

[Federal Register: November 22, 2006 (Volume 71, Number 225)]
[Notices]               
[Page 67680-67684]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22no06-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54767; File No. SR-NYSE-2004-69]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change and Amendment No. 1 Thereto To Establish 
Rules for the Trading of Unregistered Corporate Debt Securities

 November 16, 2006.

I. Introduction

    On December 3, 2004, the New York Stock Exchange LLC (f/k/a New 
York Stock Exchange, Inc.) (``NYSE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
establish rules for the trading of unlisted debt securities on the 
Exchange's Automated Bond System (``ABS''). In connection with this 
proposed rule change, NYSE submitted an application for a Commission 
exemption pursuant to Section 36 of the Exchange Act \3\ that would 
permit its members, brokers, and dealers to trade certain unregistered 
corporate debt securities on ABS.\4\ On March 15, 2005, NYSE filed 
Amendment No. 1 to the proposed rule change.\5\ The proposal, as 
amended, was published for comment in the Federal Register on July 15, 
2005.\6\ The Commission received 19 comments from 16 different 
commenters on the NYSE Exemption Request and/or the proposed rule 
change. On October 18, 2005, the Exchange filed an initial response to 
the comment letters.\7\ On September 22, 2006, the Exchange filed a 
second response to the comment letters.\8\ This order approves the 
proposed rule change, as amended.\9\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78mm.
    \4\ See Securities Exchange Act Release No. 51998 (July 8,2005), 
70 FR 40748 (July 14, 2005) (File No. S7-06-05) (``NYSE Exemption 
Request'').
    \5\ Amendment No. 1 replaced and superseded the originalfiling 
in its entirety.
    \6\ See Securities Exchange Act Release No. 51999 (July 8,2005), 
70 FR 41067.
    \7\ See letter from Mary Yeager, Assistant Secretary, NYSE,to 
Jonathan G. Katz, Secretary, Commission, dated October 18, 2005 
(``NYSE Response Letter 1'').
    \8\ See letter from Mary Yeager, Assistant Secretary, NYSE,to 
Nancy Morris, Secretary, Commission, dated September 22, 2006 
(``NYSE Response Letter 2'').
    \9\ In a separate action, the Commission today also isapproving 
the NYSE Exemption Request. See Securities Exchange Act Release No. 
54766 (November 16, 2006) (File No. S7-06-05) (``Section 36 
Exemption Order'').
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II. Description of the Proposal

    Currently, bond trading is conducted on the Exchange through ABS, 
an electronic trading system that provides subscribers with access to 
screens that display the order ``book'' in each bond being traded. 
Subscribers can enter orders which, if not immediately executed, would 
be displayed in the book according to price-time priority. NYSE 
disseminates quotation and last-sale information to market data vendors 
via the Exchange's dedicated bond quote line.
    A corporate debt security may be listed and traded on the Exchange 
if it meets the standards set forth in NYSE Listed Company Manual 
Section 102.03 (for debt securities of domestic issuers \10\) or 
Section 103.05 (for debt securities of non-U.S. issuers), both of which 
require that the debt issue has an aggregate market value or principal 
amount of no less than $5 million, and that (a) the issuer of the debt 
security (or an entity that directly or indirectly owns a majority 
interest in, or is under common control with, such issuer) has equity 
securities listed on the Exchange;

[[Page 67681]]

