[Federal Register Volume 70, Number 16 (Wednesday, January 26, 2005)]
[Notices]
[Pages 3758-3760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-279]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51054; File No. SR-NYSE-2005-07]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Proposed 
Changes to Exchange Rules 440F (``Public Short Sale Transactions 
Effected on the Exchange'') and 440G (``Transactions in Stocks and 
Warrants for the Accounts of Members, Allied Members and Member 
Organizations'')

January 18, 2005.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Exchange Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is 
hereby given that on January 11, 2005, the New York Stock Exchange, 
Inc. (the ``NYSE'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (the ``SEC'' or the ``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been

[[Page 3759]]

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\ 15 U.S.C. 78a et seq.
    \3\ 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

    The NYSE is filing with the SEC proposed amendments to Exchange 
Rules 440F (``Public Short Sale Transactions Effected on the 
Exchange'') and 440G (``Transactions in Stocks and Warrants for the 
Accounts of Members, Allied Members and Member Organizations'') to 
include certain short-exempt sales on Reports of Short Interest (i.e., 
Forms SS20 and 121). The text of the proposed amendments is available 
from the NYSE and the Commission.\4\
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    \4\ Both Exhibits A and B are available at http://www.nyse.com/regulation/ and http://www.sec.gov/rules/sro.shtml.
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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
    Exchange Rule 440F requires members and member organizations to 
report round-lot short sale transactions for public customers on Form 
SS20. Exchange Rule 440G requires members and member organizations to 
report round-lot short sale transactions for members, allied members or 
member organizations on Form 121. Rule 440F.10 (``Requirements for 
filing'') and 440G.10 (``Requirements for filing'') also provide 
``General Instructions'' to complete ``Reports on Form SS20'' and 
``Reports on Form 121,'' respectively.
    Currently, short-exempt sales are excluded when computing the total 
short interest on the forms, under Rules 440F and 440G, respectively. 
However, the SEC greatly increased the number of short-exempt sales 
transactions when they adopted Regulation SHO. Concurrently with the 
adoption of Regulation SHO, the SEC issued the Pilot Order \5\ 
providing for a one-year Pilot program under which the provisions of 
Rule 10a-1 and any SRO short sale price test, including the tick test 
contained in Exchange Rule 440B, are suspended. Subsequently, on 
November 29, 2004, the SEC issued a Second Pilot Order \6\ postponing 
its previously announced one-year pilot suspending the provisions of 
Rule 10a-1 and any short sale price test of any exchange or national 
securities association for short sales of designated securities.
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    \5\ See Securities Exchange Act Release No. 50104 (July 28, 
2004), 69 FR 48032 (August 6, 2004).
    \6\ See Securities Exchange Act Release No. 50747 (November 29, 
2004) (``Second Pilot Order''), available at http://www.sec.gov/rules/other/34-50747.htm.
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    The Pilot was established as part of the SEC's review of short sale 
regulations in conjunction with the adoption of Regulation SHO. 
Pursuant to Regulation SHO, broker-dealers are required to mark short 
sale orders of securities enumerated in the Pilot Order effected during 
any Pilot period as ``short exempt'' so that such orders are not 
subject to price tests. A large number of broker-dealers had informed 
the Commission that it would be inefficient and very costly for them to 
comply with this marking requirement for Pilot stocks, requiring 
significant systems changes for both firms and customers. In addition, 
these broker-dealers had raised the possibility that these significant 
systems changes may be in effect for only the duration of the one-year 
Pilot. As a result, the Exchange, along with other market centers, have 
agreed to ``mask'' short sale orders in Pilot stocks for the duration 
of the Pilot, as it would be more efficient than having broker-dealers 
and their customers make the changes. However, as it would take some 
time to make necessary changes to the various market centers systems, 
the market centers will not be able to ``mask'' orders until May 2, 
2005. As a result, the Commission issued the Second Pilot Order 
extending the implementation of the Pilot until that date.
    The Pilot is now scheduled to begin on May 2, 2005 and end on April 
28, 2006. All other terms of the Pilot Order \7\ remain unchanged,\8\ 
which requires these Pilot ``designated securities'' to be marked 
``short-exempt'' sales. Accordingly, the Exchange proposes to amend the 
instructions to Forms SS20 and 121, pursuant to Rules 440F and 440G to 
include these certain short-exempt sales on Reports of Short Interest.
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    \7\ See Securities Exchange Act Release No. 50104 (July 28, 
2004), 69 FR 48032 (August 6, 2004) (``Pilot Order''), available at 
http://www.sec.gov/rules/other/34-50104.htm. The Pilot Order 
provided for a one-year pilot program (``Pilot Program''), under 
which the provisions of Rule 10a-1 and any self-regulatory 
organization (``SRO'') short sale price test, including the tick 
test contained in Exchange Rule 440B, are suspended for short sales 
in: (1) Certain ``designated securities'' identified in Appendix A 
to the SEC's Pilot Order; (2) any security included in the Russell 
1000 Index effected between 4:15 p.m. e.s.t. and the open of the 
consolidated tape on the following day; and (3) any security not 
included in (1) and (2) above effected in the period between the 
close of the consolidated tape (i.e., after 8 p.m. e.s.t.) and the 
open of the consolidated tape the following day. During the Pilot, 
all other provisions of Rule 10a-1 and Regulation SHO--including the 
marking, locate and delivery requirements--remain in effect. The SEC 
also noted in the Pilot Order that SROs, including the Exchange, 
would actively monitor trading in the Pilot Program securities to 
identify any abusive short selling.
    \8\ See SEC, Division of Market of Regulation, Responses to 
Frequently Asked Questions Concerning Regulation SHO (December 17, 
2004), available at http://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm.
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    The Exchange is proposing amendments to Rules 440F.10 and 440G.10 
to conform the instructions to Forms SS20 and 121, respectively, to the 
Pilot Order. The purpose of Rules 440F and 440G is to capture short 
interest for reporting purposes, which is meant to include the 
designated securities subject to the Pilot Order--regardless as to 
whether they are marked ``short-exempt.'' In addition, the Exchange is 
proposing some minor amendments to the rules to remove obsolete 
references.
(1) Statutory Basis
    The statutory basis for the proposed rule change is Sections 
6(b)(5) \9\ and 17A \10\ of the Exchange Act which require, among other 
things, that the rules of the Exchange are designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to perfect the mechanism of a free 
and open market and national market system, and in general to protect 
investors and the public interest; and the prompt and accurate 
clearance and settlement of securities transactions.
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    \9\ 9 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78q-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

[[Page 3760]]

any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Exchange 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 Exchange consents, the Commission: (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, as amended, 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 e-mail to [email protected]. Please include File 
Number SR-NYSE-2005-07 in the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NYSE-2005-07. This 
file number should be included on the subject line of 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the NYSE. 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 submission should refer to 
File Number SR-NYSE-2005-07 and should be submitted on or before 
February 16, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-279 Filed 1-25-05; 8:45 am]
BILLING CODE 8010-01-P