[Federal Register: May 16, 2006 (Volume 71, Number 94)]
[Notices]
[Page 28399-28401]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16my06-133]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53782; File No. SR-NYSE-2006-07]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To
Amend Exchange Rule 104 Regarding the Requirement That Specialists
Obtain Floor Official Approval for Destabilizing Dealer Account
Transactions That Match the National Best Bid or Offer
May 10, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 16, 2006, 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, II,
and III below, which Items have been prepared by the NYSE. On April 27,
2006, NYSE filed Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange made technical corrections
to the rule text of the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend NYSE Rule 104 (Dealings by
Specialists) to permit specialists to effect destabilizing dealer
account transactions when matching the national best bid or offer
without requiring that they obtain Floor Official approval.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in [brackets].
* * * * *
Dealings by Specialists
Rule 104
No change in (a) through .10(4)
(5)(i) Transactions on the Exchange for his own account of a member
acting as specialist are to be effected in a reasonable and orderly
manner in relation to the condition of the general market, the market
in the particular stock and the adequacy of the specialist's position
to the immediate and reasonably anticipated needs of the round-lot and
the odd-lot market. The following types of transactions to establish or
increase a position are not to be effected except when they are
reasonably necessary to render the specialist's position adequate to
such needs:
(A) A purchase at a price above the last sale in the same session:
(B) The purchase of more than 50% of the stock offered in the
market at a price equal to the last sale where such transaction would
be on a ``zero plus tic'' (i.e., the last sale price was above the
previous different regular way sale price); and
(C) Failing to reoffer or rebid where necessary after effecting
transactions described in (A) and (B) above.
Transactions of these types may, nevertheless, be effected with the
approval of a Floor Official or in less active markets where they are
an essential part of a proper course of dealings and where the amount
of stock involved and the price change, if any, are normal in relation
to the market.
(ii) Notwithstanding the provisions of subparagraphs (5)(i)(A) and
(B) above, whenever a specialist effects a principal purchase of a
[speciality] specialty stock, in another participating market center
through ITS, at or above the price at which he holds orders to sell
that stock, such orders which remain unexecuted on the Floor must be
filled by the specialist buying the stock for his own account, at the
same price at which he effected his principal transaction through ITS
unless, effecting such a principal transaction on the Floor, at that
price, would (a) be inconsistent with the maintenance of fair and
orderly markets; or (b) result in the election of stop orders.
(iii) Whenever a specialist effects a principal sale of a specialty
stock, in
[[Page 28400]]
another participating market center through ITS, at or below the price
at which he holds orders to buy that stock, such orders which remain
unexecuted on the Floor must be filled by the specialist by selling the
stock for his own account, at the same price at which be effected his
principal transaction through ITS subject to the same conditions as set
forth in (ii)(a) and (b) above and provided further that effecting such
a principal transaction on the Floor, at that price, would not be
precluded by the short selling rules, or would not result in a sale to
a stabilizing bid.
(iv) Notwithstanding the provisions of (5)(i)(A) and (B) above, a
specialist may effect a principal purchase of a specialty security to
establish or increase a position at a price above the last sale in the
same session at a price that matches the then current national best bid
or, in the case of a sale, that matches the then current national best
offer.
(6)(i) Transactions on the Exchange by a specialist for his own
account in liquidating or decreasing his position in a specialty stock
are to be effected in a reasonable and orderly manner in relation to
the condition of the general market, the market in the particular stock
and the adequacy of the specialist's positions to the immediate and
reasonably anticipated needs of the round-lot and the odd-lot market
and in this connection:
(A) The specialist may liquidate a position by selling stock on a
direct minus tick or by purchasing stock on a direct plus tick only if
such transactions are reasonably necessary in relation to the
specialist's overall position in the stocks in which he is
registered[;] , and the specialist has obtained the prior approval of a
Floor Official;
(B) The specialist may liquidate a position by selling a security
on a direct or zero minus tick or by purchasing a security on a direct
or zero plus tick without the need to obtain Floor Official approval if
such transaction is effected at a price that matches the then current
national best bid or offer;
[(B)] (C) The specialist should maintain a fair and orderly market
during liquidation and, after reliquifying, should re-enter the market
to offset imbalances between supply and demand. The selling of stock on
a direct minus tick or a zero minus tick, or the purchasing of stock on
a direct plus tick or a zero plus tick should be effected in
conjunction with the specialist's re-entry in the market on the
opposite side of the market from the liquidating transaction where the
imbalance of supply and demand indicates that immediately succeeding
transactions may result in a lower price (following the specialist's
sale of stock on a direct minus tick or a zero minus tick) or a higher
price (following the specialist's purchase of stock on a direct plus
tick or a zero plus tick). During any period of volatile or unusual
market conditions resulting in a significant price movement in the
subject security, the specialist's transactions in re-entering the
market following a liquidating transaction effected by selling stock on
a direct minus tick or zero minus tick, or purchasing stock on a direct
plus tick or zero plus tick, should, at a minimum, reflect the
specialist's usual level of dealer participation in the subject
security. During such periods of unusual price movement in a security,
any series of such transactions which may be effected in a brief period
of time should be accompanied by the specialist's re-entry in the
market and effecting transactions which reflect a significant degree of
dealer participation;
[(C)] (D) Transactions by a specialist for his or her dealer
account in liquidating or decreasing a position in a specialty security
must yield parity to and may not claim precedence based on size over a
customer order in the crowd upon the request of the member representing
such order, where such request has been documented as a term of the
order, to the extent of the volume of such order that has been included
in the quote prior to the transaction. However, this provision shall
not apply to automatic executions involving the specialist dealer
account.
