Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Proposing To Suspend the Operation of Certain NYSE Rules To Respond to the Impact to the Marketplace of the Events of September 15, 2008, Including the Bankruptcy Filing by Lehman Brothers Holding Inc., 57185-57188 [E8-22966]

Download as PDF Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. 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 publicly available. All submissions should refer to File Number SR–NYSE–2008–85 and should be submitted on or before October 22, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Florence E. Harmon, Acting Secretary. [FR Doc. E8–22964 Filed 9–30–08; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–58631; File No. SR–NYSE– 2008–84] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Proposing To Suspend the Operation of Certain NYSE Rules To Respond to the Impact to the Marketplace of the Events of September 15, 2008, Including the Bankruptcy Filing by Lehman Brothers Holding Inc. jlentini on PROD1PC65 with NOTICES September 24, 2008. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on September 15, 2008, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 VerDate Aug<31>2005 18:22 Sep 30, 2008 Jkt 214001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NYSE included statements concerning the purpose of, and basis for, the proposed rule change. 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 SECURITIES AND EXCHANGE COMMISSION 14 17 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) is proposing to suspend the operation of certain NYSE rules to respond to the impact to the marketplace of the events of September 15, 2008, including the bankruptcy filing by Lehman Brothers Holding Inc. (LEH) and the proposed acquisition of Merrill Lynch by Bank of America. 1. Purpose On Monday, September 15, 2008, the markets experienced almost unprecedented turmoil that impacted some of the most significant players on Wall Street: Lehman Brothers Holding Inc. (LEH) (‘‘Lehman’’) filed for bankruptcy protection in the United States District Court for the Southern District of New York under Chapter 11 of the U.S. bankruptcy code; Bank of America agreed to acquire Merrill Lynch in an all-stock transaction; and American Insurance Group, Inc. (‘‘AIG’’) announced a significant restructuring. In response to these events, the Exchange undertook a number of steps to ensure continuity of the marketplace. First, the Exchange invoked NYSE Rule 48, which authorizes the Exchange to suspend certain rules relating to the opening of trading at the Exchange. Second, because the pre-opening market in LEH suggested that the stock would open below $1.05, at 9 a.m. on September 15, 2008, the Exchange announced a Rule 123D(3) ‘‘Sub-penny trading’’ condition for LEH and halted trading in LEH at the Exchange. Third, to ensure a fair and orderly market in all securities listed at the Exchange, the Exchange announced that, pursuant to NYSE Rule 103.11, NYSE-listed securities for which Lehman Brothers Market Makers, a division of Lehman Brothers Inc. (‘‘Lehman Brothers’’), had PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 57185 been the specialist, would be temporarily reallocated to Spear, Leeds & Kellogg Specialists LLC (‘‘Spear Leeds’’). Notwithstanding the reallocation, these stocks will continue to trade using Lehman Brothers technology and staff until a more permanent allocation can be effected. To ensure a fair and orderly market during this period of market stress, the Exchange is seeking temporary relief from certain NYSE rules that are implicated by the Lehman Brothers situation. In particular, the Exchange is proposing to suspend the operation of NYSE Rule 123D(3) on September 15, 2008 for derivative securities of LEH that trade at the Exchange (‘‘LEH Preferreds’’) 4 that would open at a price of $1.05 or less. This proposed suspension relates only to the opening of LEH Preferreds on September 15, 2008. Immediately following the opening of such securities, the Exchange intends to halt trading of LEH Preferreds pursuant to NYSE Rule 123D(3) and invoke a Sub-penny trading condition. In addition, pending the installation of telephone lines at Lehman Brothers’ specialist posts that are connected to Spear Leeds, the Exchange proposes to temporarily suspend NYSE Rule 36.30 so that Spear Leeds may conduct permitted communications from those post locations via non-Exchange portable telephones. a. NYSE Rule 123D(3) (1) Background NYSE Rule 123D(3) provides that if a security would open on the Exchange at a price of $1.05 or less, trading on the Exchange shall be immediately halted because of a ‘‘Sub-penny trading’’ condition. The Exchange adopted Rule 123D(3) in part to be compliant with Regulation NMS. Regulation NMS, adopted by the Securities and Exchange Commission (‘‘SEC’’) in April 2005,5 provides that each trading center intending to qualify for trade-through protection under Regulation NMS Rule 6116 is required to have a Regulation NMS-compliant trading system fully operational by 4 See Lehman Bros Pfd C (LEH–PC); Lehman Bros 5.67 D (LEH–PD); Lehman Bros Dep SH F (LEH– PF); Lehman Dep Pfd G (LEH–PG); Lehman Pfd J (LEH–PJ); Lehman CP III 6.375 K (LEH–PK); Lehman Br Cap Tr IV (LEH–PL); Lehman Bro Cap V 6.0 (LEH–PM); and Lehman Br Hld 6.24 N (LEH– PN). 