[Federal Register Volume 74, Number 131 (Friday, July 10, 2009)]
[Notices]
[Pages 33283-33286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16313]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60216; File No. SR-NYSE-2009-59]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending Exchange Rules To Allow Customers To Transmit Orders on the 
Exchange With Settlement Instructions of ``Cash,'' ``Next Day,'' and 
``Seller's Option'' Directly to a Floor Broker for Manual Execution

July 1, 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 June 23, 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 several Exchange rules to allow 
customers to transmit orders with settlement instructions for other 
than regular way settlement, i.e., settling on the third business day 
following the trade date. Such orders must be transmitted to a Floor 
broker for manual handling on the Exchange. The text of the proposed 
rule change is available at the Exchange, the Commission's Public 
Reference Room, and http://www.nyse.com.

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,

[[Page 33284]]

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 proposes to allow customers to transmit orders for 
execution on the Exchange with the settlement instructions of ``cash'', 
``next day'' and ``seller's option'' (collectively referred to herein 
as ``non-regular way settlement'') directly to a Floor broker for 
manual execution. Specifically, the Exchange seeks to adopt Rule 14 
(Non-Regular Way Settlement Instructions for Orders) to provide that 
orders with these types of settlement instructions may only be 
submitted directly to a Floor broker. In addition, the Exchange 
proposes to add references to Rule 14 to several Exchange rules which 
relate in some way to these settlement instructions.
    The Exchange notes that parallel changes are proposed to be made to 
the rules of the NYSE Amex LLC (formerly the American Stock 
Exchange).\4\
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    \4\ See SR-NYSE Amex-2009-31.
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Background
    On March 13, 2009, the Exchange's amended rule became operative to 
require that all orders submitted to Exchange be submitted for regular 
way settlement (i.e., settlement on the third business day following 
trade date).\5\ Prior to that requirement, the Exchange allowed market 
participants to submit orders that contained non-regular way settlement 
instructions directly to the Exchange matching/execution engine 
(Display Book), or to a Floor broker for representation. Cash 
settlement instructions required delivery of the securities the same 
day as the transaction. Next day settlement instructions required 
delivery of the securities on the first business day following the 
transaction. Orders that had settlement instructions of seller's option 
afforded the seller the right to deliver the security or bond at any 
time within a specified period, ranging from not less than two business 
days to not more than 180 days for stocks and not less than two 
business days and no more than 60 days for U.S. government securities.
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    \5\ See Securities and Exchange Act Release No. 59446 (February 
25, 2009), 74 FR 9323 (March 3, 2009) (SR-NYSE-2009-17). The 
Exchange notes that the implementation of the changes described in 
this filing continue to be made on a security by security basis and, 
to date, are not operative in every security traded on the Exchange.
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    If an order containing non-regular way settlement instructions was 
sent to a Floor broker for representation, then the Floor broker was 
responsible for going to the post where the security traded to effect 
the execution of that order. However, Display Book electronically 
submitted orders that contained non-regular way settlement instructions 
were ineligible for immediate and automatic execution. Rather, the 
orders bypassed the Display Book, and were printed on paper at the 
Designated Market Makers' (``DMMs'') post locations, along with other 
administrative messages. Thereafter, the orders containing non-regular 
way settlement instructions required the DMM and the trading assistant 
to realize that the document printed was in fact an order which in some 
instances caused delay in the execution of the order. The DMM was then 
responsible for the manual execution of the order. The manual 
intervention required by the DMM and trading assistant at the post 
location in the processing of orders containing non-regular way 
settlement instructions put the orders at the very real risk of 
``missing the market'' as a result of the current speed of order 
execution in the Exchange market.
    In addition to the risk of ``missing the market'', orders 
containing non-regular way settlement instructions were generally 
infrequently used by market participants for much of the trading 
calendar.\6\ The Exchange therefore provided that only orders for 
regular way execution be submitted to the Exchange.
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    \6\ The Exchanges review of the different types of orders 
received during the week of May 12, 2008 through May 16, 2008 showed 
that there were on average 28 cash orders (with an average of 1,653 
shares per day), 48 next day orders (average of 763 shares per day) 
and 2 seller's option orders (average of 2,839 shares per day) 
utilized by market participants each day. By comparison, for May 
2008, the Exchange received an average of 92.2 million orders a day. 
Even during the last five trading days of 2007, when the most cash, 
next day and seller's option orders are received, the average per 
day submissions were 123 for cash (average of 896 shares per day), 
199 for next day (average of 1,848 shares per day) and 10 for 
seller's option (average of 11,679 shares per day). The Exchange did 
however, execute an atypical amount of shares submitted with cash, 
next day and seller's option settlement instructions on December 
30th and 31st of 2008. Specifically, on December 30, 2008, 126,504 
shares were executed on a cash settlement basis, 10,284,879 shares 
for next day settlement and 10,000,000 shares for seller's option 
settlement. In addition, there were 8,110,228 shares executed for 
cash settlement on December 31, 2008. The Exchange maintains that 
this level of activity was reflective of the economic events of 2008 
and is unrelated to usual trading patterns for these settlement 
types.
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    Exchange customers, however, have expressed that certain trading 
strategies and/or the expiration of certain trading instrument (e.g. 
rights and warrants) require the ability to submit orders to the 
Exchange that contain instructions for execution with non-regular way 
settlement. To accommodate the needs of its customers, the Exchange 
proposes to allow orders containing non-regular way settlement 
instructions to be transmitted directly to a Floor broker for manual 
order handling.
Proposed Floor Broker Handling of Cash, Next Day, Seller's Option 
Settlement Instructions
    The Exchange's commitment to provide its market participants with 
immediate and automatic execution in the most efficient manner requires 
the establishment of a separate order handling protocol for orders that 
contain non-regular way settlement instructions. Prior to the rule 
changes proposed in SR-NYSE-2009-17, the required manual intervention 
by the DMMs and DMM trading assistants did not provide for efficient 
order handling protocol because it put the orders at the very real risk 
of ``missing the market'' as a result of the current speed of order 
execution in the Exchange market. However, the Exchange recognizes that 
that there may be a continuing need for the availability of orders with 
non-regular way settlement instructions in its marketplace. To that 
end, the Exchange has designed a method of entry for these orders that 
will involve minimal manual handling by DMMs.
    The Exchange therefore proposes to adopt NYSE Rule 14 (``Non-
Regular Way Settlement Instructions for Orders'') to allow customers to 
directly transmit an order containing instructions for cash, next day 
and seller's option settlement as described above to a Floor broker for 
representation in the trading crowd.\7\ DMMs will not have order 
handling responsibility for these orders and Exchange systems that 
route orders to the Display Book will not accept orders containing non-
regular way instructions. Routing orders to Floor brokers would then be 
the only acceptable way for orders with non-regular way settlement 
instructions to be transmitted to the Exchange.\8\
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    \7\ The Exchange notes that as currently configured, the only 
Exchange system that will accept orders with non-regular way 
instructions is the Broker Booth Support System (``BBSS''). Thus, 
these types of orders cannot be transmitted directly to a Floor 
broker's hand-held device. In addition, odd-lot orders with non-
regular way settlement instructions will not be accepted in BBSS 
and, therefore, will not be permitted.
    \8\ On June 10, 2009, the Exchange implemented this proposal 
after submitting a draft of this filing to the Commission, but prior 
to formal submission and receipt of a waiver of the 30-day delayed 
operative date.

