[Federal Register Volume 74, Number 112 (Friday, June 12, 2009)]
[Notices]
[Pages 28086-28088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13807]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59997; File Nos. SR-NYSE-2009-50 and SR-NYSEAmex-2009-
20]
Self-Regulatory Organizations; New York Stock Exchange LLC and
NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed
Rule Changes Relating to Comparison of Executed Transactions
May 28, 2009.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on May 19, 2009, New York Stock Exchange LLC (``NYSE'') and NYSE
Amex LLC (``NYSE-Amex'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule changes as described in
Items I and II below, which Items have been prepared primarily by NYSE
and NYSE-Amex (collectively, ``Exchanges''). The Exchanges filed the
proposed rule changes pursuant to Section 19(b)(3)(A)(iii) of the Act
\4\ and Rule 19b-4(f)(6) thereunder \5\ so that the proposals were
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule changes 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.
\4\ 15 U.S.C. 78s(b)(3)(A)(iii).
\5\ 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 Exchanges propose to amend NYSE Rule 134 (Differences and
Omissions-Cleared Transactions) and NYSE-Amex Rule 134 (NYSE Amex
Equities. Differences and Omissions-Cleared Transactions) to provide
for certain technical procedures that the Exchanges use in the
comparison stage of trade settlement.
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 Exchanges included
statements concerning the purpose of, and basis for, the proposed rule
changes and discussed any comments they received on the proposed rule
changes. The text of those statements may be examined at the places
specified in Item IV below. The Exchanges have 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 the
Statutory Basis for, the Proposed Rule Change
NYSE operates the On-Line Comparison System (``OCS''), which
provides the first step for the settlement of securities transactions
on the Exchanges. OCS conducts comparison processing, which includes
matching initial trade submissions, correction processing, omnibus
processing, and questioned trade (``QT'') resolution. OCS interacts
with the Exchanges' members and member organizations in their roles as
clearing firms, brokers, and Designated Market Making Units (``DMM
Units'') and is linked internally to the Exchanges' trading systems and
[[Page 28087]]
externally to the National Securities Clearing Corporation.\6\
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\6\ The National Securities Clearing Corporation (``NSCC'') is a
clearing agency registered with the Commission under Section 17A of
the Securities Exchange Act of 1934. NSCC provides centralized
clearance and settlement services for equity security trades for
U.S. broker-dealers.
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For all Exchange-based transactions, NYSE Rule 132.30 (Comparison
and Settlement of Transactions Through A Fully-Interfaced or Qualified
Clearing Agency) and NYSE-Amex Equities Rule 132.30 (Comparison and
Settlement of Transactions Through A Fully-Interfaced or Qualified
Clearing Agency) require members and member organizations to submit
data elements to OCS.\7\ This data is then used to compare the terms of
the two sides (i.e., buy and sell) of a trade. When the two sides
match, the trade is successfully compared and will move on to the
subsequent stages of settlement processing. For automated trades, this
data is recorded electronically, which reduces the error rate and
produces ``clean'' or ``locked-in'' trades. For manual trades, data is
submitted by both sides of the trade through their clearing firms.
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\7\ See also NYSE Rule 130(c) and NYSE-Amex Equities Rule 130(c)
(Overnight Comparison of Exchange Transactions).
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To facilitate the comparison process, the Exchanges utilize omnibus
account designations to record trade data.\8\ Using omnibus account
designations allows for universal contras for one trade side, thereby
reducing the number of different data elements that have to be
independently recorded into a broker's hand-held device or written on a
Floor report for a trade, which also reduces the likelihood of error.
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\8\ An ``omnibus account'' is an account in which the
transactions of multiple individual members are combined.
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Despite the increased automation of the trading process and the use
of universal designations, there are still a few trades that do not
successfully compare. That is, all the trade data elements from the buy
and sell sides do not match. This can occur when the trade is done
manually and there is an error made in submitting the trade information
from one or both sides. It can also occur on electronic trades if there
are software problems or systemic problems that cause incorrect
information to be filed thus causing inaccurate information to be
transmitted. When trades do not compare, a QT is created and then goes
through the ``QT process.'' This process mandates that clearing member
organizations must resolve any trades that have not been successfully
compared by the first business day after the trade date (``T+1'').\9\
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\9\ NYSE Rule 134(a) and NYSE-Amex Equities Rule 134(a). These
rules also set forth the procedures and timeframes to resolve QTs.
