[Federal Register Volume 66, Number 206 (Wednesday, October 24, 2001)]
[Notices]
[Pages 53820-53822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26729]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44943; File No. SR-NYSE-2001-39]
Self-Regulatory Organizations; New York Stock Exchange, Inc.,
Notice of Filing and Immediate Effectiveness of Proposed Rule Change by
the New York Stock Exchange, Inc. To Amend Rule 123
October 16, 2001.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-b-4 thereunder,\2\ notice is hereby given
that on October 8, 2001, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'' the proposed rule change as described in
Items, I, II and III below, which Items have been prepared by the NYSE.
The text of the proposed rule change is available for inspection and
copying at
[[Page 53821]]
the places specified in Item IV below. 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\ 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 proposed rule change consists of amendments to NYSE Rule 123.
The text of the proposed rule change is available at the Office of the
Secretary, NYSE, and at the Commission.
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 NYSE 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 these statements may be examined at the places specified in
Item IV below and is set forth in Sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This proposed rule change was originally filed as a one-month pilot
in SR-NYSE-2001-36.\3\ With this proposed rule change, the NYSE seeks
permanent approval to the amendments to NYSE Rule 123.
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\3\ See Securities Exchange Act Release No. 44783 (September 10,
2001), 66 FR 48304 (September 19, 2001).
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The Exchange has adopted requirements for the electronic capture of
orders at the point of sale (front end systemic capture, or ``FESC'')
\4\ and at the point of receipt (order tracking system, or ``OTS'').
The purpose of the requirements is to create a complete systemic record
of orders handled by members and member organizations. The Exchange
believes that these requirements will provide benefits both to the
Exchange and members in terms of recordkeeping, surveillance and order
processing.
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\4\ See Securities Exchange Act Release No. 43689 (December 7,
2000), 65 FR 79145 (December 18, 2000) (Order approving amendments
to NYSE Rule 123 providing for the systemic capture of order
information on the Exchange floor).
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However, due to the time sensitivity of bona fide arbitrage orders
and orders to offset transactions made in error, the Exchange is
proposing to carve out two exceptions to NYSE Rule 123(e). These orders
may be initiated by a member on the Floor pursuant to SEC Rule 11a-1
and NYSE Rule 111, and a requirement that such orders be first entered
into FESC may result in a lost arbitrage opportunity, or the covering
of an error at additional loss to the member. With respect to bona fide
arbitrage orders,\5\ a member may execute such order before entering
the order into FESC. However, such member must enter such order into
FESC no later than 60 seconds after the execution of such order.
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\5\ In Securities Exchange Act Release No. 15533 (January 29,
1979), 44 FR 6084 January 31, 1979), the Commission defined ``bona
fide arbitrage'' as an ``activity undertaken by market professionals
in which essentially contemporaneous purchases and sales are
effected in order to `lock in' a gross profit or spread resulting
from a current differential in pricing.'' The Commission further
stated that it ``understands that many transactions currently being
undertaken by those who are regularly engaged in arbitrage involve
some limited, intentional delay (usually a matter of minutes or
hours but sometimes, under extraordinary circumstances, as long as a
day or even two days) in between the transaction in which the first
leg of the arbitrage is established and the subsequent transaction
in which the second, offsetting, leg is completed.'' With respect to
the latter, each ``leg'' of an arbitrage would be considered an
``order'' for purposes of the bona fide arbitrage exception under
Exchange Rule 123(e). Thus, a member would be required to enter such
order into FESC no later than 60 seconds after the execution of each
``leg'' of the arbitrage.
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Similarly, with respect to orders to offset transactions made in
error, a member may, upon discovering such error within the same
trading session, effect an offsetting transaction without first
entering such order into FESC. However, such member must enter such
order into FESC no later than 60 seconds after the execution of such
order.
2. Statutory Basis
The Exchange believes that the basis under the Act for this
proposed rule change is the requirement under Section 6(b)(5) of the
Act \6\ 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
Exchange believes that the proposed rule change is designed to
accomplish these ends by strengthening the Exchange's ability to
surveil the Floor activities of members.
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\6\ 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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
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 or such shorter time as the Commission may
designate, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of Rule 19b-
4 thereunder.\8\ At any time within 60 days of the filing of the
proposed rule change, as amended, 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.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission notes that under Rule 19b-4(f)(6)(iii),\9\ the
proposal does not become operative for 30 days after date of its
filing, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest.
The Exchange has requested that the Commission waive the five-day pre-
filing requirement and designate that the proposed rule change become
operative immediately to permit the continued implementation of the
amendments to NYSE Rule 123, as begun on September 10, 2001, for a one-
month pilot. The NYSE believes it is consistent with investor
protection and the public interest. In particular, the Exchange
believes the proposed rule change will enable members to execute bona
fide arbitrage orders and orders to offset transactions made in error
quickly without having to enter the order into the FESC. The proposed
rule will still require that these be entered into the FESC within 60
seconds after the execution of the respective order.
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\9\ 17 CFR 240.19b-4(f)(6).
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The Commission believes that it is consistent with the protection
of investors and the public interest to waive the five-day pre-filing
require and designate the proposed rule change
[[Page 53822]]
immediately operative.\10\ Accelerating the operative date and waiving
the pre-filing requirement will permit the Exchange to continue
implementation of NYSE Rule 123(e) without interruption. For this
reason, the Commission finds good cause to designate that the proposed
rule change become operative immediately.
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\10\ For purposes of accelerating the operative date of this
proposed rule change, 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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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609.
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.
Copies of such filing will also be available for inspection and
copying at the principal office of the NYSE. All submissions should
refer to the File No. SR-NYSE-2001-39 and should be submitted by
November 14, 2001.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-26729 Filed 10-23-01; 8:45 am]
BILLING CODE 8010-01-M