at the Exchange's Office of
the Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NYSE has prepared summaries, set forth in Sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to extend to September 30, 2008, the
Moratorium on the administration of the SPEQ pursuant to Exchange Rule
103A and the use of the SPEQ pursuant to Exchange Rule 103B, which was
implemented on June 8, 2007 and extended through June 31, 2008.\5\
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\5\ See Securities Exchange Act Release Nos. 55852 (June 4,
2007), 72 FR 31868 (June 8, 2007) (NYSE-2007-47) (``Original
Request''); 57184 (January 22, 2008), 73 FR 5254 (January 29, 2008)
(NYSE-2008-02); and 57591 (April 1, 2008), 73 FR 18838 (April 7,
2008) (NYSE-2008-21).
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In addition, the Exchange proposes that the use of SuperDot
turnaround for orders received and responses to administrative messages
continue to be removed from the objective measures used in the
assessment of specialist performance pursuant to Exchange Rule 103B or
as criteria used to commence specialist performance improvement action
pursuant to Exchange Rule 103A during the Moratorium.
[[Page 38268]]
SPEQ
Prior to June 2007, pursuant to Exchange Rule 103A, on a quarterly
basis, the Exchange distributed a twenty-question survey known as the
SPEQ to eligible Floor brokers \6\ to evaluate specialist performance
during the quarter immediately prior to the distribution of the SPEQ.
Initially, this subjective feedback provided critical information to
assist the Exchange in maintaining the quality of the NYSE market.
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\6\ The Exchange believed that conscientious participation in
the SPEQ process was a critical element in the Exchange's program
for evaluating the overall performance of its specialists. All
eligible Floor brokers were required to participate in the process
and evaluate from one to three specialist units each quarter. Floor
brokers were selected to participate in the SPEQ process based on
broker badge data submitted in accordance with audit trail
requirements. Brokers who intentionally failed or refused to
participate in the SPEQ process were potentially subject to
disciplinary action, including the imposition of a summary fine
pursuant to Exchange Rule 476A.
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However, the Exchange believed that the SPEQ no longer adequately
allowed a Floor broker to assess the electronic interaction between the
specialist and the Floor broker. The Hybrid Market provided Floor
brokers and specialists with electronic trading tools that have
resulted in less personal and verbal contact between Floor brokers and
specialists. Currently, the majority of transactions executed on the
Exchange are done through electronic executions.
In addition, the dramatic increase in transparency with respect to
the Display Book through, among other things, Exchange initiatives like
NYSE OPENBOOK\TM\ \7\ (``OPENBOOK'') has decreased the need for the
Floor broker to obtain market information verbally from the specialist.
This increased transparency gives all market participants, both on and
off the Floor, a greater ability to see and react to market changes.
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\7\ OPENBOOK Online Database is an Exchange online service that
allows subscribers to view the contents of the specialist book for
any stock at any given point in the day, or over a period of time.
Results are returned in an Excel spreadsheet. OPENBOOK Online
Database is a historical database with data stored online for a 12-
month period.
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The questions on the SPEQ did not take into account the operation
of the electronic tools available in the Hybrid Market. The SPEQ did
not provide Floor brokers with a means to evaluate specialist
performance under the current market model. As a result of the more
electronic interaction between Floor brokers and specialists, Floor
brokers were unable to assess specialist performance using the SPEQ.
The questions posed to the Floor brokers on the SPEQ required Floor
brokers to opine on the specialists' ability to offer single price
executions and specialists' ability to provide notification to Floor
brokers of market changes in particular stocks. In the current more
electronic market, specialists are unable to offer single price
executions and the relative speed of executions makes it virtually
impossible for specialists to notify brokers of changes in a particular
security.
Given the above, the SPEQ no longer served as a meaningful measure
of specialist performance.
