[Federal Register Volume 73, Number 67 (Monday, April 7, 2008)]
[Notices]
[Pages 18838-18841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-7122]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57591; File No. SR-NYSE-2008-21]


Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Exchange Rule 103A (Specialist Stock Reallocation and 
Member Education and Performance) and Exchange Rule 103B (Specialist 
Stock Allocation)

April 1, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 26, 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 Exchange. 
The Exchange has designated the proposed rule change as ``non-
controversial'' under Section 19(b)(3)(A)(iii) \3\ of the Act and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal 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)(iii).
    \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 Exchange proposes to extend to June 30, 2008, the moratorium on 
the administration of the Specialist Performance Evaluation 
Questionnaire (``SPEQ'') pursuant to Exchange Rule 103A and the use of 
the SPEQ pursuant to Exchange Rule 103B (``Moratorium''), which was 
implemented on June 8, 2007. In addition, the Exchange proposes to 
continue to suspend the use of SuperDot turnaround for orders received 
and the use of responses to administrative messages as objective 
measures in the assessment of specialist performance during the 
Moratorium. The Exchange further proposes that the SPEQ and Order 
Reports/Administrative Responses continue to be removed from the 
criteria used to commence a specialist performance improvement action 
during the Moratorium.
    The text of the proposed rule changes is available on the 
Exchange's Web site (http://www.nyse.com), at the Exchange's Office of 
the Secretary, 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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. 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 Exchange proposes to extend to June 30, 2008, the Moratorium on 
the administration of the SPEQ pursuant to Exchange Rule 103A and the 
use of the SPEQ pursuant to Exchange Rule 103B. The Moratorium was 
implemented on June 8, 2007 and extended through March 31, 2008.\5\
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    \5\ See Securities Exchange Act Release Nos. 55852 (June 4, 
2007), 72 FR 31868 (June 8, 2007) (NYSE-2007-47) (``Original 
Request'') and 57184 (January 22, 2008), 73 FR 5254 (January 29, 
2008) (NYSE-2008-02).

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[[Page 18839]]

