[Federal Register Volume 66, Number 125 (Thursday, June 28, 2001)]
[Notices]
[Pages 34503-34504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16258]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44465; File No. SR-NYSE-2001-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Amending NYSE Rules 104 and 
1100 Relating to Trading of ETFs

June 22, 2001.
    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 15, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. 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\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The proposed rule change consists of an amendment to NYSE Rule 104 
to facilitate trading in Exchange Traded Funds (``ETFs''), and 
amendments to Rule 1100 to clarify that rules relating to Investment 
Company Units apply to such securities traded on the basis of unlisted 
trading privileges (``UTP''), and to authorize the Exchange to close 
trading in an ETF at 4:05 p.m. when trading in a related futures 
contract has closed at that time on the last trading day of the month. 
Text of the proposed rule change follows. Additions are italicized; 
deletions are bracketed.

Dealings by Specialists

Rule 104

    No specialist shall effect on the Exchange purchases or sales of 
any security in which such specialist is registered, for any account 
in which he, his member organization or any other member, allied 
member, or approved person, (unless an exemption with respect to 
such approved person is in effect pursuant to Rule 98) in such 
organization or officer or employee thereof is directly or 
indirectly interested, unless such dealings are reasonably necessary 
to permit such specialist to maintain a fair and orderly market, or 
to act as odd-lot dealer in such security.

.10 Regular Specialists

* * * * *
    (7) The requirement to obtain Floor Official approval for 
transactions for a specialist's own account contained in 
subparagraphs (5)(i)(A), (B) and (6)(i)(A) above shall not apply to 
transactions effected for the purpose of bringing the price of an 
investment company unit (the ``unit''), as that term is defined in 
Section 703.16 of the Listed Company Manual, into parity with the 
value of the index on which the unit is based, [or] with the net 
asset value of the securities comprising the unit[.], or with a 
futures contract on the value of the index on which the unit is 
based. Nevertheless such transactions must be effected in a manner 
that is consistent with the maintenance of a fair and orderly market 
and with the other requirements of this rule and the supplementary 
material herein.

Rule 1100

Scope

    (a) The provisions of this Rule 1100 apply only to ``Investment 
Company Units'', as defined and used in Para. 703.16 of the Listed 
Company Manual. This term shall also mean and apply to securities 
which fit within said definition but are admitted to dealings by the 
Exchange on an unlisted trading privileges basis. Except to the 
extent that specific provisions in this Rule govern, or unless the 
context otherwise requires, the provisions of the Constitution, all 
other Exchange Rules and policies shall be applicable to the trading 
of Investment Company Units on the Exchange. Pursuant to Exchange 
Rule 3 (``Security''), Investment Company Units are included within 
the definition of ``security'' or ``securities'' as those terms are 
used in the Constitution and Rules of the Exchange.
* * * * *

Hours of Trading

    (e) Any series of Investment Company Units so designated by the 
Exchange may be traded on the Exchange until 4:15 p.m. each business 
day. The Exchange may close trading at an early time to coincide 
with the close of trading in a related futures contract on the last 
business day of the month, or any other day when trading in a 
related futures contract closes earlier than 4:15 p.m.
* * * * *

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 and 
discussed

[[Page 34504]]

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
    The Exchange plans to begin trading certain ETFs on the Exchange 
pursuant to UTP on July 19, 2001. These ETFs are the NASDAQ 100 Trust 
(symbol QQQ), Standard and Poor's Depositary Receipts (symbol SPY) and 
the Dow Industrials DIAMONDS (symbol DIA). ETFs are securities, which 
are Investment Company Units as defined in Section 703.16 of the 
Exchange's Listed Company Manual. The Exchange proposes to amend NYSE 
Rule 1100(a) to clarify that NYSE rules applying to Investment Company 
Units also apply to securities fitting that definition that are traded 
on the Exchange on the basis of UTP.
    NYSE Rule 104 governs specialists' dealings in their specialty 
stocks. NYSE Rule 104.10 requires specialists to obtain Floor Official 
approval when purchasing on a direct plus tick or selling on a direct 
minus tick, or when purchasing on a zero plus tick more than 50% of the 
stock offered. These transactions are seen as destabilizing, and may be 
effected by the specialist only with Floor Official approval. NYSE Rule 
104.10(7) was amended several years ago to permit a specialist 
registered in an Investment Company Unit to effect proprietary 
destabilizing trades without Floor Official approval to bring the 
security into parity with the value of the index on which the unit is 
based or with the net asset value of the securities comprising the 
unit. The purpose of that amendment was to permit a specialist 
registered in a ``country basket'' to act expeditiously to bring the 
basket into parity with the value of the securities comprising the 
basket.\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 37016 (March 22, 
1996), 61 FR 14185 (March 29, 1996) approving filing SR-NYSE-96-04.
---------------------------------------------------------------------------

    As noted above, ETFs are within the meaning of the term Investment 
Company Units, and thus an ETF specialist is permitted under Rule 
104.10(7) to effect proprietary destabilizing trades without Floor 
Official approval to bring the ETF into parity with the underlying 
index or the value of the securities comprising the ETF. In certain 
situations, however, market participants may seek to ``trade through'' 
these parity values to bring the ETF into parity with a futures 
contract on the index on which the ETF is based. The Exchange believes 
it would be appropriate to permit an ETF specialist to effect 
proprietary destabilizing transactions without Floor Official approval 
as appropriate in this situation. Such transactions remain subject to 
the requirement that they be effected in a manner that is consistent 
with the maintenance of a fair and orderly market.
    The Exchange understands that futures trading in stock index 
products on the Chicago Mercantile Exchange closes at 4:05 p.m. 
(Eastern time) on the last business day of each month. The Exchange 
understands that trading in related ETFs on other market centers closes 
at such time on such days as well. Accordingly, the Exchange proposes 
to close trading in an ETF at the same time that trading in a related 
futures contract closes on the last business day of the month.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(5) \4\ of the Act, which requires among other things, 
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 Exchange 
believes that the proposed rule change is consistent with these 
objectives because it fosters efficient market making in ETF 
securities.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609. 
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 will also be 
available for inspection and copying at the principal office of the 
NYSE. All submissions should refer to File No. SR-NYSE-2001-15 and 
should be submitted by July 13, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
---------------------------------------------------------------------------

    \5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-16258 Filed 6-27-01; 8:45 am]
BILLING CODE 8010-01-M