[Federal Register Volume 73, Number 67 (Monday, April 7, 2008)]
[Notices]
[Pages 18836-18838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-7114]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57592; File No. SR-NYSE-2008-23]


Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to NYSE Rule 104.10 To Extend the Duration of the Pilot 
Program Applicable to Conditional Transactions in All Securities to 
June 30, 2008

April 1, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 27, 2008, the New York Stock Exchange, LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the NYSE. The 
NYSE has designated the proposed rule change as a ``non-controversial'' 
rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposed rule change 
effective upon filing with the Commission. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE is proposing to amend NYSE Rule 104.10 to extend the 
duration of the pilot program applicable to Conditional Transactions as 
defined in Rule 104.10(6)(i) in all securities to June 30, 2008. The 
text of the proposed rule change is available at NYSE, at http://www.nyse.com, and at the Commission's Public Reference Room.

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 such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The NYSE is proposing to amend NYSE Rule 104.10 to extend the 
duration of the pilot program applicable to Conditional Transactions as 
defined in Rule 104.10(6)(i) in all securities for an additional three 
months until June 30, 2008.
    On October 26, 2007, the Commission approved the ability of NYSE 
specialists to effect Conditional Transactions pursuant to NYSE Rule 
104.10(6) in all securities traded on the NYSE to operate as a pilot 
through March 31, 2008 (the ``Conditional Transaction Pilot'').\5\
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    \5\ See Securities Exchange Act Release No. 56711 (October 26, 
2007), 72 FR 62504 (November 5, 2007) (SR-NYSE-2007-83).
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    (a) Current Conditional Transaction Pilot
    Conditional Transactions are specialists' transactions that 
establish or increase a position and reach across the market to trade 
as the contra-side to the Exchange published bid or offer. Under the 
current Conditional Transaction Pilot, NYSE specialists are allowed to 
effect Conditional Transactions in all securities traded on the NYSE 
until March 31, 2008.
    When a specialist effects a Conditional Transaction he or she has 
obligations to re-enter the market on the opposite side from which the 
specialist effected his or her Conditional Transaction pursuant to the 
rule. Specifically, pursuant to NYSE Rule 104.10(6)(ii) ``appropriate'' 
re-entry means ``re-entry on the opposite side of the market at or 
before the price participation point or the `PPP.' '' \6\ Depending on 
the type of Conditional Transaction, a specialist's obligation to re-
enter may be immediate or subject to the same re-entry conditions of 
Non-Conditional Transactions.\7\ Conditional

[[Page 18837]]

