[Federal Register Volume 67, Number 209 (Tuesday, October 29, 2002)]
[Notices]
[Pages 66033-66034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27486]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46713; File No. SR-NYSE-2002-48]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. Relating to Extension of the Pilot With Respect to Exceptions to 
NYSE Rule 123(e) for Orders in Exchange-Traded Funds

October 23, 2002.
    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 October 8, 2002, 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 
Exchange. The Exchange has filed the proposal as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A)(iii) of the 
Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission.\5\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The NYSE asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    This proposal is to extend until January 5, 2004 the effectiveness 
of the amendment to NYSE Rule 123(e) which provides that orders in 
Exchange-Traded Funds (``ETFs'') may be entered into an electronic 
system on the Floor (Front-End Systemic Capture or ``FESC'') within 90 
seconds of execution. This amendment was approved by the Commission on 
a pilot basis for one year (the ``Pilot'') on January 7, 2002.

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 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
    On December 21, 2001, the Exchange filed a proposed rule change to 
amend NYSE Rule 123(e) to provide that orders in ETFs may be entered 
within 90 seconds of execution.\6\ NYSE Rule 123(e) ordinarily requires 
that all orders in any security traded on the Exchange be entered into 
an electronic data base before they can be represented in the 
Exchange's auction market. This exception to NYSE Rule 123(e) for ETFs 
was filed as a one-year pilot, and

[[Page 66034]]

approved by the Commission on January 7, 2002.\7\
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    \6\ See SR-NYSE-2001-52 (December 21, 2001).
    \7\ See Securities Exchange Act Release No. 45246 (January 7, 
2002), 67 FR 1527 (January 11, 2002).
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    The Exchange proposes to extend this pilot for an additional year 
(from January 6, 2003 until January 5, 2004). The Exchange continues to 
believe that this proposal will facilitate trading in ETFs on the 
Exchange, while still ensuring that the Exchange maintains its 
electronic order data base with orders being entered in reasonable 
proximity to order executions. The Exchange notes that requirements 
that members record the time of receipt of an order on the Floor remain 
in full effect and are not affected by this proposal.
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 \8\ 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 
proposed rule change is designed to accomplish these needs by 
strengthening the Exchange's ability to surveil the Floor activities of 
members.
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    \8\ 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

    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 proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days (or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest) after the date of the filing, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive both the pre-filing notice requirement of at least 
five business days (or such shorter time as designated by the 
Commission) and the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii).\11\ The Commission notes, however, that waiver of these 
periods is not necessary to continue the Pilot uninterrupted without 
inconvenience and delay to the public.\12\ The Commission, consistent 
with the protection of investors and the public interest, has 
determined to waive the five-day pre-filing notice requirement (given 
that the Exchange filed the proposed rule on October 8, 2002), but the 
Commission is not waiving the 30-day operative period because it is not 
necessary. The proposed rule change will enable members to execute 
orders in ETFs quickly without having to enter the order into an 
electronic system (FESC). However, the proposal will still require that 
these orders be entered into an electronic system (FESC) within a very 
short time frame (90 seconds after the execution of the respective 
order).
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ Telephone conference between Jeffrey Rosenstrock, Senior 
Special Counsel, NYSE, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, on October 21, 2002.
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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.\13\
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    \13\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C). 
The Commission notes, however, this proposed rule change has been 
filed as a one-year extension of a one-year pilot. During the pilot, 
the NYSE will surveil the application of the exception to NYSE Rule 
123(e) and submit data to the Commission for the purpose of 
evaluating the Rule's efficacy.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 number SR-NYSE-2002-48 and should be 
submitted by November 19, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-27486 Filed 10-28-02; 8:45 am]
BILLING CODE 8010-01-P