(b) an issuer of equity securities listed on the Exchange has 
guaranteed the debt security; or (c) at least one of three criteria is 
met relating to the rating of the debt security or certain related debt 
securities.\11\ In addition, a convertible debt security may be listed 
under NYSE Listed Company Manual Sections 102.03 or 103.05 only if the 
underlying equity security is subject to real-time last sale reporting 
in the United States. Alternatively, a debt security can trade on NYSE 
without a listing relationship if it is an ``exempted security'' (as 
defined in Section 3(a)(12) of the Exchange Act \12\).
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    \10\ An issuer incorporated or otherwise organized outsidethe 
United States would be treated as a domestic issuer under NYSE's 
bond listing standards only if it is excepted from the definition of 
``foreign private issuer'' as set forth in Rule 3b-4 under the 
Exchange Act, 17 CFR 240.3b-4.
    \11\ Debt securities meeting the requirements of NYSEListed 
Company Manual Sections 703.19 (``Other Securities'') or 703.21 
(``Equity-Linked Debt Securities'') currently also may be listed and 
traded on the Exchange.
    \12\ 15 U.S.C. 78c(a)(12).
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    Section 12(a) of the Exchange Act \13\ provides that it shall be 
unlawful for any member, broker, or dealer to effect any transaction in 
any security (other than an exempted security) on a national securities 
exchange unless a registration is effective as to such security for 
such exchange. Section 12(b) of the Exchange Act \14\ sets forth the 
information an issuer is required to submit for a security to be 
registered on a national securities exchange.
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    \13\ 15 U.S.C. 78l(a).
    \14\ 15 U.S.C. 78l(b).
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    In this filing, the Exchange has proposed to establish NYSE Rules 
1400 and 1401 in connection with the NYSE Exemption Request. Rule 1400 
would incorporate the terms of the Commission's Section 36 Exemption 
Order into the Exchange's rules. Under Rule 1400, the debt securities 
eligible to be traded on the Exchange without being listed on the 
Exchange would include any unlisted note, bond, debenture, or evidence 
of indebtedness that is statutorily exempt from the registration 
requirements of Section 12(b) of the Exchange Act or is eligible to be 
traded absent Section 12(b) registration pursuant to the Section 36 
Exemption Order. Securities eligible to be traded pursuant to the 
Section 36 Exemption Order would include debt securities that meet the 
NYSE Listing Standards of NYSE Listed Company Manual Sections 102.03 or 
103.05, but would exclude convertible debt securities, which are equity 
securities under Section 3(a)(11) of the Exchange Act.\15\
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    \15\ See 15 U.S.C. 78c(a)(11). Debt securities meeting 
thelisting requirements of NYSE Listed Company Manual Sections 
703.19 or 703.21, while not eligible to be traded pursuant to the 
Section 36 Exemption Order, would continue to be eligible to be 
listed and traded on the Exchange.
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    NYSE Rule 1401 would set forth additional criteria for an 
unregistered debt security to be traded on the Exchange. Rule 1401 
would require of each ``traded'' debt security an outstanding aggregate 
market value or principal amount of no less than $10 million on the 
date trading commences \16\ and $1 million for continued inclusion for 
trading on the Exchange.\17\ Rule 1401 also would allow the Exchange to 
suspend trading of a debt security if, among other things, the issuer 
declares bankruptcy, the Exchange receives advice that the debt 
securities are without value, or the issuer of the debt securities or 
its management engages in operations which, in the opinion of the 
Exchange, are contrary to the public interest. Rule 1401 also provides 
that the Exchange would promptly suspend trading in a debt security if 
the security no longer qualified as an exempted security or no longer 
met the criteria set forth in the Commission's Section 36 Exemption 
Order.
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    \16\ NYSE would employ two existing corporate bond 
issuedatabases that provide issue market size information to review 
for compliance with this criterion.
    \17\ To monitor the $1 million threshold, NYSE wouldutilize 
Xcitek, LLC (``Xcitek''), a third-party vendor, to monitor corporate 
actions such as partial redemptions, defaults, and tender offers. 
NYSE has represented that it would monitor the prices of bonds in 
the event that an issuer defaults or is facing potential bankruptcy 
and would monitor the media for warnings of possible difficulties in 
addition to ratings downgrades.
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    NYSE intends to identify outstanding debt securities that it 
currently does not list as well as newly issued debt securities that 
would satisfy the requirements of Rules 1400 and 1401, and to notify 
its members and member organizations, through ticker notices and 
postings on the Exchange's Web site, that such unlisted debt securities 
are eligible to be traded on the Exchange. In addition, NYSE intends to 
identify debt securities currently listed on the Exchange that meet the 
criteria set forth in Rules 1400 and 1401 and thus would be eligible 
for trading on an unlisted basis. In such cases, NYSE would inform the 
issuer that its debt securities could be delisted but traded on the 
Exchange on an unlisted basis.\18\ An issuer could elect not to have 
its debt securities delisted; such securities would have to continue to 
meet the applicable listing standards.\19\ Any security not satisfying 
the requirements of Rules 1400 and 1401 could trade on the Exchange 
provided it meets the applicable listing standards.\20\
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    \18\ See NYSE Response Letter 2 at 1.
    \19\ See id.
    \20\ Debt securities would remain eligible for listing byand 
trading on the Exchange under NYSE Listed Company Manual Sections 
102.03, 103.05, 703.19, and 703.21.
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III. Summary of Comments and NYSE's Response

