[Federal Register Volume 74, Number 36 (Wednesday, February 25, 2009)]
[Notices]
[Pages 8600-8603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-3980]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59415; File No. SR-NYSE-2009-13]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC
Amending Certain NYSE Rules To Reflect That Designated Market Makers on
the Exchange No Longer Act as Agents for Orders Entered on the Exchange
February 18, 2009.
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 February 4, 2009, 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 certain NYSE rules to reflect that
Designated Market Makers (``DMMs'') on the Exchange will no longer act
as agents for orders entered on the Exchange.
The text of the proposed rule change is available at http://www.nyse.com, the Exchange, 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
[[Page 8601]]
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
Through this filing, the Exchange proposes to amend certain NYSE
rules to reflect that the Designated Market Makers (``DMMs'') no longer
have agency responsibilities for orders entered on the NYSE Display
Book[supreg] (``Display Book'').\4\
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\4\ The Display Book[supreg] system is an order management and
execution facility. The Display Book system receives and displays
orders to the DMM, contains the Book, and provides a mechanism to
execute and report transactions and publish results to the
Consolidated Tape. The Display Book system is connected to a number
of other Exchange systems for the purposes of comparison,
surveillance, and reporting information to customers and other
market data and national market systems.
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The Exchange notes that parallel changes are proposed to be made to
the rules of the NYSE Alternext Exchange (formerly the American Stock
Exchange).\5\
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\5\ See SR-NYSE Alternext-2009-09 (to be filed February 4,
2009).
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Background
On June 12, 2008, the NYSE filed a set of proposed rule changes
designed to transform its market structure and reinforce the NYSE as
the premier venue for price discovery, liquidity, competitive quotes
and price improvement.\6\ That and other filings \7\ formed the core
initiatives submitted by the Exchange to reinforce its dynamic and
competitive marketplace.
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\6\ See Securities Exchange Act Release No. 58184 (July 17,
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46).
\7\ See for example, Securities Exchange Act Release No. 58052
(June 27, 2008), 73 FR 38274 (July 3, 2008) (SR-NYSE-2008-45)
(amending NYSE Rule 98); see also Securities Exchange Act Release
No. 58363 (August 14, 2008), 73 FR 49514 (August 21, 2008) (SR-NYSE-
2008-52) (amending the NYSE allocation policy).
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As outlined in SR-NYSE-2008-46 (the ``New Market Model filing''),
the changes to the Exchange's marketplace included the replacement of
Exchange specialists with DMMs. The function of the DMM is
substantially different from the manner in which specialists functioned
vis-[agrave]-vis the relationship between Exchange order givers and
representation of these orders in the marketplace. DMMs no longer
receive copies of orders entered in Exchange systems prior to the
orders publication to all market participants by Display Book.
Similarly, DMMs do not have a negative obligation which would require
the DMM to yield trading for the DMM unit's proprietary account in
order to allow public orders to be executed against each other. DMMs
therefore trade on parity with all market participants.
Incoming orders to buy and sell submitted to the Exchange are
eligible for automatic quoting and immediate and automatic execution.
Instead of the DMM, the NYSE Display Book is responsible for tracking
the liquidity available at each specified price point. NYSE systems
automatically review the liquidity available on the Display Book for
execution and then using sophisticated execution logic access the
necessary liquidity to consummate trades. Exchange systems report
executions to the entering parties, update the quote and process order
cancellations.
Although the DMM no longer receives order by order information, he
or she is still responsible for the execution of manual transactions on
the Exchange including opening and re-opening transactions, closing
transactions, block transactions, gap quote situations and when trading
reaches LRPs that would lock or cross the market.\8\ DMMs are
responsible for choosing the price \9\ and the executions of the orders
at that price during those specific situations.
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\8\ See NYSE Rule 104(a)(2)-(5).
\9\ In an opening and reopening trade, Display Book will verify
that all interest that must be executed in the opening or reopening
can be executed at the price chosen by the DMM. If all the interest
that must be executed in the transaction cannot be executed at that
price, the Display Book will block the execution. In addition, when
executing blocks (10,000 shares or more or value of $200,000 or
more), trading out of a gap quote situation or an LRP that locks or
crossed the market, the Display Book may adjust the execution price
if there is enough interest on the Display Book to complete the
transaction at a better price.
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In the current NYSE trading environment, the DMM no longer
functions as an agent for orders on the Display Book because the DMM
does not control order by order information. As such the Exchange
proposes through this filing to amend legacy rules that retain the
concept of the Exchange market maker as agent.
Proposed Rule Changes
Certain Exchange rules contain language that refers to the DMM
``holding,'' ``receiving,'' and/or ``accepting'' orders. These concepts
were consistent with the role performed by former specialist but are
inconsistent with the role of the DMM. The Exchange therefore proposes
to amend NYSE Rules 13 (``Definitions of Orders''), 91 (``Taking or
Supplying Securities Named in Order''), 123A (``Miscellaneous
Requirements'') and 123B (``Exchange Automated Order Routing Systems'')
to remove this concept.