5 See Securities Exchange Act Release No. 51808 (June 9, 2005), 17 CFR Parts 200, 201, 230, 240, 242, 249 and 270. 6 See 17 CFR 242.611. E:\FR\FM\01OCN1.SGM 01OCN1 57186 Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices March 5, 2007 (the ‘‘Trading Phase Date’’).7 For stocks priced below $1.00 per share, Regulation NMS Rule 612 8 permits markets to accept bids, offers, orders and indications of interest in increments smaller than $0.01, but not less than $0.0001, and to quote and trade such stocks in sub-pennies. Markets may choose not to accept such bids, offers, orders or indications of interest and the NYSE has done so, maintaining a minimum trading and quoting variation of $0.01 for all securities trading below $100,000. See NYSE Rule 62. The SEC’s interpretation of Rule 612 requires a market that routes an order to another market in compliance with Rule 611 and receives a sub-penny execution, to accept the sub-penny execution, report that execution to the customer, and compare, clear and settle that trade. Failure to do so constitutes a violation of Rule 611’s Order Protection Rule. However, pursuant to Rule 611(b)(3) of Regulation NMS,9 transactions that constitute a single-priced opening, reopening, or closing transaction by a trading center are excepted from the Order Protection Rule. Accordingly, a sub-penny execution at the opening that trades through another market center does not constitute a violation of Regulation NMS Rule 611’s Order Protection Rule. The Exchange adopted Rule 123D(3) to provide for a ‘‘Sub-penny trading’’ condition because the Exchange’s trading systems did not then accommodate sub-penny executions on orders routed to better-priced protected quotations, nor could it recognize a quote disseminated by another market center if such quote had a sub-penny component and, therefore, could have inadvertently traded through better protected quotations. The rule allows the Exchange to halt trading in a security whose price was about to fall below $1.00, without delisting the security, so that the security could continue to trade on other markets that deal in bids, offers, orders or indications of interest in sub-penny prices, until the price of the security had recovered sufficiently to permit the Exchange to resume trading in minimum increments of no less than one penny or the issuer is delisted for failing to correct the price jlentini on PROD1PC65 with NOTICES 7 See Securities Exchange Act Release No. 55160 (January 24, 2007), 72 FR 4202 (January 30, 2007) (S7–10–04). 8 See 17 CFR 242.612. Rule 612 originally was to become effective on August 29, 2005, but the date was later extended to January 29, 2006. See Securities Exchange Act Release No. 52196 (Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005). 9 See 17 CFR 242.611(b)(3). VerDate Aug<31>2005 18:22 Sep 30, 2008 Jkt 214001 condition within the time provided under NYSE rules.10 A subsequent amendment established that any orders received by the NYSE in a security subject to a ‘‘Sub-penny trading’’ condition would be routed to NYSE Arca, Inc. (‘‘NYSE Arca’’) and handled in accordance with the rules governing that market.11 When a ‘‘Subpenny trading’’ condition is invoked, all open limit orders in such security at the Exchange will be cancelled and will not be routed to NYSE Arca. (2) Proposed Suspension of Rule 123D(3) for LEH Preferreds Pre-opening quoting and trading in away markets relating to LEH Preferreds indicated that such securities would open at prices below $1.05.12 Prior to the opening, the Exchange received preopening orders in LEH Preferreds. If the Exchange were to invoke a ‘‘Sub-penny trading’’ condition for those securities prior to the opening, such orders would be cancelled and would not be routed to NYSE Arca. Therefore, such orders would not be executed, potentially harming the investing public that routed such orders to the Exchange before the Exchange’s announcement of a subpenny trading halt. The Exchange notes that while such an opening transaction would be a violation of NYSE Rule 123D(3), an execution at a sub-penny price at the opening at the Exchange would not be a violation of Regulation NMS. Accordingly, because a sub-penny execution at the opening would not constitute a violation of the Regulation NMS Rule 611 Order Protection Rule, the Exchange believes that the harm to the investing public in not having their orders in LEH Preferreds executed at the opening outweighs any harm that may result from a violation of NYSE Rule 123D(3). The Exchange therefore proposes a one-day suspension of the operation of NYSE Rule 123D(3) that would be in effect only for the opening transactions of LEH Preferreds on September 15, 2008. Once trading in LEH Preferreds open at the Exchange, should such opening prices be at or below $1.05, the Exchange would, in compliance with NYSE Rule 123D(3), immediately halt 10 See Securities and Exchange Commission Release No. 34–55398; File No. SR–NYSE–2007–25 (Mar. 5, 2007). 