[Federal Register Volume 73, Number 227 (Monday, November 24, 2008)]
[Notices]
[Pages 71070-71072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-27833]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58971; File No. SR-NYSE-2008-115]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending Exchange Rule 104T To Make Certain Technical Amendments to the 
Rule To Conform it to the Exchange's Recently Instituted New Market 
Model Pilot

November 17, 2008.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on November 4, 2008, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 104T (Dealings by DMMs) to make 
certain technical amendments to the rule to conform it to the 
Exchange's recently instituted New Market Model Pilot.
    The text of the proposed rule change is available at http://www.nyse.com, NYSE's principal office, and 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 self-regulatory organization 
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 those 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 parts 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 seeks to make certain technical amendments to: (i) 
NYSE Rule 104T (Dealings by DMMs) to include rule language governing 
DMM quoting requirements that was inadvertently not included in the 
rule text; (ii) conform the rule language of NYSE Rule 104T governing 
price improvement with changes approved by the Securities and Exchange 
Commission (``SEC'' or ``Commission'') in a separate filing; and (iii) 
clarify the rule text of NYSE Rules 70, 104T and 104 as it pertains to 
Floor brokers and DMMs reserve functionality.
    On October 24, 2008, the Commission approved the operation of a 
pilot for the Exchange's New Market Model.\4\ As part of this new model 
the functions formerly carried out by specialists on the Exchange will 
be replaced by a new market participant, to be known as a Designated 
Market Maker (``DMM''). While there are some similarities in the manner 
in which DMMs will operate, there are some major differences as well. 
For example, DMMs will continue to be assigned individual NYE-listed 
[sic] securities as they were under the specialist system, and have an 
affirmative obligation with respect to maintaining a fair and orderly 
market for trading those assigned securities. Unlike the specialist 
system, each DMM will also have a minimum quoting requirement \5\ in 
its assigned securities but will no longer have a negative obligation.
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    \4\ See Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46) (approving 
certain rules to operate as a pilot scheduled to end October 1, 
2009).
    \5\ DMMs will be required to maintain displayed bids and offers 
at the National Best Bid or Offer (``NBBO'') for a certain 
percentage of the trading day in assigned securities. Specifically, 
with respect to maintaining a continuous two-sided quote with 
reasonable size, DMMs must maintain a bid or offer at the NBBO 
(``inside'') for securities in which the DMM is registered at a 
prescribed level based on the average daily volume of the security. 
Securities that have a consolidated average daily volume of less 
than one million shares per calendar month are defined as Less 
Active Securities and securities that have a consolidated average 
daily volume of equal to or greater than one million shares per 
calendar month are defined as More Active Securities.
    For Less Active Securities, a specialist unit must maintain a 
bid or an offer at the NBBO for at least 10% of the trading day 
during a calendar month. For More Active Securities, a specialist 
unit must maintain a bid or an offer at the NBBO for at least 5% or 
more of the trading day during a calendar month. DMMs will be 
expected to satisfy the quoting requirement for both volume 
categories in their assigned securities.
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    The implementation of these changes required the Exchange to amend 
its previous rule governing specialist conduct, former NYSE Rule 104 
(Dealings by Specialists). As approved, the New Market Model will be 
phased \6\ into the Exchange's marketplace to allow for the careful 
monitoring of technological and trading pattern changes that are the 
core of its operation. The Exchange therefore created transitional NYSE 
Rule 104T in order to govern DMM conduct during the first phase of the 
pilot. DMMs were subject to the quoting requirement upon implementation 
of the Pilot; however, the language imposing the quoting requirement 
was inadvertently not included in NYSE Rule 104T. Through this filing 
the Exchange seeks to correct that oversight and add subparagraph ``k'' 
to Rule 104T which will read as follows:
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    \6\ Pursuant to the implementation schedule, no later than five 
weeks after Commission approval, DMMs will still receive information 
about orders that are at or between the Exchange quote. DMMs must 
continue to abide by their affirmative obligations, meeting his or 
her requirements to maintain displayed bids and offers at the NBBO 
and re-enter liquidity pursuant to NYSE Rule 104T (``Phase 1''). 
After the fifth week of the operation of the Pilot, Phase 1 will be 
completed and NYSE Rule 104T will cease operation. Once NYSE Rule 
104T ceases operation, DMMs will be subject to new NYSE Rule 104 
(Dealings and Responsibilities of DMMs) in Phase 2.

    With respect to maintaining a continuous two-sided quote with 
reasonable size, DMM units must maintain a bid or an offer at the 
National Best Bid and National Best Offer (``inside'') at least 10% 
of the trading day for securities in which the DMM unit is 
registered with an average daily volume on the Exchange of less than 
one million shares, and at least 5% for securities in which the DMM 
unit is registered with an average daily trading volume equal to or 
greater than one million shares. Time at the inside is calculated as 
the average of the percentage of time the DMM unit has a bid or 
offer at the inside. In calculating whether a DMM is

[[Page 71071]]

meeting the 10% and 5% measure, credit will be given for executions 
for the liquidity provided by the DMM. Reserve or other hidden 
orders entered by the DMM will not be included in the inside quote 
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calculations.