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[[Page 33285]]

    Proposed Rule 14 will define the acceptable non-regular way 
settlement instructions valid on the Exchange. An order submitted with 
cash settlement instructions would require delivery of the securities 
on the same day as the trade date. Next day settlement instructions 
would require delivery of the securities on the first business day 
following the trade date. Orders that have settlement instructions of 
seller's option would afford the seller the right to deliver the 
security or bond at any time within a specified period, ranging from 
not less than two business days to not more than 60 days for securities 
and not less than two business days and no more than 60 days for U.S. 
government securities. The Exchange modified from the previously 
effective version of this rule the maximum days for a seller's option 
from 180 days to 60 days to reflect current industry practice for 
securities other than U.S. government securities.
    Further, pursuant to proposed NYSE Rule 14, a customer that 
requests the execution of an order pursuant to non-regular way 
settlement instructions of cash, next day or seller's option must send 
the order directly to a Floor broker booth location on the Floor of the 
NYSE. A Floor broker that receives an order containing settlement 
instructions for cash, next day or seller's option must enter the order 
into broker systems prior to representing the order in the trading 
crowd to comply with his or her FESC obligations.\9\ Thereafter, the 
Floor broker would be allowed to represent the order in the trading 
crowd.\10\ Executions by the Floor broker of order containing non-
regular way settlement would be reported to the Consolidated Tape with 
cash, next day or seller's option transaction indicators as 
appropriate.
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    \9\ FESC stands for ``Front End Systemic Capture''. Under NYSE 
Rule 123 (Records of Orders) members and member organizations are 
required to enter the details of an order, including any 
modification or cancellation, into a system which electronically 
timestamps the time of entry prior to representing or executing that 
order on the Floor.
    \10\ The Exchange notes that Floor brokers who accept customer 
orders with non-regular way settlement instructions will have the 
same best execution responsibilities in representing these orders as 
they would for regular way orders.
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    In addition, the Exchange proposes to amend NYSE Rules 64 (Bonds, 
Rights and 100-Share-Unit Stocks), 66 (U.S. Government Securities),\11\ 
130 (Overnight Comparison of Exchange Transactions), to allow for non-
regular way settlement as prescribed by proposed Rule 14. The Exchange 
further proposes to amend Rules 137 (Written Contracts) and 137A 
(Samples of Written Contracts) to include seller's options in written 
contracts. In addition, the Exchange further proposes to reinstate 
reserved Rules 73, 177 and 179 to re-establish ``Seller's Option'', 
``Delivery Time--`Cash' Contracts'' and ``Seller's Option'' in order to 
specify precedence and delivery times for transactions made pursuant to 
cash and seller's option settlement instructions. The Exchange further 
proposes to amend NYSE Rule 189 (Unit of Delivery) to specify that the 
buyer shall not be required to accept a portion of a lot of securities 
contracted for before the seller's option expiration date. NYSE Rules 
235 (Ex-Dividends, Ex-Rights), 236 (Ex-Warrants), 257 (Deliveries After 
``Ex'' Date) and 282 (Buy-In Procedures) to add specific provisions 
related to orders submitted with cash settlement instructions. NYSE 
Rules 241 (Interest--Added to Contract Price) to add specific 
provisions related to orders submitted with seller's option settlement 
instructions.
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    \11\ Currently, the Exchange does not trade U.S. Government 
securities.
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    With respect to Rule 64, the Exchange proposes to add provisions 
that were previously a part of the Rule before the Exchange eliminated 
non-regular way settlement instructions under SR-NYSE-2009-17. 
Specifically, the Exchange proposes to:

    (1) Add paragraph (a)(ii) to require that on the second and 
third business days preceding the final day for subscription, bids 
and offers in rights may only be made for next day settlement, and 
may only be made for cash settlement on the day preceding the final 
day for subscription;
    (2) Add paragraph (b) to require that all trades for other than 
regular way settlement that are more than .10 point away from the 
regular way bid or offer must be approved by a Floor Official, 
except that this will be expanded to .25 during the last trading 
week of the calendar year; and
    (3) Add paragraph (c) to require that while for seller's option 
trades the settlement date is established in business days, they 
must be reported to the tape in calendar days.

    The Exchange believes these provisions are necessary to continue to 
regulate non-regular way trades, as they were before they were 
eliminated.
    The Exchange also proposes to add references to proposed NYSE Rule 
14 and non-regular way settlement instructions to those rules that have 
provisions that implicate settlement instructions. Specifically, the 
Exchange proposes to add the reference to NYSE Rules 12 (``Business 
Day'') and 123 (Record of Orders).
Odd Lot Orders
    Proposed NYSE Rule 14 will only permit non-regular way settlement 
instructions for round lot orders and orders that are comprised of a 
round lot and an odd lot, i.e., partial round lot orders (``PRLs''). 
Odd lot orders with non-regular way settlement instructions will not be 
acceptable for execution on the Exchange. Exchange systems, order 
execution and post settlement processing will not support non-regular 
way settlement for odd lots. PRL orders submitted with non-regular way 
settlement instructions will be executed pursuant to the provisions of 
proposed Rule 124.40 (ii). Proposed Rule 124.40 (ii) will require that 
the odd-lot portion of the PRL will be executed at the same price of 
the last round lot in the order to better facilitate the post 
settlement processing of these orders.
    The Exchange believes that the instant proposal will meet the needs 
of its customers to submit orders for non-regular way settlement in a 
manner that will provide effective representation for the customer in 
the Exchange's current market.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Act'') 
for this proposed rule change is the requirement under Section 6(b)(5) 
\12\ 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 instant 
filing accomplishes these goals by restoring the ability of Exchange 
market participants to enter orders with other than ``regular way'' 
settlement instructions, and allow these orders to be represented at 
the point of sale in the Exchange's auction market while reducing the 
risk of such orders missing the market.
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    \12\ 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.

[[Page 33286]]

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 \13\ and Rule 19b-4(f)(6) thereunder \14\ 
because the foregoing proposed rule: (1) Does not significantly 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.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The NYSE has 
requested that the Commission waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because the proposed rule change restores the ability of market 
participants to submit, and Floor brokers to receive, orders containing 
non-regular way settlement instructions. Accordingly, the proposed rule 
change does not raise any novel or troubling issues. For this reason, 
the Commission designates the proposed rule change as operative upon 
filing.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact 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 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-2009-59 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-2009-59. 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 the filing will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2009-59 and should be submitted on or before July 31, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16313 Filed 7-9-09; 8:45 am]
BILLING CODE 8010-01-P