[Federal Register: February 6, 2008 (Volume 73, Number 25)]
[Notices]
[Page 7022-7024]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe08-96]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57236; File No. SR-NYSE-2008-03]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change to Rescind Rule 97 (Limitation
on Member's Trading Because of Block Positioning)
January 30, 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 January 11, 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, II,
and III below, which Items have been substantially prepared by the
Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NYSE proposes to rescind NYSE Rule 97 (Limitation on Member's
Trading Because of Block Positioning). The text of the proposed rule
change is available at NYSE, the Commission's Public Reference Room,
and http://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, 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. 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 seeks to rescind Exchange Rule
97. Exchange Rule 97 prevents a member organization that holds a long
position in a security that resulted from a block transaction with a
customer from
[[Page 7023]]
effecting, within twenty minutes of the close of trading on the
Exchange, a purchase on a ``plus'' tick in that security at a price
higher than the lowest price at which any block was acquired in a
previous transaction on that day, if the person responsible for the
entry of such order to purchase the security had knowledge of the block
position.
The Exchange has from time to time reviewed the applicability of
the rule and made amendments in an attempt to maintain the rule's
relevance as the nature of trading has significantly evolved over the
years. Notwithstanding those efforts, the Exchange believes that the
practical application of the rule in today's market no longer addresses
the concerns that prompted its implementation. The Exchange therefore
proposes to rescind Exchange Rule 97 in its entirety.
Background
Exchange Rule 97 focuses on the trading of member organizations
while they hold positions in a security as a result of a block
transaction with customer(s). The rule was originally adopted to
address concerns that a member organization might engage in
manipulative practices by attempting to ``mark-up'' the price of a
stock to enable the position acquired in the course of block
positioning to be liquidated at a profit, or to maintain the market at
the price at which the position was acquired.
In 2002, the rule was amended to narrow the scope of the
prohibitions solely to transactions executed within the last twenty
minutes of the trading day, and to provide exceptions to the rule for
member organizations that establish information barriers and for
certain hedging transactions.\3\ The rationale behind the rule change
was to limit the rule's ``tick'' restriction to the most sensitive part
of the trading day (where it was thought that manipulation was most
likely to occur so that the member firm could unwind its position at
the opening of trading the next day).
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\3\ See Securities Exchange Act Release No. 46566 (September 27,
2002), 67 FR 62278 (October 4, 2002) (SR-NYSE-2001-24).
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The implementation of Regulation NMS in March 2007 necessitated an
additional amendment to the rule in July 2007 to create an exemption to
resolve a conflict between compliance with Rule 97 and Regulation
NMS.\4\ Specifically, if during the last 20 minutes of trading a member
organization facilitates a customer order that trades through protected
bids or offers, and in compliance with Rules 600(b)(30)(ii) and
611(b)(6) of Regulation NMS,\5\ the member organization simultaneously
routes proprietary intermarket sweep orders to execute against the full
displayed size of any protected quotation in that security (``ISO
facilitation''), the ISO facilitation could violate Rule 97 if the ISO
orders would trade on a plus tick, at a price above the lowest
facilitation price. In essence, the implementation of Regulation NMS
required firms to choose between violating Regulation NMS or violating
Rule 97. The exemption to Rule 97 was added so that when facilitating a
customer order that would otherwise require a member organization to
either violate Rule 97 or trade through protected quotations, member
organizations can comply with their Regulation NMS obligations without
also violating Rule 97.\6\
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\4\ See Securities Exchange Act Release No. 56024 (July 6,
2007), 72 FR 38643 (July 13, 2007) (SR-NYSE-2007-61).
\5\ 17 CFR 242.600(b)(30)(ii) and 17 CFR 242.611(b)(6).
\6\ This exemption would be available only when: (1) The firm
has acquired a proprietary position as a result of a previous block
facilitation for a customer; (2) the facilitation trade during the
last 20 minutes of trading would cause the firm to trade through a
better priced offer on another market, such that the firm is
obligated by Regulation NMS Rule 611 to send proprietary ISOs when
it facilitates the customer's order; (3) the customer has declined
better-priced ISO executions; and (4) the better-priced offers in
away markets are such that NYSE Rule 97 would prohibit the firm from
sending a proprietary buy order. See NYSE Information Memo 07-67
(July 6, 2007).
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Rescision of Rule 97
NYSE states that this proposed rescision of the rule highlights the
extent to which trading has changed and how the operation of Rule 97
hinders the ability of member organizations to legitimately conduct
their business and facilitate their customers' orders. Today,
compliance with Regulation NMS means that the liquidation of a block
position typically occurs on many different market centers.
Additionally, the Exchange believes that, in active and volatile market
conditions, incremental movements of a penny or more occur almost
instantaneously, lessening the ability to influence the closing price
of a security.
Rule 97 was established at a time when the majority of block
transactions were executed on the Exchange. However, in the present
competitive trading environment, there are now many other venues
available for market participants to effect block position transactions
without the strictures of such a rule. The Exchange believes that, in
order to encourage consistency throughout the industry with respect to
the execution of block positions and to encourage market participants
to continue to effect their block transactions on the Exchange, Rule 97
should be rescinded. NYSE represents that NYSE Regulation, Inc. will
continue to surveil in NYSE-listed securities for possible manipulative
activity, including marking the close, which could be in violation of
federal securities laws or Exchange Rules, including Rule 10b-5 under
the Act,\7\ section 9(a) of the Act,\8\ and Exchange Rules 476(a) and
435.\9\
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\7\ 17 CFR 240.10b-5.
\8\ 15. U.S.C. 78i(a).
\9\ See e-mail from Gillian Rowe, Senior Counsel, NYSE, to
Jennifer Dodd, Special Counsel, Division of Trading and Markets,
Commission, dated January 29, 2008.
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2. Statutory Basis
NYSE believes that the proposed rule change is consistent with
Section 6(b) of the Act,\10\ in general, and the requirement in Section
6(b)(5) of the Act,\11\ in particular, that the rules of an exchange
are, among other things, 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. NYSE asserts that 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, and make it practicable for
brokers to execute investors' orders in the best market.
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\10\ 15 U.S.C. 78f(b).
\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
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
[[Page 7024]]
longer period to be appropriate and publishes its reasons for so
finding, or (ii) as to which NYSE consents, the Commission will:
(A) By order approve such proposed rule change; or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2008-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2008-03. 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, 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 offices 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-2008-03 and should be
submitted on or before February 27, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-2075 Filed 2-5-08; 8:45 am]
BILLING CODE 8011-01-P