11 See Securities and Exchange Commission Release No. 34–55537; File No. SR–NYSE–2007–30 (Mar. 27, 2007). 12 Prior to the open on September 15, 2008, the Exchange announced that it was invoking a Rule 123D(3) ‘‘Sub-penny trading’’ condition for LEH and that any trading in that security would take place at NYSE Arca. Trading in LEH had begun at NYSE Arca at 4 a.m. EST on September 15, 2008. PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 trading and invoke a ‘‘Sub-penny trading’’ condition for such securities. b. Proposed Suspension of NYSE Rule 36.30 NYSE Rule 36 bars members or member organizations from establishing or maintaining any telephonic or electronic location between the Floor of the Exchange and any other location without the approval of the Exchange. NYSE Rule 36.30 permits a specialist unit to maintain telephone lines at its stock trading post locations that connect to off-Floor offices of the specialist unit or the unit’s clearing firm. Specialists, however, are not permitted to use cell phones from the Floor of the Exchange. As permitted by NYSE Rule 36.30, the Lehman Brothers specialist posts (posts 10 and 11), which are located in the Main Room of the Floor of the Exchange, have telephone lines connected to its off-Floor offices. Those post locations do not have telephone lines connected to any other entities. Because the temporary reallocation to Spear Leeds of the securities registered with Lehman as specialist was done shortly before the opening of trading at the Exchange, the Exchange was unable to install telephone lines at posts 10 and 11 that connect to Spear Leeds in time for the opening of trading or otherwise reorganize so that the Lehman Brothers and Spear Leeds posts are located in contiguous space. Without telephone lines from the posts 10 and 11 to Spear Leeds’ offFloor location, Spear Leeds is limited in its ability to engage in permitted telephonic communications from posts 10 and 11. Accordingly, the Exchange proposes to temporarily suspend NYSE Rule 36.30 as it applies only to Spear Leeds at posts 10 and 11. Such suspension would end the earlier of (i) the installation of telephone wires at posts 10 and 11 that connect to Spear Leeds’ off-Floor locations; or (ii) the end of the temporary reallocation of the securities assigned to Lehman Brothers to Spear Leeds. In connection with this temporary relief, the Exchange will advise Spear Leeds’ management and risk personnel that use of the mobile telephones is limited to permitted communications, and may not be used from the Lehman Brothers’ posts for any other purposes. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with and furthers the objectives of Section 6(b)(5) of the Act,13 in that it is designed to prevent fraudulent and manipulative 13 15 E:\FR\FM\01OCN1.SGM U.S.C. 78f(b)(5). 01OCN1 Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanisms of, a free and open market and a national market system, and, in general, to protect investors and the public interest. 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 No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has designated the proposed rule change as one that: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) does not become operative for 30 days from the date of filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. Therefore, the foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 14 and subparagraph (f)(6) of Rule 19b–4 thereunder.15 A proposed rule change filed under 19b–4(f)(6) normally does not become operative until 30 days after the date of filing.16 However, Rule 19b–4(f)(6)(iii) 17 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. In view of the immediate nature of the relief requested, the Exchange seeks to have the proposed amendments become operative immediately. The Exchange requests that the Commission waive the 30-day delayed operative date, so that the proposed rule change may become immediately operative pursuant to Section 19(b)(3)(A) and Rule 19b–4(f)(6) 14 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 16 Id. In addition, Rule 19b–4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. NYSE has satisfied this requirement. 