    As noted above, the Commission received 19 comments from 16 
different commenters related to the proposed NYSE Exemption Request 
and/or the proposed rule change.\21\ Thirteen of the commenters 
strongly urged the Commission to grant the Section 36 exemption and 
approve the proposed rule change.\22\ The commenters generally asserted 
that allowing unregistered corporate bonds to trade on NYSE would lead 
to increased efficiency, transparency, liquidity, and competition in 
the debt markets. Three other commenters--NASD, Nasdaq, and the BMA--
expressed some support for NYSE's proposal but also raised certain 
concerns.\23\
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    \21\ See comments from Dennis J. Lehr, dated July 18, 2005 
(``Lehr Letter''); Howard M. Friedman, Compliance and Operations 
Officer, Easton & Co., dated July 19, 2005 (``Easton Letter''); 
Michele C. David, Vice President & Assistant General Counsel, The 
Bond Market Association (``BMA''), dated July 26, 2005; Robyn 
Greene, Esq., dated August 4, 2005 (``Greene Letter''); William T. 
Dolan, dated August 5, 2005 (``Dolan Letter''); Donald G. Dueweke, 
dated August 9, 2005 (``Dueweke Letter''); Denis P. Kelleher, CEO, 
Wall Street Access, dated August 9, 2005 (``Wall Street Access 
Letter''); Joseph P. Riveiro, Manager, Corporate Bond Department, 
InvestecUS, Inc., dated August 9, 2005 (``InvestecUS Letter''); 
Lynnette Kelly Hotchkiss, Senior Vice President and Associate 
General Counsel, BMA, dated August 15, 2005 (``BMA Letter 2''); 
David Russell, Jr., Managing Director, Cove Hill Advisory Services, 
Inc., dated August 15, 2005 (``Cove Hill Letter''); Thomas Peterffy, 
Chairman, and David M. Battan, Vice President and General Counsel, 
Interactive Brokers LLC, dated August 19, 2005 (``Interactive 
Brokers Letter''); Barbara Z. Sweeney, Senior Vice President and 
Corporate Secretary, National Association of Securities Dealers, 
Inc. (``NASD''), dated September 7, 2005 (``NASD Letter''); Fred 
Siesel, dated June 2, 2006 (``Siesel Letter 1''); Ron Klein, 
Chairman and CEO, General Associates, Inc., dated July 2, 2006 
(``General Associates Letter 1''); Michael N. Castle, Member of the 
U.S. House of Representatives, dated August 22, 2006 (``Castle 
Letter''); Joan Conley, Senior Vice President, The Nasdaq Stock 
Market, Inc., dated September 6, 2006 (``Nasdaq Letter''); Fred 
Siesel, dated September 14, 2006 (``Siesel Letter 2''); Cate Long, 
Multiple-Markets, dated October 12, 2006 (``Multiple-Markets 
Letter''); and Ron Klein, Chairman and CEO, General Associates, 
Inc., dated October 16, 2006 (``General Associates Letter 2'').
    \22\ See Lehr Letter, Easton Letter, Greene Letter, Dolan 
Letter, Dueweke Letter, Wall Street Access Letter, InvestecUS 
Letter, Cove Hill Letter, Interactive Brokers Letter, Siesel Letter 
1, General Associates Letter 1, Castle Letter, Siesel Letter 2, 
Multiple-Markets Letter, and General Associates Letter 2.
    \23\ See NASD Letter, Nasdaq Letter, and BMA Letter 2.
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A. Bond Market Supervision and Fragmentation Issues

    NASD argued generally that Commission approval of NYSE's proposal 
``could undermine the

[[Page 67682]]

