[Federal Register Volume 75, Number 143 (Tuesday, July 27, 2010)]
[Notices]
[Pages 44042-44044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-18409]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62541; File No. SR-NYSE-2010-52]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Extending the Operative Date of NYSE Rule 92(c)(3) From July 31, 2010 
to December 31, 2010

July 21, 2010.
    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 July 9, 2010, 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 extend the operative date of NYSE Rule 
92(c)(3) from July 31, 2010 to December 31, 2010. The text of the 
proposed rule change is available at the Exchange, the Commission's Web 
site at http://www.sec.gov, 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,

[[Page 44043]]

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 is proposing to extend the delayed operative date of 
NYSE Rule 92(c)(3) from July 31, 2010 to December 31, 2010. The 
Exchange believes that this extension will provide the time necessary 
for the Exchange and the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') to harmonize their respective rules concerning customer 
order protection to achieve a standardized industry practice.
Background
    On July 5, 2007, the Commission approved amendments to NYSE Rule 92 
to permit riskless principal trading at the Exchange.\4\ These 
amendments were filed in part to begin the harmonization process 
between Rule 92 and FINRA's Manning Rule.\5\ In connection with those 
amendments, the Exchange implemented for an operative date of January 
16, 2008, NYSE Rule 92(c)(3), which permits Exchange member 
organizations to submit riskless principal orders to the Exchange, but 
requires them to submit to a designated Exchange database a report of 
the execution of the facilitated order. That rule also requires members 
to submit to that same database sufficient information to provide an 
electronic link of the execution of the facilitated order to all of the 
underlying orders.
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    \4\ See Securities Exchange Act Release No. 56017 (July 5, 
2007), 72 FR 38110 (July 12, 2007) (SR-NYSE-2007-21).
    \5\ See NASD Rule 2111 and IM-2110-2.
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    For purposes of NYSE Rule 92(c)(3), the Exchange informed member 
organizations that when executing riskless principal transactions, 
firms must submit order execution reports to the Exchange's Front End 
Systemic Capture (``FESC'') database linking the execution of the 
riskless principal order on the Exchange to the specific underlying 
orders. The information provided must be sufficient for both member 
firms and the Exchange to reconstruct in a time-sequenced manner all 
orders, including allocations to the underlying orders, with respect to 
which a member organization is claiming the riskless principal 
exception.
    Because the rule change required both the Exchange and member 
organizations to make certain changes to their trading and order 
management systems, the NYSE filed to delay to May 14, 2008 the 
operative date of the NYSE Rule 92(c)(3) requirements, including 
submitting end-of-day allocation reports for riskless principal 
transactions and using the riskless principal account type 
indicator.\6\ The Exchange filed for additional extensions of the 
operative date of Rule 92(c)(3), the most recent of which was an 
extension to July 31, 2010.\7\
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    \6\ See Securities Exchange Act Release No. 56968 (Dec. 14, 
2007), 72 FR 72432 (Dec. 20, 2007) (SR-NYSE-2007-114).
    \7\ See Securities Exchange Act Release Nos. 57682 (Apr. 17, 
2008), 73 FR 22193 (Apr. 24, 2008) (SR-NYSE-2008-29); 59621 (Mar. 
23, 2009), 74 FR 14179 (Mar. 30, 2009) (SR-NYSE-2009-30); 60396 
(July 30, 2009), 74 FR 39126 (Aug. 5, 2009) (SR-NYSE-2009-73); and 
61251 (Dec. 29, 2009), 75 FR 482 (Jan. 5, 2010) (SR-NYSE-2009-129).
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Request for Extension \8\
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    \8\ NYSE Amex LLC has filed a companion rule filing to conform 
its Equities Rules to the changes proposed in this filing. See SR-
NYSEAmex-2009-70 [sic], formally submitted July 9, 2010.
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    FINRA and the Exchange have been working diligently on fully 
harmonizing their respective rules, including reviewing the 
possibilities for a uniform reporting standard for riskless principal 
transactions. However, because of the complexity of the existing 
customer order protection rules, including the need for input from 
industry participants as well as Commission approval, the Exchange and 
FINRA will not have harmonized their respective customer order 
protection rules by the current July 31, 2010 date for the 
implementation of the FESC riskless principal reporting.
    The Exchange notes that it has agreed with FINRA to pursue efforts 
to harmonize customer order protection rules. On December 10, 2009, 
FINRA filed with the Commission its rule proposal to adopt a new 
industry standard for customer order protection as proposed FINRA Rule 
5320.\9\ That proposed filing is based on the draft rule text that 
FINRA and NYSE Regulation each circulated to their respective member 
participants and includes copies of the comment letters that FINRA and 
NYSE Regulation received on the rule proposal. The Exchange intends to 
adopt a new customer order protection rule that is substantially 
identical to proposed FINRA Rule 5320.
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    \9\ See SR-FINRA-2009-090 (December 10, 2009).
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    FINRA has filed to extend the time for Commission action on its 
rule filing to adopt proposed FINRA Rule 5320 to July 16, 2010. As 
proposed by FINRA, however, its proposed new rule will not be effective 
upon approval. Rather, the rule filing will become effective at a later 
date, not yet known, in order to provide time for FINRA, NYSE, and 
market participants to implement programming changes associated with 
the proposed new rule.
    The Exchange continues to believe that pending full harmonization 
of the respective customer order protection rules, it would be 
premature to require firms to meet the current Rule 92(c)(3) FESC 
reporting requirements.\10\ Indeed, having differing reporting 
standards for riskless principal orders would be inconsistent with the 
overall goal of the harmonization process.
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    \10\ The Exchange notes that it would also need to make 
technological changes to implement the proposed FESC reporting 
solution for Rule 92(c)(3).
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    Accordingly, to provide the Exchange and FINRA the time necessary 
to obtain Commission approval for and implement a harmonized rule set 
that would apply across their respective marketplaces, including a 
harmonized approach to riskless principal trade reporting, the Exchange 
is proposing to delay the operative date for NYSE Rule 92(c)(3) from 
July 31, 2010 to December 31, 2010.
    Pending the harmonization of the two rules, the Exchange will 
continue to require that, as of the date each member organization 
implements riskless principal routing, the member organization have in 
place systems and controls that allow them to easily match and tie 
riskless principal execution on the Exchange to the underlying orders 
and that they be able to provide this information to the Exchange upon 
request. To make clear that this requirement continues, the Exchange 
proposes to amend supplementary material .95 to Rule 92 to specifically 
provide that the Rule 92(c)(3) reporting requirements are suspended 
until December 31, 2010 and that member organizations are required to 
have in place such systems and controls relating to their riskless 
principal executions on the Exchange. Moreover, the Exchange will 
coordinate with FINRA to examine for compliance with the rule 
requirements for those firms that engage in riskless principal trading 
under Rule 92(c).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\11\ in 
general, and furthers the