17 Id. jlentini on PROD1PC65 with NOTICES 15 17 VerDate Aug<31>2005 18:22 Sep 30, 2008 Jkt 214001 thereunder. Waiver of these periods will allow the Exchange to immediately implement the proposed rule change. As outlined more fully above, the Exchange believes that the proposed relief is limited in nature, and that the benefits of the proposed relief outweigh the potential harms. In particular, the proposed suspension of NYSE Rule 123D(3) would be applicable only to the opening transactions on September 15, 2008 for nine Lehman Preferred securities. Similarly, the proposed temporary suspension of NYSE Rule 36.30 is only applicable for posts 10 and 11 on the Floor of the Exchange to respond to the emergency reallocation of Lehman Brothers securities to Spear Leeds, and the suspension would end the earlier of (i) the installation of telephone wires at posts 10 and 11 that connect to Spear Leeds’ off-Floor locations; or (ii) the end of the temporary reallocation of the securities assigned to Lehman Brothers to Spear Leeds.18 Moreover, given the rapidity of recent developments, the NYSE believes that immediate effectiveness is required in order to avoid significant disruption to the market. The NYSE believes that this need satisfies the standards set out in the Exchange Act and related rules regarding immediate effectiveness filings. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission therefore grants the Exchange’s request and designates the proposal to be operative upon filing.19 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 18 Subsequent to filing this proposed rule change, the Exchange informed the Commission that installation of telephone wires at posts 10 and 11 connecting to Spear Leeds’s off-Floor locations was completed the afternoon of September 15, 2008. Thus, the suspension would end and Rule 36.30 would be in effect again prior to the opening of trading on September 16, 2008. Telephone conversation between Clare Saperstein, Director, Office of the General Counsel, Exchange, and Nathan Saunders, Special Counsel, Division of Trading and Markets, Commission, September 15, 2008. 19 For purposes only of waiving the 30-day operative delay of this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 57187 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–NYSE–2008–84 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2008–84. 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, on official business days between the hours of 10 a.m. and 3 p.m. 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– 2008–84 and should be submitted on or before October 22, 2008. E:\FR\FM\01OCN1.SGM 01OCN1 57188 Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Florence E. Harmon, Acting Secretary. [FR Doc. E8–22966 Filed 9–30–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58638; File No. SR– NASDAQ–2008–076] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Nasdaq’s PORTAL Market September 24, 2008. jlentini on PROD1PC65 with NOTICES 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 September 19, 2008, The NASDAQ Stock Market LLC (‘‘Nasdaq’’) filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. Nasdaq has designated the proposed rule change as constituting a non-controversial rule change under Rule 19b–4(f)(6) under the Act,3 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 the Substance of the Proposed Rule Change The NASDAQ Stock Market LLC (‘‘Nasdaq’’) is filing with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change to: (1) Cease operation, as a selfregulatory organization, of Nasdaq’s electronic platform for the quoting and trading of restricted equity securities designated for inclusion in The PORTAL Market (‘‘PORTAL’’ or the ‘‘PORTAL Market’’); and (2) file, pursuant to Nasdaq Rule 2140, for Nasdaq to (a) acquire a minority ownership interest in a Delaware limited liability company to be known as The PORTAL Alliance LLC (the ‘‘Alliance’’) that would, in turn, own and operate an open electronic platform for the posting of indicative quotations 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). and negotiation of transactions in equity securities designated as PORTAL securities and (b) enter into an agreement to operate the platform on behalf of the Alliance. Other members of the Alliance would include certain Nasdaq members or their affiliates. The text of the proposed amendment to the Nasdaq PORTAL Rules is below. Proposed new language is underlined, proposed deletions are in brackets. The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in brackets.4 * * * * * 6501 Definitions For purposes of the PORTAL Rules, unless the context requires otherwise: (a)–(e) No Change. (f) The term ‘‘PORTAL security’’ or ‘‘PORTAL securities’’ shall mean a security that is currently designated [and authorized for inclusion in the] as a PORTAL security [Market] by Nasdaq pursuant to the Rule 6500 Series. (g) The term ‘‘PORTAL Market’’ or ‘‘System’’ shall mean the system for the quotation, negotiation, execution and automated trade reporting of PORTAL Debt[s] Securities that is owned and operated by The NASDAQ Stock Market LLC. (h)–(x) No Change. * * * * * 6504 Reporting Transactions in PORTAL Securities Transactions in PORTAL Debt[s] Securities shall be reported by the System in accordance with applicable self-regulatory organization rules. * * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. 