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The Exchanges note that the incidence of QTs is very low both in
terms of absolute numbers and as a percentage of daily trades. For
example, for the period January 2 through January 8, 2009, there was an
average of just 337 QTs per day at the NYSE on a T+1 basis, spread
among the approximately 120 clearing firms and six DMM units. These are
then researched and almost all of these are reconciled by the second
evening after the trade date (``T+2''). As a result, on average there
are typically less than three unresolved trades per month. There is an
average of over 4 million trades each day on NYSE.
One of the functions of OCS is to reconcile the balances in the
omnibus accounts at the end of each trading day. The accounting
procedure used for trade resolution requires that an omnibus account
must net to zero at the end of any trading session. That is, there
cannot be an unassigned security or money position in an omnibus
account since that would, in effect, assign the open balance to the
Exchange where the transaction occurred. The Exchanges, therefore,
propose to assign on T+2 any open balance in any of the omnibus
accounts it uses to compare trades to either a DMM Unit or the member
organization that has been identified as the clearing firm for one side
of the unresolved trade. A clearing firm will be assigned as the
default contra side in a trade that resulted from an execution
involving e-Quotes, which are trades involving Floor broker agency
interest files.\10\ The DMM Unit will be assigned when there is an open
imbalance in an omnibus account that resulted from the execution of
orders that did not involve an e-Quote, regardless of whether the DMM
was involved in the transaction.
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\10\ NYSE Rule 70(a)(i) and NYSE-Amex Equities Rule 70(a)(i).
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Specifically, the Exchanges propose to add language to their
respective Rule 134 to enable them to assign either a DMM Unit or an e-
clearing member organization as the contra party to any uncompared
transaction or unresolved omnibus account imbalance remaining in OCS at
the close of business on the second business day after the trade date.
Since the number of QTs that remain unresolved by the end of the
second day after the initial trade date is extremely low, the Exchanges
expect that there will be very few assignments of a default contra side
involving clearing firms or DMM Units that will be made under the
proposed revisions of their respective Rule 134.
The Exchanges state that the proposed rule changes are consistent
with their obligations under Section 6(b)(5) of the Act,\11\ which
requires the rules of a registered national securities 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 Exchanges believe that the proposed rule changes
comply with these requirements because the changes enhance the
comparison process at the Exchanges, thereby supporting the timely
settlement of securities transactions.
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\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchanges do 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 Exchanges did not solicit or receive written comments with
respect to the proposed rule change. The Exchanges will notify the
Commission of any comments they receive.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule changes were effective upon filing with the
Commission pursuant to Section 19(b)(3)(A)(iii) of the Act \12\ and
Rule 19b-4(f)(6) thereunder \13\ because each of the proposed rule
changes does not: (i) Significantly affect the protection of investors
or the public interest; (ii) impose any significant burden on
competition; and (iii) become operative prior to 30 days from the date
on which it was filed, or such shorter time as the Commission may
designate, if consistent with the protection of investors and the
public interest.
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission
may designate a shorter
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time if such action is consistent with the protection of investors and
the public interest. The Exchanges have asked the Commission to waive
the 30-day operative delay so that the proposal may become operative
immediately upon filing.
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\14\ Id.
\15\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Acceleration of the operative date will enable the Exchanges to clarify
and strengthen their process to resolve uncompared transactions or
unresolved account imbalances without undue delay while still affording
interested parties the opportunity to submit comments or concerns to
the Commission regarding these proposals. The new processes should
instill greater confidence among the Exchanges' members and investors
that such situations will be handled in an orderly and expeditious
manner. For these reasons, the Commission designates the proposal to be
effective and operative upon filing with the Commission.\16\
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\16\ For purposes only of waiving the 30-day operative delay of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f). The Exchange provided the Commission written notice of its
intent to file the proposed rule change at least five business days
prior to filing.
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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 No. SR-NYSE-2009-50 or NYSEAmex-2009-20 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 No. SR-NYSE-2009-50 or NYSEAmex-
2009-20. At least one of these file numbers 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 20549-1090 on
official business days between the hours of 10 a.m. and 3 p.m. Copies
of the filing will also be available for inspection and copying at the
Exchanges principal offices and on NYSE's Internet Web site at http://www.nyse.com. 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 No. SR-NYSE-
2009-50 or NYSEAmex-2009-20 and should be submitted on or before July
6, 2009.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13807 Filed 6-11-09; 8:45 am]
BILLING CODE 8010-01-P