    The Exchange further seeks to amend Exchange Rule 104T(e) to remove 
legacy language related to a requirement that specialists be 
represented in the quote in a ``meaningful amount'' before they can 
send a trading message that will provide price improvement to arriving 
marketable orders (i.e., those orders capable of trading in the current 
market upon arrival).
    On September 11, 2008, the Commission approved the amendment of 
former NYSE Rule 104(e) to remove the requirement that specialists be 
represented in the quote in a ``meaningful amount'' before he or she 
may send a trading message that will provide price improvement to 
arriving marketable orders (i.e., those orders capable of trading in 
the current market upon arrival).\7\ Pursuant to that amendment 
specialists were able to provide algorithmically-generated price 
improvement to all or part of a marketable incoming order provided that 
the price improvement to be supplied by the specialist is at least one 
cent. NYSE Rule 104T was not updated to reflect this change and the 
Exchange seeks to update the language to reflect that amendment through 
this filing.
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    \7\ See Securities Exchange Act Release No. 58517 (September 11, 
2008), 73 FR 53914 (September 17, 2008) (SR-NYSE-2008-61).
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    Pursuant to the changes approved in the New Market Model, Floor 
brokers and DMMs may maintain reserve interest consistent with the 
Exchange Rules governing Reserve Orders.\8\ NYSE Rule 104T(d)(1) was 
not conformed to reflect this language. NYSE Rules 70(b)(ii) and 104(c) 
have language to express this concept; however, the language in the two 
rules is inconsistent. Specifically, NYSE Rule 70 states in pertinent 
part, ``A Floor broker shall have the ability to maintain undisplayed 
reserve interest consistent with Exchange rules governing Reserve 
Orders.'' NYSE Rule 104 states, ``A DMM unit may maintain non displayed 
reserve interest consistent with Exchange Rules governing Reserve 
Orders.'' The Exchange seeks to revise the rule language of NYSE Rules 
70(b)(ii), 104T(d)(1) and 104(c) to make them consistent and to clarify 
that Floor brokers and DMMs may maintain reserve interest consistent 
with Exchange rules governing Reserve Orders.
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    \8\ See NYSE Rule 13.
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    The Exchange further seeks to amend typographic errors in NYSE 
Rules 123A, 123B and 1000. Specifically, in NYSE Rule 123A 
Supplementary Material.32, the NYSE deleted the word ``specialist'' 
from the first sentence and did not insert ``DMM'' in its place. 
Additionally, the Exchange did not delete the word ``specialist'' from 
the last paragraph of the same section and insert ``DMM.'' The Exchange 
now proposes to insert ``DMM'' in the first sentence of NYSE Rule 123A 
Supplementary Material.32 so that it will read, ``If a report has not 
been received from a DMM on an order which he or she should have 
executed, the DMM is responsible for any loss which may be sustained up 
to and including the next opening price.'' The Exchange further seeks 
to amend the last sentence of the last paragraph to read, ``In no case 
where it is deemed that a DMM did not send out a report shall the 
liability of the DMM extend beyond the closing price on the business 
day following the day of the transaction.''
    Finally, NYSE Rule 123B as approved in the New Market Model, 
contains two subparagraphs lettered ``d''. The Exchange seeks to change 
the second subparagraph ``d'' to ``e'' in order to correct the 
lettering. Similarly, NYSE Rule 1000, as approved in the New Market 
Model deleted the provisions of subparagraph (e)(ii)(D) and did not 
change the letter of the subsequent subparagraph (e)(ii)(E) to ``(D)''. 
As such NYSE Rule subparagraph (e)(ii) is lettered ``A'' through E 
without a ``D'' letter designation. The Exchange therefore seeks to 
change the current letter ``E'' of that provision to ``D'' to allow for 
accurate consecutive lettering of the rule.
2. Statutory Basis
    The bases under the Securities Exchange Act of 1934 (the ``1934 
Act'') for this proposed rule change are the requirements under Section 
6(b)(5) that the rules of an exchange be 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 
Exchange believes that the instant proposal is consistent with the 
above principals [sic] in that it conforms the rule language to the 
approved New Market model which the Exchange anticipates will enhance 
the liquidity in the market and foster increased competition among 
Exchange market participants thus providing Exchange customers with 
additional opportunities for price improvement.

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

    No written comments were solicited or received with respect to 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 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 \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\11\ 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. NYSE requested that the Commission waive the 30-
day operative delay, as specified in Rule 19b-4(f)(6)(iii),\12\ which 
would make the rule change effective and operative upon filing.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii). 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 has satisfied this requirement.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will conform the rule text to what was previously approved 
by the Commission in prior Exchange proposed rule changes.\13\ Waiving 
the operative delay will ensure that the rule text of the Exchange is 
accurate and will avoid potential confusion by

[[Page 71072]]

eliminating technical errors.\14\ Accordingly, the Commission 
designates the proposed rule change effective and operative upon filing 
with the Commission.
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    \13\ See supra notes 4 and 7.
    \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.\15\
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    \15\ 15 U.S.C. 78s(b)(3)(C).
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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-2008-115 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2008-115. 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-2008-115 and should be 
submitted on or before December 15, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-27833 Filed 11-21-08; 8:45 am]
BILLING CODE 8011-01-P