20 17 1 15 VerDate Aug<31>2005 18:22 Sep 30, 2008 4 Changes are marked to the rule text that appears in the electronic Nasdaq Manual found at http:// wallstreet.cch.com/nasdaq. Jkt 214001 PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background On July 31, 2007, the SEC approved amendments to the PORTAL Rules that reestablished a trading system for the purpose of quoting and trading securities eligible for resale by qualified institutional buyers under SEC Rule 144A.5 This approval represented a new phase in the operation of the Nasdaq PORTAL Market, which was originally approved by the SEC in 1990 simultaneously with the SEC’s approval of Rule 144A.6 During the period following the reestablishment of the Nasdaq PORTAL Market, Nasdaq has reexamined the operational and ownership structure of PORTAL with a view to adopting changes that reflect the preferences of market participants and enhance the operation of the system, which, in turn, Nasdaq believes will achieve the goals of enhanced transparency and efficiency in the trading of restricted securities that are at the heart of Nasdaq’s PORTAL initiatives. As a result, Nasdaq is proposing to: (1) Terminate the current Nasdaq PORTAL Market for equity securities, while continuing to review and designate both restricted debt and equity securities as PORTAL-eligible securities in its SRO capacity; and (2) Enter into agreements with certain of its members or their affiliates (the ‘‘Firms’’) to create, and take a minority interest in, the Alliance, a Delaware limited 5 Securities Exchange Act Release No. 56172 (July 31, 2007), 72 FR 44196 (SR–NASDAQ–2006–065). At the time of approval, Nasdaq indicated that it would first operate a system for trading PORTAL equity, and thereafter would enable the system to trade PORTAL debt securities. While the PORTAL equity functionality has been available since August 15, 2007, Nasdaq has yet to implement trading functionality for PORTAL debt securities. Subsequently, on February 21, 2008, the SEC approved amendments to the qualification requirements for equity securities to be designated for inclusion in PORTAL in cases where the security does not receive book-entry settlement services at The Depository Trust Corporation (‘‘DTC’’) as had previously been required by PORTAL Rule 6502(b)(1)(C), but is nonetheless subject to an alternative regular-way non-DTC settlement procedure. Securities Exchange Act Release No. 57368 (February 21, 2008), 73 FR 10852 (SR–NASDAQ–2008–011). 6 Rule 144A was adopted by the SEC in 1990 in Securities Act Release No. 6862 (April 23, 1990), 55 FR 17933 (S7–23–88). PORTAL was approved by the SEC in Securities Exchange Act Release No. 27956 (April 27, 1990), 55 FR 18781 (SR–NASD– 88–23). For an explanation of the history of the development of the PORTAL Market, see Securities Exchange Act Release No. 55669 (April 25, 2007), 72 FR 23874 (SR–NASDAQ–2006–065). E:\FR\FM\01OCN1.SGM 01OCN1

Agencies

[Federal Register Volume 73, Number 191 (Wednesday, October 1, 2008)]
[Notices]
[Pages 57185-57188]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22966]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58631; File No. SR-NYSE-2008-84]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Proposing To Suspend the Operation of Certain NYSE Rules To Respond to 
the Impact to the Marketplace of the Events of September 15, 2008, 
Including the Bankruptcy Filing by Lehman Brothers Holding Inc.

September 24, 2008.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 15, 2008, New York Stock Exchange LLC 
(``NYSE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') is 
proposing to suspend the operation of certain NYSE rules to respond to 
the impact to the marketplace of the events of September 15, 2008, 
including the bankruptcy filing by Lehman Brothers Holding Inc. (LEH) 
and the proposed acquisition of Merrill Lynch by Bank of America.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change. 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
    On Monday, September 15, 2008, the markets experienced almost 
unprecedented turmoil that impacted some of the most significant 
players on Wall Street: Lehman Brothers Holding Inc. (LEH) (``Lehman'') 
filed for bankruptcy protection in the United States District Court for 
the Southern District of New York under Chapter 11 of the U.S. 
bankruptcy code; Bank of America agreed to acquire Merrill Lynch in an 
all-stock transaction; and American Insurance Group, Inc. (``AIG'') 
announced a significant restructuring.