Transactions are subject to a specialist's overall negative 
obligation.\8\
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    \6\ NYSE Rule 104.10(6)(iii)(a) provides that the PPP identifies 
the price at or before which a specialist is expected to re-enter 
the market after effecting a Conditional Transaction. PPPs are only 
minimum guidelines and compliance with them does not guarantee that 
a specialist is meeting its obligations. The Exchange issued 
guidance regarding PPPs in January 2007. See NYSE Member Education 
Bulletin 2007-1 (January 18, 2007).
    \7\ NYSE Rule 104.10(6)(iii)(c) provides that immediate re-entry 
is required after the following Conditional Transactions:
    As a condition of operating the Conditional Transaction Pilot, 
the Exchange committed to providing the Commission with data related 
to specialist executions of Conditional Transactions. The data 
includes the daily Consolidated Tape volume in shares, daily number 
of trades; daily high-low volatility in basis points and daily close 
price in dollars.
    (I) A purchase that (1) reaches across the market to trade with 
an Exchange published offer that is above the last differently 
priced trade on the Exchange and above the last differently priced 
published offer on the Exchange, (2) is 10,000 shares or more or has 
a market value of $200,000 or more, and (3) exceeds 50% of the 
published offer size.
    (II) A sale that (1) reaches across the market to trade with an 
Exchange published bid that is below the last differently priced 
trade on the Exchange and below the last differently priced 
published bid on the Exchange, (2) is 10,000 shares or more or has a 
market value of $200,000 or more, and (3) exceeds 50% of the 
published bid size. (Emphasis added.)
    Moreover, pursuant to current NYSE Rule 104.10(6)(iv) 
Conditional Transactions that involve (a) a specialist's purchase 
from the Exchange published offer that is priced above the last 
differently-priced trade on the Exchange or above the last 
differently-priced published offer on the Exchange and (b) a 
specialist's sale to the Exchange published bid that is priced below 
the last differently-priced trade on the Exchange or below the last 
differently-priced published bid on the Exchange are subject to the 
re-entry requirements for Non-Conditional Transactions pursuant to 
Rule 104.10(5)(i)(a)(II)(c), which provides:
    Re-entry Obligation Following Non-Conditional Transactions--The 
specialist's obligation to maintain a fair and orderly market may 
require re-entry on the opposite side of the market trend after 
effecting one or more Non-Conditional Transactions. Such re-entry 
transactions should be commensurate with the size of the Non-
Conditional Transactions and the immediate and anticipated needs of 
the market.
    \8\ The negative obligation, which is part of NYSE Rule 104, 
requires that specialists restrict their dealings so far as 
practicable to those reasonably necessary to permit the specialists 
to maintain a fair and orderly market. Specifically, NYSE Rule 
104(a) provides:
    No specialist shall effect on the Exchange purchases or sales of 
any security in which such specialist is registered, for any account 
in which he, his member organization or any other member, allied 
member, or approved person, (unless an exemption with respect to 
such approved person is in effect pursuant to Rule 98) in such 
organization or officer or employee thereof is directly or 
indirectly interested, unless such dealings are reasonably necessary 
to permit such specialist to maintain a fair and orderly market, or 
to act as an odd-lot dealer in such security.
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    The Exchange continues to calculate the specialist's profit on 
round-trip Hit Bid and Take Offer (``HB/TO'') executions. This is 
accomplished by measuring the specialist's profit on HB/TO activity by 
taking the round-trip trading profits for all HB/TO trades where the 
specialist executes an offsetting trade within 30 seconds. In cases 
where the volume of the offsetting execution is less than the size of 
the HB/TO execution, the calculation will only include profits realized 
within the 30-second window.
    The Exchange continues to calculate the quote-based specialist re-
entry ratio. Each re-entry price level is categorized and reported 
separately. In addition, the Exchange continues to provide the 
Commission with data related to the average realized spread on 
specialist HB/TO executions. These calculations are done using the same 
formula as SEC Rule 605. Specifically, the average realized spread is a 
share-weighted average of realized spreads. For specialist buys, it is 
double the amount of difference between the execution price and the 
midpoint of the consolidated best bid and offer five minutes after the 
time of HB/TO execution. For specialist sells, it is double the amount 
of difference between the midpoint of the consolidated best bid and 
offer five minutes after the time of HB/TO execution and the execution 
price.
    The Exchange has provided the Commission's Division of Trading and 
Markets and the Office of Economic Analysis with statistics related to 
market quality, specialist trading activity, and sample statistics for 
the months of November and December 2007. The Exchange represents it 
will provide the relevant statistics for January and February 2008 no 
later than March 28, 2008. Commencing with the relevant statistics for 
the month of March 2008, the Exchange represents that it will provide 
all the aforementioned information to the Commission on or before the 
15th of the calendar month directly following the data month. The 
Exchange represents it will maintain average measures for each stock-
day during a particular month in order to provide such information to 
the Commission upon request.
    Furthermore, NYSE Regulation, Inc. (``NYSER'') believes that it has 
appropriate surveillance procedures in place to surveil for compliance 
with the negative obligations of specialists. NYSER monitors, using a 
pattern and practice and/or outlier approach, specialist activity that 
appears to cause or exacerbate excessive price movement in the market 
(since such transactions would appear to be in violation of a 
specialist's negative obligation). In this connection, NYSER continues 
to surveil for specialist compliance with the PPP re-entry 
requirements, and based on its reviews of surveillance data to date, 
has not identified significant compliance issues. The Division of 
Market Surveillance of NYSER also monitors specialist trading to 
cushion such price movements.
    (b) Conclusion
    The Exchange believes that an extension of the current Conditional 
Transaction Pilot program will continue to provide NYSE specialists 
with the flexibility to compete and to efficiently and systematically 
trade and quote in their securities as well as equip them to fluidly 
manage their risk.
    In view of the above, the NYSE believes it is appropriate to extend 
the operation of the Conditional Transaction Pilot program for an 
additional three months until June 30, 2008.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirement under Section 6(b)(5) \9\ of the Act 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 also is designed to support the principles of Section 
11A(a)(1) \10\ in that it seeks to assure economically efficient 
execution of securities transactions. The Exchange believes that 
extending the operation of the Conditional Transaction Pilot will 
provide specialists with the required flexibility to compete, thus 
adding value to the Exchange market by encouraging specialists to 
continue to commit capital. Ultimately, the Exchange believes that the 
Conditional Transaction Pilot benefits the marketplace by allowing 
specialists to manage their risk and, therefore, gives them the ability 
to increase the liquidity they provide at prices outside the best bid 
and offer, as well as to meet their obligation to bridge temporary gaps 
in supply and demand, thereby dampening volatility.
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78k-1(a)(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 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 foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) \11\ of the Act and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of 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 NYSE requests that the 
Commission waive the 5-day pre-filing notice requirement and the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii),\13\ which would 
make the rule change effective and operative upon filing. The 
Commission believes that waiving the 5-day pre-filing notice and

[[Page 18838]]

the 30-day operative delay is consistent with the protection of 
investors and the public interest because such waiver would allow the 
Conditional Transaction Pilot to continue without interruption through 
June 30, 2008 and provide the Exchange and the Commission additional 
time to evaluate the pilot.\14\ Accordingly, the Commission designates 
that the proposed rule change effective and operative upon filing with 
the Commission.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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.

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-2008-23 on 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-2008-23. 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. 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 
submissions should refer to File Number SR-NYSE-2008-23 and should be 
submitted on or before April 28, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-7114 Filed 4-4-08; 8:45 am]
BILLING CODE 8011-01-P