(ii) Notwithstanding the provisions of subparagraph (6)(i)(A)
above, whenever a specialist effects a principal purchase (sale) of a
specialty stock, in another participating market center through ITS, at
or above (at or below) the price at which he holds orders to sell (buy)
that stock, such orders which remain unexecuted on the Floor must be
filled by the specialist by buying (selling) the stock for his own
account, at the same price at which he effected his principal
transaction through ITS subject to the same conditions as set forth in
subparagraphs (5)(ii) and (iii) above.
[No change to remainder of Rule]
* * * * *
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 NYSE included statements
concerning the purpose of and basis for the proposed rule change, as
amended. 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
NYSE Rule 104 governs specialists' dealings in their specialty
stocks. In particular, NYSE Rules 104.10(5) and (6) describe certain
types of transactions that are not to be effected unless they are
reasonably necessary to render the specialist's position adequate to
the needs of the market. In effect, these restrictions generally
require specialists' transactions for their own accounts to be
``stabilizing'' (i.e., against the trend of the market) and prohibit
specialists from making transactions that are ``destabilizing'' (i.e.,
with the market trend by buying on plus ticks and selling on minus
ticks), except with the approval of a Floor Official.
The Exchange is proposing to allow specialists to effect
proprietary transactions on a destabilizing basis for their own account
when such trades are effected at a price that matches the current
national best bid or offer (``NBBO''). In certain circumstances today,
such as trading in exchange traded funds (``ETFs''), specialists are
not currently restricted under NYSE Rule 104 from effecting proprietary
destabilizing transactions that bring an ETF into parity with the value
of the index on which the ETF is based. The Exchange believes that this
recognizes that specialists are not leading the market through
proprietary transactions in these instances, but rather following the
market as set by the independent judgment of other market
participants.\4\
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\4\ See Securities Exchange Act Release No. 49087 (January 15,
2004), 69 FR 3622 (January 26, 2004) (SR-Amex-2002-116) (``[T]he
Commission believes that because ETFs are priced derivatively, an
Exchange specialist would not be able to manipulate the pricing of
an ETF.'').
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Similarly, the Exchange believes that amending NYSE Rules 104.10(5)
and (6) to permit specialists to effect a destabilizing proprietary
trade in an equity security at a price established independent of the
specialist should not be viewed as leading the market. The Exchange
states that the standard of each specialist proprietary trade meeting
the test of reasonable necessity would continue to apply to any such
destabilizing trade.
[[Page 28401]]
In addition, the Exchange notes that the time required to obtain
Floor Official approval for such transactions can have the effect of
delaying trading and could result in inferior execution prices for
customer orders.
Finally, the Exchange believes that removing these restrictions
should enhance the specialist's ability to make competitive markets
since the trades would be done at prices matching the then current
national best bid or offer.
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) \5\ that
an exchange have rules that are designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, 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.
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\5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change, as amended,
would not 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 not solicited, and does not intend to solicit,
comments regarding the proposed rule change, as amended. The Exchange
has not received any unsolicited written comments from members or other
interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-NYSE-2006-07 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-SR-NYSE-2006-07. 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 Commissions Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the 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-2006-07 and should be submitted on or before June
6, 2006.
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\6\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-7453 Filed 5-15-06; 8:45 am]
BILLING CODE 8010-01-P