    In response to these events, the Exchange undertook a number of 
steps to ensure continuity of the marketplace. First, the Exchange 
invoked NYSE Rule 48, which authorizes the Exchange to suspend certain 
rules relating to the opening of trading at the Exchange. Second, 
because the pre-opening market in LEH suggested that the stock would 
open below $1.05, at 9 a.m. on September 15, 2008, the Exchange 
announced a Rule 123D(3) ``Sub-penny trading'' condition for LEH and 
halted trading in LEH at the Exchange. Third, to ensure a fair and 
orderly market in all securities listed at the Exchange, the Exchange 
announced that, pursuant to NYSE Rule 103.11, NYSE-listed securities 
for which Lehman Brothers Market Makers, a division of Lehman Brothers 
Inc. (``Lehman Brothers''), had been the specialist, would be 
temporarily reallocated to Spear, Leeds & Kellogg Specialists LLC 
(``Spear Leeds''). Notwithstanding the reallocation, these stocks will 
continue to trade using Lehman Brothers technology and staff until a 
more permanent allocation can be effected.
    To ensure a fair and orderly market during this period of market 
stress, the Exchange is seeking temporary relief from certain NYSE 
rules that are implicated by the Lehman Brothers situation. In 
particular, the Exchange is proposing to suspend the operation of NYSE 
Rule 123D(3) on September 15, 2008 for derivative securities of LEH 
that trade at the Exchange (``LEH Preferreds'') \4\ that would open at 
a price of $1.05 or less. This proposed suspension relates only to the 
opening of LEH Preferreds on September 15, 2008. Immediately following 
the opening of such securities, the Exchange intends to halt trading of 
LEH Preferreds pursuant to NYSE Rule 123D(3) and invoke a Sub-penny 
trading condition.
---------------------------------------------------------------------------

    \4\ See Lehman Bros Pfd C (LEH-PC); Lehman Bros 5.67 D (LEH-PD); 
Lehman Bros Dep SH F (LEH-PF); Lehman Dep Pfd G (LEH-PG); Lehman Pfd 
J (LEH-PJ); Lehman CP III 6.375 K (LEH-PK); Lehman Br Cap Tr IV 
(LEH-PL); Lehman Bro Cap V 6.0 (LEH-PM); and Lehman Br Hld 6.24 N 
(LEH-PN).
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    In addition, pending the installation of telephone lines at Lehman 
Brothers' specialist posts that are connected to Spear Leeds, the 
Exchange proposes to temporarily suspend NYSE Rule 36.30 so that Spear 
Leeds may conduct permitted communications from those post locations 
via non-Exchange portable telephones.
a. NYSE Rule 123D(3)
(1) Background
    NYSE Rule 123D(3) provides that if a security would open on the 
Exchange at a price of $1.05 or less, trading on the Exchange shall be 
immediately halted because of a ``Sub-penny trading'' condition. The 
Exchange adopted Rule 123D(3) in part to be compliant with Regulation 
NMS.
    Regulation NMS, adopted by the Securities and Exchange Commission 
(``SEC'') in April 2005,\5\ provides that each trading center intending 
to qualify for trade-through protection under Regulation NMS Rule 
611\6\ is required to have a Regulation NMS-compliant trading system 
fully operational by

[[Page 57186]]

March 5, 2007 (the ``Trading Phase Date'').\7\
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    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 17 CFR Parts 200, 201, 230, 240, 242, 249 and 270.
    \6\ See 17 CFR 242.611.
    \7\ See Securities Exchange Act Release No. 55160 (January 24, 
2007), 72 FR 4202 (January 30, 2007) (S7-10-04).
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    For stocks priced below $1.00 per share, Regulation NMS Rule 612 
\8\ permits markets to accept bids, offers, orders and indications of 
interest in increments smaller than $0.01, but not less than $0.0001, 
and to quote and trade such stocks in sub-pennies. Markets may choose 
not to accept such bids, offers, orders or indications of interest and 
the NYSE has done so, maintaining a minimum trading and quoting 
variation of $0.01 for all securities trading below $100,000. See NYSE 
Rule 62.
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    \8\ See 17 CFR 242.612. Rule 612 originally was to become 
effective on August 29, 2005, but the date was later extended to 
January 29, 2006. See Securities Exchange Act Release No. 52196 
(Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005).
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    The SEC's interpretation of Rule 612 requires a market that routes 
an order to another market in compliance with Rule 611 and receives a 
sub-penny execution, to accept the sub-penny execution, report that 
execution to the customer, and compare, clear and settle that trade. 
Failure to do so constitutes a violation of Rule 611's Order Protection 
Rule. However, pursuant to Rule 611(b)(3) of Regulation NMS,\9\ 
transactions that constitute a single-priced opening, reopening, or 
closing transaction by a trading center are excepted from the Order 
Protection Rule. Accordingly, a sub-penny execution at the opening that 
trades through another market center does not constitute a violation of 
Regulation NMS Rule 611's Order Protection Rule.