    In addition, the Exchange proposes that the use of SuperDot 
turnaround for orders received and responses to administrative messages 
continue to be removed from the objective measures used in the 
assessment of specialist performance pursuant to Exchange Rule 103B or 
as criteria used to commence specialist performance improvement action 
pursuant to Exchange Rule 103A during the Moratorium.
SPEQ
    Prior to June 2007, pursuant to Exchange Rule 103A, on a quarterly 
basis, the Exchange distributed a twenty question survey known as the 
SPEQ to eligible Floor brokers \6\ to evaluate specialist performance 
during the quarter immediately prior to the distribution of the SPEQ. 
Initially, this subjective feedback provided critical information to 
assist the Exchange in maintaining the quality of the NYSE market.
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    \6\ The Exchange believed that conscientious participation in 
the SPEQ process was a critical element in the Exchange's program 
for evaluating the overall performance of its specialists. All 
eligible Floor brokers are required to participate in the process 
and evaluate from one to three specialist units each quarter. Floor 
brokers were selected to participate in the SPEQ process based on 
broker badge data submitted in accordance with audit trail 
requirements. Brokers who intentionally failed or refused to 
participate in the SPEQ process were potentially subject to 
disciplinary action, including the imposition of a summary fine 
pursuant to Exchange Rule 476A.
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    However, the Exchange believed that the SPEQ no longer adequately 
allowed a Floor broker to assess the electronic interaction between the 
specialist and the Floor broker. The Hybrid Market provided Floor 
brokers and specialists with electronic trading tools that have 
resulted in less personal and verbal contact between Floor brokers and 
specialists. Currently, the majority of transactions executed on the 
Exchange are done through electronic executions.
    In addition, the dramatic increase in transparency with respect to 
the Display Book through, among other things, Exchange initiatives like 
NYSE OPENBOOKTM \7\ (``OPENBOOK'') has decreased the need 
for the Floor broker to obtain market information verbally from the 
specialist. This increased transparency gives all market participants, 
both on and off the Floor, a greater ability to see and react to market 
changes.
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    \7\ OPENBOOK Online Database is an Exchange online service that 
allows subscribers to view the contents of the specialist book for 
any stock at any given point in the day, or over a period of time. 
Results are returned in an Excel spreadsheet. OPENBOOK Online 
Database is a historical database with data stored online for a 12-
month period.
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    The questions on the SPEQ did not take into account the operation 
of the electronic tools available in the Hybrid Market. The SPEQ did 
not provide Floor brokers with a means to evaluate specialist 
performance under the current market model. As a result of the more 
electronic interaction between Floor brokers and specialists, Floor 
brokers were unable to assess specialist performance using the current 
SPEQ.
    The questions posed to the Floor brokers on the SPEQ required Floor 
brokers to opine on the specialists' ability to offer single price 
executions and specialists' ability to provide notification to Floor 
brokers of market changes in particular stocks. In the current more 
electronic market, specialists are unable to offer single price 
executions and the relative speed of executions makes it virtually 
impossible for specialist to notify brokers of changes in a particular 
security.
    Given the above, the SPEQ no longer served as a meaningful measure 
of specialist performance.
Objective Measures
    The Exchange further requests that during the extension of the 
Moratorium, allocations of newly listed securities on the Exchange 
continue to be based on the objective measures identified in Exchange 
Rule 103B,\8\ with the exception of SuperDot turnaround for orders 
received and response to administrative messages.
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    \8\ Pursuant to Exchange Rule 103B, specialist dealer 
performance is measured in terms of participation (TTV); 
stabilization; capital utilization, which is the degree to which the 
specialist unit uses its own capital in relation to the total dollar 
value of trading in the unit's stocks; and near neighbor analysis, 
which is a measure of specialist performance and market quality 
comparing performance in a stock to performance of stocks that have 
similar market characteristics. Additional objective measures 
pursuant to Exchange Rule 103B are those measures included in 
Exchange Rule 103A which are: (a) Timeliness of regular openings; 
(b) promptness in seeking Floor official approval of a non-
regulatory delayed opening; (c) timeliness of DOT turnaround; and 
(d) response to administrative messages.
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    As explained in the Original Request and in the previously 
requested extension, SuperDot turnaround for orders received and 
response to administrative messages no longer provide meaningful 
objective standards to evaluate specialist performance in the Hybrid 
Market. Specifically, in the more electronic Hybrid Market, orders 
received by Exchange systems that are marketable upon entry are 
eligible to be immediately and automatically executed by Exchange 
systems. As such, SuperDot turnaround no longer provided a meaningful 
objective measure of a specialist's performance.
    Furthermore, in the current more electronic market, the Exchange 
systems automatically respond to the majority of the administrative 
messages. Today, there are two administrative messages that require a 
manual response from specialists. These are messages that require the 
specialist to provide status information on market orders and stop 
orders. With regard to requests for the status of stop orders, the 
specialists are no longer capable of providing this information. In 
December 2006, following Commission approval,\9\ the Exchange changed 
its stop order handling process. Stop orders are no longer visible to 
the part of the NYSE Display Book[supreg] that the specialist ``sees.'' 
When a transaction on the Exchange results in the election of a stop 
order that had been received prior to such transaction, the elected 
stop order is sent as a market order \10\ to the Display Book and the 
specialist's system employing algorithms, where it is handled in the 
same way as any other market order. The specialist, therefore, is 
unable to provide any information regarding the status of stop orders.
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    \9\ See Securities Exchange Act Release No. 54820 (November 27, 
2006), 71 FR 70824 (December 6, 2006) (SR-NYSE-2006-65).
    \10\ As used herein, the term ``market order'' refers to market 
orders that are not designated as ``auction market orders.''
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    Market orders are eligible to receive immediate and automatic 
execution on the Exchange. The immediate and automatic execution of 
market orders eliminates the need for the specialists to respond to the 
administrative request for the status of market orders. In practice, a 
customer that submits a market order will likely receive a report of 
execution before the administrative message requesting the status of 
the market order has been printed and read by the specialist.
    This change has had a minimal impact on Exchange customers. In the 
past few years, the average number of administrative messages received 
on a daily basis has steadily declined. The Exchange believes that 
immediate and automatic execution of orders will virtually eliminate 
administrative messages that require a manual response from a 
specialist. As a result, a specialist's ability to respond to 
administrative messages no longer provides a meaningful measure of 
specialists' performance during the Moratorium.
    Given the above, the Exchange seeks to continue suspension of the 
use of both measures as criteria used to assess

[[Page 18840]]

specialists' performance during the extension of the Moratorium.
Performance Improvement Actions
    Similarly, during the extension of the Moratorium, the Exchange 
seeks to continue suspending the use of the SPEQ and Order Reports/
Administrative Reports as criteria for the implementation of a 
performance improvement action pursuant to Exchange Rule 103A. Exchange 
Rule 103A(b) provides that:

    The Market Performance Committee shall initiate a Performance 
Improvement Action (except in highly unusual or extenuating 
circumstances, involving factors beyond the control of a particular 
specialist unit, as determined by formal vote of the Committee) in 
any case where a specialist unit's performance falls below such 
standards as are specified in the Supplementary Material to this 
rule. The objective of a Performance Improvement Action shall be to 
improve a specialist unit's performance where the unit has exhibited 
one or more significant weaknesses, or has exhibited an overall 
pattern of weak performance that indicates the need for general 
improvement.

    Prior to June 2007, the SPEQ and Order Reports/Administrative 
Reports were two criteria included in the standards specified in 
Exchange Rule 103A Supplementary Material. Given that SPEQ and Order 
Reports/Administrative Reports no longer provided significant objective 
measures of specialists' performance in the Hybrid Market, the Exchange 
sought to suspend the use of both measures as criteria for the 
implementation of a performance improvement action during the 
Moratorium. Through this filing, the Exchange seeks to continue this 
suspension for the duration of the Moratorium.
Creation of a New Process
    The Exchange intends to establish a quantifiable measure in order 
to determine a specialist firm's eligibility to participate in the new 
Allocation Process. The Exchange intends to formally submit a proposal 
to the Commission to amend Exchange rules that govern the allocation of 
securities to specialist firms and other related rules by the end of 
April 2008.
    The Exchange believes that the use of a single objective measure to 
determine specialist firm eligibility for allocation will create a more 
efficient process that is consistent with the Exchange's current more 
electronic trading environment.
Conclusion
    The Exchange therefore requests to extend the Moratorium on the 
administration of the SPEQ pursuant to Exchange Rule 103A and the use 
of the SPEQ pursuant to Exchange Rule 103B until June 30, 2008. In 
addition, the Exchange proposes to continue to suspend the use of 
SuperDot turnaround for orders received and the use of responses to 
administrative messages as objective measures in the assessment of 
specialist performance during the Moratorium. The Exchange further 
proposes that the SPEQ and Order Reports/Administrative Responses 
continue to be removed from the criteria used to commence a specialist 
performance improvement action during the Moratorium.
2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is the requirement under Section 6(b)(5) \11\ 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) \12\ in that it seeks to assure economically efficient 
execution of securities transactions, make it practicable for brokers 
to execute investors' orders in the best market and provide an 
opportunity for investors' orders to be executed without the 
participation of a dealer. Due to the Exchange's transition to a more 
electronic market, the current SPEQ, SuperDot turnaround for orders 
received and response to administrative messages no longer provide 
meaningful objective standards to evaluate specialist performance in 
the Hybrid Market. The Exchange requests this continued extension of 
the Moratorium to determine whether elimination of the SPEQ as well as 
SuperDot turnaround for orders received and response to administrative 
messages as objective measures would remove an impediment to a free and 
open electronic market which would result in the more economically 
efficient execution of securities transactions. Given the current trend 
to a more electronically-based market, the Exchange believes that the 
use of more objective and detailed measures will promote healthy 
competition between specialist firms and ultimately result in better 
market-making for Exchange customers.
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    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 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 proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days after the date of 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) of the Act\13\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\15\ 
However, Rule 19b-4(f)(6)(iii)\16\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the five-day prefiling requirement and the 30-day pre-
operative delay and designate the proposed rule change to become 
operative upon filing.
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ Id.
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    The Commission believes that waiving the five-day prefiling 
requirement and the 30-day operative delay is consistent with the 
protection of investors and the public interest because it would allow 
the Exchange to extend the Moratorium. The Commission notes that the 
Exchange expects to file a proposed rule change under Section 19(b) of 
the Act\17\ by the end of April 2008, which would amend Exchange rules 
that govern the allocation of securities to specialist firms and other 
related rules. The Commission designates the proposal to

[[Page 18841]]

become effective and operative upon filing.\18\
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    \17\ 15 U.S.C. 78s(b).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the impact of the proposed rule on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the 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 the 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-2008-21 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-2008-21. 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of 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-2008-21 and should be submitted on or before April 28, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19 \
Florence E. Harmon,
Deputy Secretary.
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    \19\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-7122 Filed 4-4-08; 8:45 am]
BILLING CODE 8011-01-P