[[Page 44044]]

objectives of Section 6(b)(5) of the Act,\12\ 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 extension provides 
the Exchange and FINRA the time necessary to develop a harmonized rule 
concerning customer order protection that will enable member 
organizations to participate in the national market system without 
unnecessary impediments.
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    \11\ 15 U.S.C. 78f(b).
    \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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 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, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \13\ 
and Rule 19b-4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to submit to the 
Commission written 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. The Exchange has satisfied this requirement.
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    The Exchange has requested the Commission to waive the 30-day 
operative delay so that the Exchange can extend the operative date of 
NYSE Rule 92(c)(3) without interruption. The Exchange notes that 
extending the delayed operative date of Rule 92(c)(3) from July 31, 
2010 to December 31, 2010 will provide sufficient time for the Exchange 
and FINRA to obtain Commission approval for and implement a harmonized 
approach to customer order protection rules, including how riskless 
principal transactions should be reported. The Commission hereby grants 
the Exchange's request and believes such waiver is consistent with the 
protection of investors and the public interest.\15\ Accordingly, the 
Commission designates the proposed rule change operative upon filing 
with the Commission.
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    \15\ 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. 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-NYSE-2010-52 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-2010-52. 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 Web site 
viewing and printing in the Commission's Public Reference Room 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 available publicly. All submissions should refer to 
File Number SR-NYSE-2010-52 and should be submitted on or before August 
17, 2010.

    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,
Deputy Secretary.
[FR Doc. 2010-18409 Filed 7-26-10; 8:45 am]
BILLING CODE 8010-01-P