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    \9\ See 17 CFR 242.611(b)(3).
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    The Exchange adopted Rule 123D(3) to provide for a ``Sub-penny 
trading'' condition because the Exchange's trading systems did not then 
accommodate sub-penny executions on orders routed to better-priced 
protected quotations, nor could it recognize a quote disseminated by 
another market center if such quote had a sub-penny component and, 
therefore, could have inadvertently traded through better protected 
quotations. The rule allows the Exchange to halt trading in a security 
whose price was about to fall below $1.00, without delisting the 
security, so that the security could continue to trade on other markets 
that deal in bids, offers, orders or indications of interest in sub-
penny prices, until the price of the security had recovered 
sufficiently to permit the Exchange to resume trading in minimum 
increments of no less than one penny or the issuer is delisted for 
failing to correct the price condition within the time provided under 
NYSE rules.\10\
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    \10\ See Securities and Exchange Commission Release No. 34-
55398; File No. SR-NYSE-2007-25 (Mar. 5, 2007).
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    A subsequent amendment established that any orders received by the 
NYSE in a security subject to a ``Sub-penny trading'' condition would 
be routed to NYSE Arca, Inc. (``NYSE Arca'') and handled in accordance 
with the rules governing that market.\11\ When a ``Sub-penny trading'' 
condition is invoked, all open limit orders in such security at the 
Exchange will be cancelled and will not be routed to NYSE Arca.
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    \11\ See Securities and Exchange Commission Release No. 34-
55537; File No. SR-NYSE-2007-30 (Mar. 27, 2007).
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(2) Proposed Suspension of Rule 123D(3) for LEH Preferreds
    Pre-opening quoting and trading in away markets relating to LEH 
Preferreds indicated that such securities would open at prices below 
$1.05.\12\ Prior to the opening, the Exchange received pre-opening 
orders in LEH Preferreds. If the Exchange were to invoke a ``Sub-penny 
trading'' condition for those securities prior to the opening, such 
orders would be cancelled and would not be routed to NYSE Arca. 
Therefore, such orders would not be executed, potentially harming the 
investing public that routed such orders to the Exchange before the 
Exchange's announcement of a sub-penny trading halt.
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    \12\ Prior to the open on September 15, 2008, the Exchange 
announced that it was invoking a Rule 123D(3) ``Sub-penny trading'' 
condition for LEH and that any trading in that security would take 
place at NYSE Arca. Trading in LEH had begun at NYSE Arca at 4 a.m. 
EST on September 15, 2008.
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    The Exchange notes that while such an opening transaction would be 
a violation of NYSE Rule 123D(3), an execution at a sub-penny price at 
the opening at the Exchange would not be a violation of Regulation NMS. 
Accordingly, because a sub-penny execution at the opening would not 
constitute a violation of the Regulation NMS Rule 611 Order Protection 
Rule, the Exchange believes that the harm to the investing public in 
not having their orders in LEH Preferreds executed at the opening 
outweighs any harm that may result from a violation of NYSE Rule 
123D(3). The Exchange therefore proposes a one-day suspension of the 
operation of NYSE Rule 123D(3) that would be in effect only for the 
opening transactions of LEH Preferreds on September 15, 2008.
    Once trading in LEH Preferreds open at the Exchange, should such 
opening prices be at or below $1.05, the Exchange would, in compliance 
with NYSE Rule 123D(3), immediately halt trading and invoke a ``Sub-
penny trading'' condition for such securities.
b. Proposed Suspension of NYSE Rule 36.30
    NYSE Rule 36 bars members or member organizations from establishing 
or maintaining any telephonic or electronic location between the Floor 
of the Exchange and any other location without the approval of the 
Exchange. NYSE Rule 36.30 permits a specialist unit to maintain 
telephone lines at its stock trading post locations that connect to 
off-Floor offices of the specialist unit or the unit's clearing firm. 
Specialists, however, are not permitted to use cell phones from the 
Floor of the Exchange.
    As permitted by NYSE Rule 36.30, the Lehman Brothers specialist 
posts (posts 10 and 11), which are located in the Main Room of the 
Floor of the Exchange, have telephone lines connected to its off-Floor 
offices. Those post locations do not have telephone lines connected to 
any other entities. Because the temporary reallocation to Spear Leeds 
of the securities registered with Lehman as specialist was done shortly 
before the opening of trading at the Exchange, the Exchange was unable 
to install telephone lines at posts 10 and 11 that connect to Spear 
Leeds in time for the opening of trading or otherwise reorganize so 
that the Lehman Brothers and Spear Leeds posts are located in 
contiguous space.
