[Federal Register Volume 66, Number 206 (Wednesday, October 24, 2001)]
[Notices]
[Pages 53820-53822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26729]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44943; File No. SR-NYSE-2001-39]


Self-Regulatory Organizations; New York Stock Exchange, Inc., 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change by 
the New York Stock Exchange, Inc. To Amend Rule 123

October 16, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-b-4 thereunder,\2\ notice is hereby given 
that on October 8, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') 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 the NYSE. 
The text of the proposed rule change is available for inspection and 
copying at

[[Page 53821]]

the places specified in Item IV below. 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 amendments to NYSE Rule 123. 
The text of the proposed rule change is available at the Office of the 
Secretary, NYSE, and at the Commission.

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 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 and is set forth in Sections A, B, and C below.

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

1. Purpose
    This proposed rule change was originally filed as a one-month pilot 
in SR-NYSE-2001-36.\3\ With this proposed rule change, the NYSE seeks 
permanent approval to the amendments to NYSE Rule 123.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 44783 (September 10, 
2001), 66 FR 48304 (September 19, 2001).
---------------------------------------------------------------------------

    The Exchange has adopted requirements for the electronic capture of 
orders at the point of sale (front end systemic capture, or ``FESC'') 
\4\ and at the point of receipt (order tracking system, or ``OTS''). 
The purpose of the requirements is to create a complete systemic record 
of orders handled by members and member organizations. The Exchange 
believes that these requirements will provide benefits both to the 
Exchange and members in terms of recordkeeping, surveillance and order 
processing.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 43689 (December 7, 
2000), 65 FR 79145 (December 18, 2000) (Order approving amendments 
to NYSE Rule 123 providing for the systemic capture of order 
information on the Exchange floor).
---------------------------------------------------------------------------

    However, due to the time sensitivity of bona fide arbitrage orders 
and orders to offset transactions made in error, the Exchange is 
proposing to carve out two exceptions to NYSE Rule 123(e). These orders 
may be initiated by a member on the Floor pursuant to SEC Rule 11a-1 
and NYSE Rule 111, and a requirement that such orders be first entered 
into FESC may result in a lost arbitrage opportunity, or the covering 
of an error at additional loss to the member. With respect to bona fide 
arbitrage orders,\5\ a member may execute such order before entering 
the order into FESC. However, such member must enter such order into 
FESC no later than 60 seconds after the execution of such order.
---------------------------------------------------------------------------

    \5\ In Securities Exchange Act Release No. 15533 (January 29, 
1979), 44 FR 6084 January 31, 1979), the Commission defined ``bona 
fide arbitrage'' as an ``activity undertaken by market professionals 
in which essentially contemporaneous purchases and sales are 
effected in order to `lock in' a gross profit or spread resulting 
from a current differential in pricing.'' The Commission further 
stated that it ``understands that many transactions currently being 
undertaken by those who are regularly engaged in arbitrage involve 
some limited, intentional delay (usually a matter of minutes or 
hours but sometimes, under extraordinary circumstances, as long as a 
day or even two days) in between the transaction in which the first 
leg of the arbitrage is established and the subsequent transaction 
in which the second, offsetting, leg is completed.'' With respect to 
the latter, each ``leg'' of an arbitrage would be considered an 
``order'' for purposes of the bona fide arbitrage exception under 
Exchange Rule 123(e). Thus, a member would be required to enter such 
order into FESC no later than 60 seconds after the execution of each 
``leg'' of the arbitrage.
---------------------------------------------------------------------------

    Similarly, with respect to orders to offset transactions made in 
error, a member may, upon discovering such error within the same 
trading session, effect an offsetting transaction without first 
entering such order into FESC. However, such member must enter such 
order into FESC no later than 60 seconds after the execution of such 
order.
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) of the 
Act \6\ 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 designed to 
accomplish these ends by strengthening the Exchange's ability to 
surveil the Floor activities of members.
---------------------------------------------------------------------------

    \6\ 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

    Because the foregoing proposed rule: (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 or such shorter time as the Commission may 
designate, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of Rule 19b-
4 thereunder.\8\ At any time within 60 days of the filing of the 
proposed rule change, as amended, 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission notes that under Rule 19b-4(f)(6)(iii),\9\ the 
proposal does not become operative for 30 days after date of its 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
The Exchange has requested that the Commission waive the five-day pre-
filing requirement and designate that the proposed rule change become 
operative immediately to permit the continued implementation of the 
amendments to NYSE Rule 123, as begun on September 10, 2001, for a one-
month pilot. The NYSE believes it is consistent with investor 
protection and the public interest. In particular, the Exchange 
believes the proposed rule change will enable members to execute bona 
fide arbitrage orders and orders to offset transactions made in error 
quickly without having to enter the order into the FESC. The proposed 
rule will still require that these be entered into the FESC within 60 
seconds after the execution of the respective order.
---------------------------------------------------------------------------

    \9\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the protection 
of investors and the public interest to waive the five-day pre-filing 
require and designate the proposed rule change

[[Page 53822]]

immediately operative.\10\ Accelerating the operative date and waiving 
the pre-filing requirement will permit the Exchange to continue 
implementation of NYSE Rule 123(e) without interruption. For this 
reason, the Commission finds good cause to designate that the proposed 
rule change become operative immediately.
---------------------------------------------------------------------------

    \10\ For purposes of accelerating the operative date of this 
proposed rule change, the Commission has considered the proposed 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. 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 the File No. SR-NYSE-2001-39 and should be submitted by 
November 14, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-26729 Filed 10-23-01; 8:45 am]
BILLING CODE 8010-01-M