Specifically, the Exchange proposes to delete the Supplementary
Material.10 of NYSE Rule 13 in its entirety to remove language that
provides a DMM must accept any order given to him, unless he obtains
Floor Official approval to decline an order. The Exchange further seeks
to remove the phrase ``the DMM via'' \10\ from Supplementary
Material.40 of NYSE Rule 91 that governs a DMM making a proprietary
trade against an order, but retain the procedural provisions. In
Supplementary Material to Rule 123A, the Exchange proposes to delete
.10 (``Limited orders-Market orders'') since it speaks to a member
giving an order to the DMM. The first paragraph of .20 (``Sending
orders to DMMs'') in that rule is proposed for deletion as it governs
members and member organizations transmitting orders to DMMs. The
Exchange further proposes to amend .20 of NYSE Rule 123A to: (i) Delete
the concept of orders being sent to the DMMs; and (ii) change the title
to ``Changes in Day Orders'' which reflects the retained material.
Similarly, Supplementary Material .31 (``Orders sent to
representatives''), .32 (``Report not received''), .33 (``Addressed
order or order handed to DMM''), .34 (``Unaddressed order''), .35
(``Erroneous statement''), .36 (``Legibility of orders''), .37
(``Identity of stock''), .38 (``Reports, written and oral'') and .39
(``Duplicate reports'') of NYSE Rule 123A are proposed for deletion as
they speak to transmitting or giving orders to DMMs, DMMs receiving
orders, DMMs giving reports on orders, and similar provisions.
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\10\ See e-mail from Deanna G. W. Logan, Managing Director, NYSE
Regulation, Inc., to David Liu, Assistant Director, Division of
Trading and Markets, Commission, dated February 13, 2009 (making
technical edits) (``February 13th e-mail'').
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In addition, the Exchange proposes to delete NYSE Rule
123B(b)(2)(B) because it speaks of orders received by the DMM through
the Designated Order Turnaround System and to erroneous reports sent by
the DMM on executions. These functions are no longer handled in this
manner. As previously explained, order acceptance and reports of
executions are handled by Exchange systems. The Exchange also proposes
to delete NYSE Rule 123B(d) because it describes orders being sent to
and executed by the DMM.
The Exchange also proposes to amend paragraph (2)(A) of Rule
123B(b) to have it apply to all members if the member
[[Page 8602]]
makes an erroneous report of the price of a transaction, by
substituting the word ``member'' for the word ``broker'' in the rule.
This will then include situations in which a DMM makes an erroneous
report as to price on a transaction.
NYSE Rule 92(d)(6) (``Limitations on Members' Trading Because of
Customers' Orders'') is further proposed for deletion as it restricts
DMM proprietary trading during the hours the Exchange is closed. The
restriction was predicated on the former specialist system where the
specialist had knowledge of customer orders in his or her possession.
The restriction is obviated by the fact that the DMM no longer
``holds'' customer orders. Nevertheless, as members, DMMs will continue
to be subject to the rule's general prohibition. Similarly, the last
sentence of NYSE Rule 127(d)(3) (``Block Crosses Outside the Prevailing
NYSE Quotation'') is proposed for deletion because it also is
predicated on the DMM retaining stock for the DMM's own account at a
price at which the DMM ``holds'' unexecuted customer orders.\11\
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\11\ See February 13th e-mail, supra, note 10.
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The Exchange believes that the amendments proposed herein to remove
legacy rule language that is inconsistent with the role of the DMM as
approved by the Commission in the New Market Model filing are necessary
to adequately reflect the functions performed by the DMM.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\12\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\13\
in particular, 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. The Exchange
believes the proposed rule changes are consistent with these principles
in that it amends legacy rules to accurately reflect the role performed
by the Exchange's market maker thus removing impediments to and
perfecting the mechanism of a free and open market.
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\12\ 15 U.S.C. 78f(b).
\13\ 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
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 \14\ and Rule 19b-4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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.\16\ 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 Exchange requested that the Commission waive
the 30-day operative delay and designate the proposed rule change
operative upon filing.
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\16\ 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.
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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.
The proposed rule change seeks to remove legacy language that is
inconsistent with the role performed by DMMs as approved by the
Commission in the New Market Model filing.\17\ Furthermore, it seeks to
clarify its rule text in order to avoid any undue confusion on the part
of Exchange market participants as it relates to the function performed
by DMMs. Therefore, the Commission designates the proposal operative
upon filing.\18\
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\17\ See supra note 6.
\18\ 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.\19\
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\19\ 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-2009-13 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2009-13. 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 on official business
days between the hours of 10 a.m. and 3 p.m. Copies
[[Page 8603]]
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 available publicly. All submissions should refer to
File Number SR-NYSE-2009-13 and should be submitted on or before March
18, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
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\20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-3980 Filed 2-24-09; 8:45 am]
BILLING CODE 8011-01-P