    Without telephone lines from the posts 10 and 11 to Spear Leeds' 
off-Floor location, Spear Leeds is limited in its ability to engage in 
permitted telephonic communications from posts 10 and 11. Accordingly, 
the Exchange proposes to temporarily suspend NYSE Rule 36.30 as it 
applies only to Spear Leeds at posts 10 and 11. Such suspension would 
end the earlier of (i) the installation of telephone wires at posts 10 
and 11 that connect to Spear Leeds' off-Floor locations; or (ii) the 
end of the temporary reallocation of the securities assigned to Lehman 
Brothers to Spear Leeds.
    In connection with this temporary relief, the Exchange will advise 
Spear Leeds' management and risk personnel that use of the mobile 
telephones is limited to permitted communications, and may not be used 
from the Lehman Brothers' posts for any other purposes.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act,\13\ in that 
it is designed to prevent fraudulent and manipulative

[[Page 57187]]

practices, to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanisms of, a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.
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    \13\ 15 U.S.C. 78f(b)(5).
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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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated the proposed rule change as one that: 
(1) Does not significantly affect the protection of investors or the 
public interest; (2) does not impose any significant burden on 
competition; and (3) does not become operative for 30 days from the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
Therefore, the foregoing rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \14\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally does not 
become operative until 30 days after the date of filing.\16\ However, 
Rule 19b-4(f)(6)(iii) \17\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In view of the immediate nature of 
the relief requested, the Exchange seeks to have the proposed 
amendments become operative immediately. The Exchange requests that the 
Commission waive the 30-day delayed operative date, so that the 
proposed rule change may become immediately operative pursuant to 
Section 19(b)(3)(A) and Rule 19b-4(f)(6) thereunder. Waiver of these 
periods will allow the Exchange to immediately implement the proposed 
rule change.
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    \16\ Id. In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to the date of filing of the proposed rule change, or such 
shorter time as designated by the Commission. NYSE has satisfied 
this requirement.
    \17\ Id.
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    As outlined more fully above, the Exchange believes that the 
proposed relief is limited in nature, and that the benefits of the 
proposed relief outweigh the potential harms. In particular, the 
proposed suspension of NYSE Rule 123D(3) would be applicable only to 
the opening transactions on September 15, 2008 for nine Lehman 
Preferred securities. Similarly, the proposed temporary suspension of 
NYSE Rule 36.30 is only applicable for posts 10 and 11 on the Floor of 
the Exchange to respond to the emergency reallocation of Lehman 
Brothers securities to Spear Leeds, and the suspension would end the 
earlier of (i) the installation of telephone wires at posts 10 and 11 
that connect to Spear Leeds' off-Floor locations; or (ii) the end of 
the temporary reallocation of the securities assigned to Lehman 
Brothers to Spear Leeds.\18\ Moreover, given the rapidity of recent 
developments, the NYSE believes that immediate effectiveness is 
required in order to avoid significant disruption to the market. The 
NYSE believes that this need satisfies the standards set out in the 
Exchange Act and related rules regarding immediate effectiveness 
filings.
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    \18\ Subsequent to filing this proposed rule change, the 
Exchange informed the Commission that installation of telephone 
wires at posts 10 and 11 connecting to Spear Leeds's off-Floor 
locations was completed the afternoon of September 15, 2008. Thus, 
the suspension would end and Rule 36.30 would be in effect again 
prior to the opening of trading on September 16, 2008. Telephone 
conversation between Clare Saperstein, Director, Office of the 
General Counsel, Exchange, and Nathan Saunders, Special Counsel, 
Division of Trading and Markets, Commission, September 15, 2008.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission therefore grants the Exchange's request and designates 
the proposal to be operative upon filing.\19\
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    \19\ For purposes only of waiving the 30-day operative delay of 
this proposal, 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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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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 No. SR-NYSE-2008-84 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2008-84. 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, on official business 
days between the hours of 10 a.m. and 3 p.m. 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-2008-84 and should be submitted on or before October 22, 2008.


[[Page 57188]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22966 Filed 9-30-08; 8:45 am]
BILLING CODE 8011-01-P