[Federal Register Volume 71, Number 235 (Thursday, December 7, 2006)]
[Notices]
[Pages 71010-71011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20727]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54818; File No. SR-NYSE-2006-57]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Amending Rule 180 To Require 
Member Organizations To Use the Automated Liability Notification System 
of a Registered Clearing Agency

 November 27, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 3, 2006, the New 
York Stock Exchange LLC (``NYSE'') filed with the Securities and 
Exchange Commission (``Commission'') and on November 15, 2006, amended 
the proposed rule change described in Items I, II, and III below, which 
items have been prepared primarily by the NYSE.\2\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ The exact text of the NYSE's proposed rule change is set 
forth in its filing, which can be found at http://www.nyse.com.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE proposes to amend Rule 180 to mandate that NYSE member 
organizations utilize the automated liability notification system of a 
clearing agency registered pursuant to Section 17A of the Exchange Act 
when issuing liability notifications in connection with certain 
securities transactions.

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. The NYSE has prepared summaries, set forth in sections 
A, B, and C below, of the most significant aspects of these 
statements.\3\
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    \3\ The Commission has modified portions of the text of the 
summaries prepared by the NYSE.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, NYSE's Rule 180 provides that if securities are not 
delivered within the required time frame, the party who fails to 
deliver is liable for any resulting damages. Rule 180 also requires 
that claims for damages must be made promptly. It is industry practice 
when one party is owed and has not received securities that are the 
subject of a voluntary corporate action for the owed party to send to 
the failing counterparty a notice of the liability that will be 
attendant with the failure to delver the securities in time for the 
owed party to participate in the voluntary corporate action.
    It is also customary in the industry for the failing counterparty 
that receives a liability notification either to reject the notice, to 
deliver the securities that are the subject of the liability 
notification, or to convert or exchange the securities to the 
corresponding corporate actions proceeds and deliver the proceeds. 
Liability notifications are usually sent by fax directly to the 
responsible failing counterparty or to its designees.
    Failing counterparties are subjected to potential liability by 
their failure to respond to liability notifications. Failure to respond 
typically occurs because of processing errors, such as overlooking the 
faxed liability notification or not receiving it all, and because of 
the overall lack of centralized control over the process. There is 
currently no uniform method of notifying and confirming the 
transmission and receipt of liability notifications.
    In response to a need for a reliable and uniform method of 
transmitting liability notifications, The Depository Trust Company 
(``DTC'') developed the SMART/Track for Corporate Action

[[Page 71011]]

Liability Notification Service (SMART/Track''), a web-based system for 
the communication of liability notifications that is currently 
available to all DTC participants. SMART/Track allows DTC participants 
to easily create, send, process, and track corporate action liability 
notifications. Email notifications are automatically generated when 
liability notifications or replies to liability notifications are sent. 
SMART/Track helps reduce the risks, costs, and delays resulting from 
the processing errors and missing or inaccurate information frequently 
occurring with corporate action liability notifications. It also 
provides participants with (1) more timely receipt and distribution of 
corporate action liability notifications; (2) a centralized system to 
manage and control all liability notifications on all issues; (3) 
immediate identification of the security affected by a corporate action 
liability notification; and (4) detailed disclosure and clearer 
understanding of terms and conditions.
    In response to a petition from the Corporate Actions Division of 
the Securities Industry Association urging NYSE to adopt a rule that 
would mandate the use of a system that would make uniform the method by 
which liability notifications are sent and received, NYSE is proposing 
to amend Rule 180. As amended, Rule 180 clarifies that if securities 
that were to be delivered pursuant to the rules of a registered 
clearing agency are not so delivered, the contract may be closed as 
provided by the rules of that clearing agency. If the contracts are not 
so closed or if there is a failure to deliver securities which are to 
be delivered pursuant to NYSE Rule 176 or 177 and in the absence of any 
notice or agreement, the contract shall continue without interest until 
the following business day. However, in every such case of non-
delivery, the party not delivering the securities shall be liable for 
any damages which accrue thereby.
    Proposed Rule 180 is also being amended to require that when the 
parties to a failed contract are both participants in a registered 
clearing agency that has an automated service for notifying a failing 
party of the liability that will be attendant to a failure to deliver 
and the contract was to be settled through the facilities of that 
registered clearing agency, the transmission of the liability 
notification must be accomplished through the use of the registered 
clearing agency's automated liability notification system.\4\
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    \4\ Currently DTC is the only registered clearing agency 
operating an automated liability notification service. At present, 
approximately 155 DTC participants are voluntarily using SMART/
Track.
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2. Statutory Basis
    The statutory basis under the Act for this proposed rule change is 
the requirement under Section 6(b)(5) of the Act, which requires, among 
other things, that the rules of an 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 a national market system, and, in general, to 
protect investors and the public interest.\5\
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NYSE 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 NYSE has neither solicited nor received written comments on the 
proposed rule change. The NYSE is making the proposed rule change in 
part as a response to a petition from the Corporate Actions Dvision of 
the Securities Industry Association that the NYSE amend its rules to 
mandate that member organizatins use the SMART/Track system.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five 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 ninety 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 self-regulatory organization consents, 
the Commission will:
    (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 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 an e-mail to [email protected]. Please include 
File Number SR-NYSE-2006-57 in the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

    All submissions should refer to File Number SR-NYSE-2006-57. This 
file number should be included on the subject line if 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of the 
NYSE and on the NYSE's Web site, http://www.nyse.com. 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 
submissions should refer to File Number SR-NYSE-2006-57 and should be 
submitted on or before December 28, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-20727 Filed 12-6-06; 8:45 am]
BILLING CODE 8011-01-P