[Federal Register Volume 73, Number 133 (Thursday, July 10, 2008)]
[Notices]
[Pages 39765-39767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-15621]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58089; File No. SR-NYSEArca-2008-71]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Enable the 
Exchange To Conduct Market Order and Closing Auctions in NYSE-Listed 
Securities Subject to a Sub-Penny Trading Condition

July 2, 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 June 27, 2008, NYSE Arca, Inc. (``NYSE Arca'' 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 prepared substantially by the Exchange. NYSE Arca has 
designated the proposed rule change as a ``non-controversial'' proposed 
rule change pursuant to Section 19(b)(3)(A) of the Act \3\ 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).
    \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 is proposing to amend Rule 7.35 in order to add the 
ability to conduct a Market Order and Closing Auction in securities 
listed on the New York Stock Exchange LLC (``NYSE'') subject to a sub-
penny trading condition.\5\ The text of the proposed rule change is 
available at http://www.nyse.com, the principal office of the Exchange, 
and the Commission's Public Reference Room.
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    \5\ A sub-penny trading condition is defined by NYSE Rule 123D 
and applies to securities that are trading at a price of $1.05 or 
less.
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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

[[Page 39766]]

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
    NYSE Arca Equities Rule 7.35 establishes rules for auctions that 
are conducted at different times during the trading day and in 
different eligible securities. NYSE Arca Equities Rule 7.35(b) states 
that the Opening Auction will be conducted at 4 a.m. (ET) and will 
include all eligible securities traded on the Exchange. NYSE Arca 
Equities Rule 7.35(c) states that the Exchange will conduct a Market 
Order Auction at 9:29 a.m. (ET) for: (1) Exchange-listed securities for 
which the Exchange is the primary market; and (2) all exchange-listed 
exchange traded funds (``ETFs''). All other securities are routed to 
the primary market until after the first opening print. Similarly, NYSE 
Arca Equities Rule 7.35(e) states that the Exchange will conduct a 
Closing Auction at 4 p.m. (ET) for: (1) Exchange-listed securities for 
which NYSE Arca is the primary market and; (2) all exchange-listed 
ETFs. All other securities are routed to the primary market.
    NYSE Rule 123D establishes a ``sub-penny trading condition'' that 
requires NYSE to place a non-regulatory trading halt on a security that 
is, or is immediately likely to be, trading at a price of less than 
$1.00. Specifically, NYSE Rule 123D states, ``[w]henever a security 
trading on the Exchange is reported on the Consolidated Tape during 
normal trading hours as having traded at a price of $1.05 or less, or 
if a security would open on the Exchange at a price of $1.05 or less, 
trading in the security on the Exchange shall be immediately halted 
because of a `[s]ub-penny trading' condition.'' The rule further states 
that, ``[a]ny orders received by the NYSE in a security subject to a 
`[s]ub-penny trading' condition will be routed to NYSE Arca, Inc. 
(`NYSE Arca') where they will be handled in accordance with the rules 
governing that market.''
    The non-regulatory trading halt for securities with a sub-penny 
trading condition was added to NYSE Rule 123D in March 2007.\6\ This 
rule filing resulted from the combination of Rule 612 of Regulation NMS 
\7\ requiring securities priced at less than $1.00 be quoted in 
increments no smaller than $0.0001, and the fact that NYSE's trading 
system is not able to accommodate sub-penny trading, nor can it 
recognize a quote disseminated by another market center if such quote 
has a sub-penny component. NYSE determined that it would not be cost-
effective to make the changes that would allow its trading system to 
fully accommodate sub-penny trading and, therefore, introduced the non-
regulatory trading halt described above. Later in March 2007, NYSE 
again changed Rule 123D, this time adding language to establish that 
any orders received by NYSE in a security subject to a sub-penny 
trading condition will be routed to NYSE Arca.\8\ The Exchange's 
ability to quote in sub-pennies allows for continued trading in 
securities that otherwise may have been halted, and brings continuity 
to the marketplace by preventing potentially harmful trading 
interruptions.
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    \6\ See Securities Exchange Act Release No. 55398 (March 5, 
2007), 72 FR 11072 (March 12, 2007) (SR-NYSE-2007-25).
    \7\ 17 CFR 242.612.
    \8\ See Securities Exchange Act Release No. 55537 (March 27, 
2007), 72 FR 15749 (April 2, 2007) (SR-NYSE-2007-30).
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    The purpose of this rule filing is to add new language to Rule 7.35 
that will give the Exchange the ability to conduct a Market Order and 
Closing Auction in NYSE-listed securities subject to a sub-penny 
trading condition when NYSE directs orders to NYSE Arca for execution.
    Currently, NYSE Arca rules do not permit the Exchange to conduct a 
Market Order and/or Closing Auction in securities for which it is not 
the primary market. This restriction applies when NYSE has placed a 
non-regulatory trading halt on a security due to a sub-penny trading 
condition and NYSE orders are routed to NYSE Arca for execution. The 
Exchange believes that in those circumstances NYSE Arca must have the 
ability to conduct a Market Order Auction and Closing Auction for NYSE-
listed securities subject to a sub-penny trading condition in order to 
facilitate a fair and orderly market and give customers the ability to 
interact with the market when not otherwise permitted to participate at 
NYSE. Accordingly, the Exchange proposes to amend Rule 7.35(c) and (e) 
to permit the Exchange to conduct a Market Order and Closing Auction 
in: (1) Exchange-listed securities for which the Exchange is the 
primary market; (2) all exchange-listed ETFs; and (3) NYSE-listed 
securities subject to a sub-penny trading condition.
    The Exchange believes that the proposed rule change offers the 
Exchange the ability to conduct a Market Order Auction and a Closing 
Auction in those instances where NYSE is prevented from trading in a 
security due to a sub-penny trading condition, but where NYSE Arca is 
permitted to conduct transactions. In that scenario, it is appropriate 
for the Exchange to conduct a Market Order Auction and a Closing 
Auction in order to best facilitate a fair and orderly market by 
providing the maximum number of matched orders at the best available 
price. This is particularly important because it will allow customers 
to interact with the market when not otherwise permitted to participate 
at NYSE.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act,\9\ in that 
it is designed to prevent fraudulent and manipulative acts and 
practices; 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. Specifically, the Exchange's ability to quote in 
sub-pennies allows for continued trading in securities that otherwise 
may have been halted and brings continuity to the marketplace by 
preventing potentially harmful trading interruptions.
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    \9\ 15 U.S.C. 78f(b)(5).
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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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) thereunder \11\ 
because the foregoing proposed rule: (1) Does not significantly

[[Page 39767]]

affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ In addition, Rule 19b-4(f)(6)(iii) requires the self-
regulatory organization to give the Commission notice of its intent 
to file the proposed rule change, along with a brief description and 
text of the proposed rule change, at least five business days prior 
to the date of filing of the proposed rule change, or such shorter 
time as designated by the Commission. NYSE Arca has satisfied this 
requirement.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay and designate the proposed rule change as operative upon filing. 
The Commission hereby grants the Exchange's request and believes that 
such action is consistent with the protection of investors and the 
public interest. This action will permit without further delay more 
continuous trading of certain securities that are subject to a non-
regulatory halt on their primary market, NYSE.\13\
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    \13\ 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 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 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-NYSEArca-2008-71 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2008-71. 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 Exchange. 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 publicly available. All 
submissions should refer to File Number SR-NYSEArca2008-71 and should 
be submitted on or before July 31, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-15621 Filed 7-9-08; 8:45 am]
BILLING CODE 8010-01-P