Objective Measures
The Exchange further requests that during the extension of the
Moratorium, allocations of newly listed securities on the Exchange
continue to be based on the objective measures identified in Exchange
Rule 103B,\8\ with the exception of SuperDot turnaround for orders
received and response to administrative messages.
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\8\ Pursuant to Exchange Rule 103B, specialist dealer
performance is measured in terms of participation (TTV);
stabilization; capital utilization, which is the degree to which the
specialist unit uses its own capital in relation to the total dollar
value of trading in the unit's stocks; and near neighbor analysis,
which is a measure of specialist performance and market quality
comparing performance in a stock to performance of stocks that have
similar market characteristics. Additional objective measures
pursuant to Exchange Rule 103B are those measures included in
Exchange Rule 103A which are: (a) Timeliness of regular openings;
(b) promptness in seeking Floor official approval of a non-
regulatory delayed opening; (c) timeliness of DOT turnaround; and
(d) response to administrative messages.
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As explained in the Original Request and previously requested
extensions, SuperDot turnaround for orders received and response to
administrative messages no longer provides meaningful objective
standards to evaluate specialist performance in the Hybrid Market.
Specifically, in the more electronic Hybrid Market, orders received by
Exchange systems that are marketable upon entry are eligible to be
immediately and automatically executed by Exchange systems. As such,
SuperDot turnaround no longer provided a meaningful objective measure
of a specialist's performance.
Furthermore, in the current more electronic market, the Exchange
systems automatically respond to the majority of the administrative
messages. Today, there are two administrative messages that require a
manual response from specialists. These are messages that require the
specialist to provide status information on market orders and stop
orders. With regard to requests for the status of stop orders, the
specialists are no longer capable of providing this information. In
December 2006, following Commission approval,\9\ the Exchange changed
its stop order handling process. Stop orders are no longer visible to
the part of the NYSE Display Book[supreg] that the specialist ``sees.''
When a transaction on the Exchange results in the election of a stop
order that had been received prior to such transaction, the elected
stop order is sent as a market order \10\ to the Display Book and the
specialist's system employing algorithms, where it is handled in the
same way as any other market order. The specialist, therefore, is
unable to provide any information regarding the status of stop orders.
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\9\ See Securities Exchange Act Release No. 54820 (November 27,
2006), 71 FR 70824 (December 6, 2006) (SR-NYSE-2006-65).
\10\ As used herein, the term ``market order'' refers to market
orders that are not designated as ``auction market orders.''
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Market orders are eligible to receive immediate and automatic
execution on the Exchange. The immediate and automatic execution of
market orders eliminates the need for the specialists to respond to the
administrative request for the status of market orders. In practice, a
customer that submits a market order will likely receive a report of
execution before the administrative message requesting the status of
the market order has been printed and read by the specialist.
This change has had a minimal impact on Exchange customers. In the
past few years, the average number of administrative messages received
on a daily basis has steadily declined. The Exchange believes that
immediate and automatic execution of orders will virtually eliminate
administrative messages that require a manual response from a
specialist. As a result, a specialist's ability to respond to
administrative messages no longer provides a meaningful measure of
specialists' performance during the Moratorium.
Given the above, the Exchange seeks to continue suspension of the
use of both measures as criteria used to assess specialists'
performance during the extension of the Moratorium.
Performance Improvement Actions
Similarly, during the extension of the Moratorium, the Exchange
seeks to continue suspending the use of the SPEQ and Order Reports/
Administrative Reports as criteria for the implementation of a
performance improvement action pursuant to Exchange Rule 103A. Exchange
Rule 103A(b) provides that:
The Market Performance Committee shall initiate a Performance
Improvement Action
[[Page 38269]]
(except in highly unusual or extenuating circumstances, involving
factors beyond the control of a particular specialist unit, as
determined by formal vote of the Committee) in any case where a
specialist unit's performance falls below such standards as are
specified in the Supplementary Material to this rule. The objective
of a Performance Improvement Action shall be to improve a specialist
unit's performance where the unit has exhibited one or more
significant weaknesses, or has exhibited an overall pattern of weak
performance that indicates the need for general improvement.
