[Federal Register Volume 70, Number 112 (Monday, June 13, 2005)]
[Notices]
[Pages 34172-34173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3057]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51790; File No. SR-NYSE-2004-42]


Self-Regulatory Organizations; New York Stock Exchange, Inc; 
Order Approving Proposed Rule Change and Amendment No. 1 To Eliminate 
the Requirement That a Floor Official Approve Certain Transactions on 
the Exchange's Automated Bond System

June 6, 2005.

I. Introduction

    On August 10, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder, \2\ a 
proposed rule change to eliminate the requirement that an Exchange 
Floor Official approve transactions in certain bonds on the NYSE's 
Automated Bond System (``ABS'') that are made two points or more away 
from the last sale, or more than 30 days after the last sale. The NYSE 
filed Amendment No. 1 to the proposed rule change on March 30, 2005.\3\ 
The proposed rule change, as amended, was published for comment in the 
Federal Register on May 2, 2005.\4\ The Commission received one comment 
from the public supporting the proposed rule change.\5\ This Order 
approves the proposed rule, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, which replaced and superceded the 
original filing in its entirety, the NYSE supplemented its rationale 
for the proposal by, among other things, describing the process that 
a Floor Official follows when considering whether to approve a 
transaction that would occur at a price that is at least two points 
away or more than 30 days from the last transaction; recounting some 
of the history of bond trading on the NYSE; explaining that the 
Exchange has not found it necessary to re-instate the two-point / 
30-day provision for convertible bonds since it eliminated its 
applicability to convertible bonds in 1998; and noting that Exchange 
Rule 86(g) requires all orders to be entered into ABS at a limit 
price, and that ABS automatically asks a user to reconfirm the price 
of an order that is entered at a price two or more points away from 
the last sale.
    \4\ See Securities Exchange Act Release No. 51613 (April 25, 
2005), 70 FR 22736.
    \5\ See e-mail from Joseph P. Riveiro, Investec (US), Inc. to 
the Commission, dated May 8, 2005 (``Investec e-mail'')
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II. Description

    The Exchange proposed to eliminate the requirement in NYSE Rule 
86(g) that a Floor Official approve any transaction in ABS in non-
convertible bonds that would occur at a price two or more points away 
from the most recent transaction in that bond or more than 30 days 
after the most recent transaction. The proposal also would eliminate 
the ability of a Floor Official to ``bid up'' or ``offer down'' \6\ an 
order submitted to ABS two or more points away from the last sale in a 
particular bond or more than 30 days following a sale of that bond 
before approving a transaction for such order.
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    \6\ If, for example, an order is entered into ABS to buy 10 XYZ 
bonds at 93 when the last sale for XYZ occurred at 90, the Floor 
Official could determine that XYZ bond should be ``bid up'' at a 
decided price increment away from the limit order for a decided 
period of time, typically one ``point'' for one minute. The NYSE 
bond supervisor would then enter the bidding-up starting price, 
price increment, time increment, and final price into ABS, upon 
which a message appears on all ABS screens alerting subscribing 
firms that bidding up in XYZ has commenced. An ABS user could 
execute against that ``bid'' by entering an order to sell at 91 into 
the system. If, after one minute, the ``bid'' at 91 generated no 
interest among ABS users, the order would be bid at 92 for one 
minute. If that ``bid'' generated no interest, then the order would, 
after one minute, be bid at 93 or be matched (traded) at 93, 
depending on whether there was a contra-side order to sell at 93 in 
the ABS at that point in time. Telephone conversation between Fred 
Siesel, Consultant, NYSE, and Tim Fox, Attorney, Commission on April 
18, 2005.
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    The Exchange also proposed to codify in NYSE Rule 86(g) two 
features the NYSE represents have been programmed into ABS since its 
inception: (1) The acceptance of priced orders only; and (2) price 
confirmation, by the entering firm, of orders entered at a price two or 
more points away from the last sale price.

III. Comment Received

    As stated above, the commenter supported the NYSE's proposal.\7\ In 
sum, the commenter stated that he believed that NYSE Rule 86(g) has 
frustrated trading in ABS, and that he believed that the elimination of 
Floor Official approval would facilitate an increase in the volume and 
consistency in the execution of non-convertible bonds on ABS.
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    \7\ See Investec E-mail supra note 5.
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IV. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\8\ In particular, the Commission finds that the 
proposal, as amended, is consistent with the provisions of Section 
6(b)(5) of the Act,\9\ which requires, among other

[[Page 34173]]

things, that a national securities exchange's rules be designed, to 
prevent fraud and manipulative acts and practices; to promote just and 
equitable principles of trade; to remove impediments to and to 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 
Commission believes that the NYSE proposal, as amended, is designed to 
accomplish these ends by facilitating the efficient and timely 
execution of orders in non-convertible bonds submitted to ABS. The 
Commission believes that the proposed codification in NYSE Rule 86 of 
the existing practice that a subscriber firm confirm an order that is 
submitted to ABS at a price two or more points away from the last sale 
should minimize the risk that ABS will execute an order at a price that 
the user did not intend. The Commission further believes that the 
proposal to require that orders submitted to ABS be priced is 
appropriate because it reflects the existing practice on ABS, which the 
Commission believes promotes the price discovery process.
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    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSE-2004-42), as amended, 
be, and it hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    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. E5-3057 Filed 6-10-05; 8:45 am]
BILLING CODE 8010-01-P