Commission's original goal of increasing transparency in the corporate 
bond market.'' \24\ NASD asserted that, by being permitted to trade 
unregistered debt securities, the Exchange would be establishing an 
``execution facility in the [over-the-counter (``OTC'')] market.'' \25\ 
Based on that assertion, NASD argued that ``transactions in unlisted 
bonds that are effected through ABS must be subject to NASD's 
statutorily mandated oversight as the OTC market regulator under 
Section 15A of the Exchange Act.'' \26\ NASD further argued that ``a 
robust consolidated inter-market audit trail * * * [is necessary] * * * 
to ensure that the broader corporate bond market is effectively 
regulated without fragmentation'' \27\ and that, ``[i]f significant 
corporate bond transaction data is disseminated by the NYSE, investors 
will be confronted with two unconsolidated corporate bond `tapes.' '' 
\28\ Nasdaq also expressed the view that having one regulator in the 
corporate bond market ensures appropriate and non-duplicative 
regulation of that market.\29\
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    \24\ NASD Letter at 7.
    \25\ Id. at 3.
    \26\ Id. at 3-4.
    \27\ Id. at 5.
    \28\ Id. at 7.
    \29\ See Nasdaq Letter at 2.
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    With respect to transaction reporting, the BMA noted that, read 
literally, NASD's rules governing the Trade Reporting and Compliance 
Engine (``TRACE''), to which NASD members must report transactions in 
TRACE-eligible securities, would apply to trades in unregistered debt 
securities on ABS.\30\ The BMA stated that dual reporting of the same 
trades would be unnecessary and unduly burdensome.\31\ Another 
commenter, Multiple-Markets, argued that a combined trade reporting 
system would be beneficial to investors.\32\
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    \30\ See BMA Letter 2 at 3.
    \31\ See id.
    \32\ See Multiple-Markets Letter at 3.
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    In its response letter, NYSE rejected NASD's assertion that trading 
of unregistered debt securities would render ABS an OTC facility 
subject to NASD oversight.\33\ NYSE argued that, if trading of 
unregistered securities on ABS were OTC activity, its members would not 
need a Section 36 exemption to trade such securities on the Exchange in 
the first place.\34\ With respect to concerns relating to investor 
confusion that may arise as a result of unconsolidated market data, 
NYSE responded that it believed vendors would consolidate the data in 
response to customer demand.\35\ In response to the concerns regarding 
uncoordinated regulation, NYSE stated that it would be amenable to 
coordinating regulation with NASD.\36\ NYSE agreed with the BMA's view 
that the Exchange's members should not be required to report ABS trades 
to TRACE.\37\
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    \33\ See NYSE Response Letter 1 at 5-6.
    \34\ See id. at 5.
    \35\ See id. at 6.
    \36\ See id. In this regard, NASD and NYSE are in the process of 
negotiating a data-sharing agreement wherein, among other things, 
NYSE will agree to provide NASD certain information related to 
transactions in unlisted TRACE-eligible bonds traded on NYSE. In 
turn, NASD intends to consolidate this information into the computer 
database housing NASD's audit trail.
    \37\ See id. at 2.
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B. Competition Issues