Prior to June 2007, the SPEQ and Order Reports/Administrative
Reports were two criteria included in the standards specified in
Exchange Rule 103A Supplementary Material. Given that SPEQ and Order
Reports/Administrative Reports no longer provided significant objective
measures of specialists' performance in the Hybrid Market, the Exchange
sought to suspend the use of both measures as criteria for the
implementation of a performance improvement action during the
Moratorium. Through this filing, the Exchange seeks to continue this
suspension for the duration of the Moratorium.
Creation of a New Process
The Exchange intends to establish a quantifiable measure in order
to determine a specialist unit's eligibility to participate in the new
Allocation Process. The Exchange intends to formally submit a proposal
to the Commission to amend Exchange rules that govern the allocation of
securities to specialist units and other related rules by the end of
June 2008.
The Exchange believes that the use of a single objective measure to
determine specialist unit eligibility for allocation will create a more
efficient process that is consistent with the Exchange's current more
electronic trading environment.
Conclusion
The Exchange therefore requests to extend the Moratorium on the
administration of the SPEQ pursuant to Exchange Rule 103A and the use
of the SPEQ pursuant to Exchange Rule 103B until September 30, 2008. In
addition, the Exchange proposes to continue to suspend the use of
SuperDot turnaround for orders received and the use of responses to
administrative messages as objective measures in the assessment of
specialist performance during the Moratorium. The Exchange further
proposes that the SPEQ and Order Reports/Administrative Responses
continue to be removed from the criteria used to commence a specialist
performance improvement action during the Moratorium.
2. Statutory Basis
The Exchange believes that the basis under the Act for this
proposed rule change is the requirement under Section 6(b)(5) \11\ that
an Exchange have rules that are designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The proposed
rule change also is designed to support the principles of Section
11A(a)(1) \12\ in that it seeks to assure economically efficient
execution of securities transactions, make it practicable for brokers
to execute investors' orders in the best market and provide an
opportunity for investors' orders to be executed without the
participation of a dealer. Due to the Exchange's transition to a more
electronic market, the current SPEQ, SuperDot turnaround for orders
received and response to administrative messages no longer provide
meaningful objective standards to evaluate specialist performance in
the Hybrid Market. The Exchange requests this continued extension of
the Moratorium to determine whether elimination of the SPEQ as well as
SuperDot turnaround for orders received and response to administrative
messages as objective measures would remove an impediment to a free and
open electronic market which would result in the more economically
efficient execution of securities transactions. Given the current trend
to a more electronically based market, the Exchange believes that the
use of more objective and detailed measures will promote healthy
competition between specialist units and ultimately result in better
market-making for Exchange customers.
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\11\ 15 U.S.C. 78f(b)(5).
\12\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days after the date of filing, or such shorter time as the Commission
may designate if consistent with the protection of investors and the
public interest, the proposed rule change has become effective pursuant
to Section 19(b)(3)(A) of the Act \13\ and subparagraph (f)(6) of Rule
19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become operative prior to 30 days after the date of filing.\15\
However, Rule 19b-4(f)(6)(iii) \16\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the five-day prefiling requirement and the 30-day pre-
operative delay and designate the proposed rule change to become
operative upon filing.
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\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ Id.
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The Commission believes that waiving the five-day prefiling
requirement and the 30-day operative delay is consistent with the
protection of investors and the public interest because it would allow
the Exchange to extend the Moratorium without interruption. The
Commission designates the proposal to become effective and operative
upon filing.\17\
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\17\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the impact of the proposed rule on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in the furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 38270]]
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-2008-51 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2008-51. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of NYSE. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-NYSE-2008-51 and should be submitted on or before July 24, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15067 Filed 7-2-08; 8:45 am]
BILLING CODE 8010-01-P
