[Federal Register Volume 69, Number 179 (Thursday, September 16, 2004)]
[Notices]
[Pages 55856-55857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2204]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50337; File No. SR-NYSE-2004-06]


Self-Regulatory Organizations; Order Granting Approval To 
Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the New York 
Stock Exchange, Inc. Relating to Amendments to Exchange Rule 104 and 
Rule 123

September 9, 2004.
    On February 6, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1)\1\ of the Securities 
Exchange Act of 1934 (``Act'') and Rule 19b-4 thereunder,\2\ a proposed 
rule change to amend NYSE Rule 104.10 (Dealings by Specialists) to 
provide that customers may limit the ability of specialists to trade 
along with their orders or to invoke precedence based on size when the 
specialist is liquidating a position in its specialty security for its 
dealer account, and to make a corresponding change to NYSE Rule 123 
(Records of Orders) concerning record keeping. On April 5, 2004, the 
Exchange amended the proposed rule change.\3\ On July 14, 2004, the 
Exchange again amended the proposed rule change.\4\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on August 2, 2004.\5\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated April 2, 2004 and accompanying 
Form 19b-4 (``Amendment No. 1''). In Amendment No. 1, the NYSE 
clarified that, under the proposed rule change, customers may limit 
specialists from trading along with their orders and from invoking 
precedence based on size.
    \4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division, Commission, dated 
July 13, 2004 and accompanying Form 19b-4 (``Amendment No. 2''). In 
Amendment No. 2, NYSE amended the proposed rule text and added 
additional explanatory material to clarify the proposal. Amendment 
No. 2 replaced the Exchange's original filing and Amendment No. 1 
thereto in their entirety.
    \5\ See Securities Exchange Act Release No. 50090 (July 27, 
2004), 69 FR 46197.
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    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6 of the Act,\6\ applicable to a 
national securities exchange.\7\ In particular, the Commission believes 
that the proposal is consistent with Section 6(b)(5) of the Act,\8\ 
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.
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    \6\ See 15 U.S.C. 78f.
    \7\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    Currently, when a specialist liquidates a position in his or her 
specialty security, the specialist is permitted to trade on parity with 
the crowd or may invoke precedence based on size.\9\ The Exchange 
believes that there may be circumstances in which a customer will wish 
to preclude a specialist from trading on parity or invoking precedence 
based on size. Accordingly, the Exchange has proposed to amend NYSE 
Rule 104.10(6)(i) to include new paragraph (C) to provide that 
transactions by a specialist for his or her dealer account in 
liquidating or decreasing a position in a specialty security must yield 
to a customer's 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

[[Page 55857]]

included in the quote prior to the transaction. The customer's order 
will then participate in the transaction to the extent that priority, 
parity and precedence rules permit. In addition, the Exchange has 
proposed to amend NYSE Rule 123 to add new paragraph (g) to provide 
that a request to a specialist to yield to a customer order is a 
condition of that order and must be documented in accordance with 
applicable books and records requirements.\10\
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    \9\ Specialist dealer transactions when liquidating a position 
are subject to specific affirmative market-making standards and 
review. NYSE Rule 104 requires that specialists' proprietary 
dealings be reasonably necessary to permit the specialist to 
maintain a fair and orderly market. In addition, specialists are 
required to obtain Floor Official approval for any liquidating sale 
transactions on a direct minus tick or purchase transactions on a 
direct plus tick.
    \10\ Relevant rules include NYSE Rules 123 and 410 and Rules 
17a-3 and a--4 under the Act, 17 CFR 240.17a--3 and 240.17a-4.
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    By giving the crowd broker the ability to require that the 
specialist yield to his or her customer's order, the Commission 
believes that the proposed amendment will create more similarity in the 
way orders on the book and in the crowd are handled. The Commission 
further believes that the proposal may enhance the execution of 
customer orders on the Exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change, as amended, (SR-NYSE-2004-06) 
be, and hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2204 Filed 9-15-04; 8:45 am]
BILLING CODE 8010-01-P