    The BMA raised various interrelated competition issues. For 
example, the BMA asserted that, by trading unregistered debt 
securities, the Exchange would be ``acting as a broker'' and 
``competing with other brokers that also offer trading in the [same] 
debt securities.'' \38\ While not objecting to NYSE's ``acting as 
broker,'' the BMA claimed that this arrangement could give NYSE ``a 
variety of competitive advantages over the brokers with which it will 
be competing'' due to the Exchange's status as a self-regulatory 
organization (``SRO'') that regulates many of those brokers.\39\ The 
BMA also expressed concern that broker-dealers could be forced to 
become NYSE members or to acquire NYSE trading rights to have access to 
liquidity in unregistered debt securities that would trade on ABS.\40\ 
The BMA also questioned the Exchange's ownership of ABS quotation and 
trading data and argued that, at a minimum, ``any fees imposed by the 
NYSE on the provision of such data must be reasonable and that the NYSE 
should not benefit from data ownership rights that are superior to its 
competitors.'' \41\
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    \38\ BMA Letter 2 at 2.
    \39\ Id.
    \40\ See id. at 4-5.
    \41\ Id. at 4.
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    NYSE refuted the BMA's assertion that the Exchange would be acting 
as a broker, noting that it ``neither makes recommendations regarding 
the purchase or sale of securities nor acts as agent for any person or 
entity in connection with purchases or sales through ABS.''\42\ NYSE 
added that all activity on the Exchange occurs pursuant to rules that 
must be established pursuant to the procedural requirements of Section 
19(b) of the Exchange Act and meet the substantive requirements of 
Section 6(b) of the Exchange Act.\43\ NYSE noted in particular that any 
fees for accessing ABS trade data must comply with Section 6(b)(4) of 
the Exchange Act,\44\ which requires the Exchange to allocate charges 
equitably among members, issuers, and other persons using the 
Exchange's facilities.\45\ The Exchange concluded that its status as an 
SRO conveyed no inappropriate competitive advantage in trading 
unregistered debt securities on ABS.\46 \
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    \42\ NYSE Response Letter 1 at 2.
    \43\ See id.
    \44\ 15 U.S.C. 78f(b)(4).
    \45\ See id. at 4.
    \46\ See id.
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    Nasdaq and the BMA also raised issues relating to inter-exchange 
competition. Nasdaq argued that ``[t]he NYSE-proposed requirement that 
ABS securities be limited to issuers with at least one class of equity 
listed on the NYSE may place a substantial barrier to the trading of 
ABS issues by other competing exchanges that lack an equity listing 
relationship with the debt issuer.''\47\ Similarly, the BMA expressed 
concern that any Commission action not result in a ``grant of monopoly 
trading privileges to the NYSE.''\48\ The BMA also asked whether the 
Commission intends to grant other exchanges the ability to trade, on an 
unlisted basis, debt securities of issuers whose equity securities were 
listed on other exchanges.\49\
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    \47\ Nasdaq Letter at 2.
    \48\ BMA Letter 2 at 6.
    \49\ See id. at 5.
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    One commenter, Multiple-Markets, expressed concern that the 
Exchange's proposed use of a single third-party vendor, Xcitek, to 
supply NYSE with information about corporate bonds and their issuers, 
would give Xcitek an unfair advantage over competing vendors.\50\ 
Multiple-Markets also argued that debt securities trading pursuant to 
the Exchange's proposal should be rated by at least two nationally 
recognized statistical rating organizations (``NRSROs'') before being 
admitted to trading on the Exchange on an unlisted basis, and the 
withdrawal of such ratings should result in a suspension of 
trading.\51\
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    \50\ See Multiple-Markets Letter at 5-6.
    \51\ See id. at 5.
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C. Blue Sky Issues

    Finally, the BMA expressed concern that debt securities delisted 
pursuant to the Exchange's proposal and shifted to ``traded'' status 
could lose their ``blue sky exemption.''\52\ To address this

[[Page 67683]]

concern, NYSE represented that it would contact in writing all issuers 
of currently listed debt to highlight the issue and provide such 
issuers the option of maintaining their listed status.\53\
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    \52\ See BMA Letter 2 at 6. Under Section 18 of the Securities 
Act of 1933, 15 U.S.C. 77r, certain securities are exempt from state 
registration requirements or ``blue sky laws,'' including those that 
are listed, or authorized for listing, on certain national 
securities exchanges and securities of the same issuer that are 
equal in seniority or senior to such securities.
    \53\ See NYSE Response Letter 2 at 1.
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IV. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the 
Exchange Act and the rules and regulations thereunder applicable to a 
national securities exchange.\54\ In particular, the Commission 
believes that the proposal is consistent with the provisions of Section 
6(b)(5) of the Exchange Act,\55\ which requires, among other things, 
that a national securities exchange's rules be 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.
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    \54\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \55\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that NYSE Rule 1400 is reasonably designed 
to implement the terms and conditions of the Commission's Section 36 
Exemption Order into the Exchange's rules. The Commission also believes 
that Rule 1401's qualitative and quantitative criteria for initial and 
continued inclusion for trading on the Exchange are reasonable and 
consistent with the Exchange Act. These criteria are similar to those 
in existing NYSE rules that govern the listing of debt securities on 
the Exchange and have previously been approved by the Commission.\56\
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    \56\ See e.g., Securities Exchange Act Release No. 34019 (May 5, 
1994), 59 FR 24765 (May 12, 1994) (SR-NYSE-93-49) (approving changes 
to NYSE bond listing standards). NYSE currently permits only debt 
securities with an outstanding market value or principal amount of 
at least $5 million to be listed on the Exchange and suspends the 
trading of listed debt securities when the outstanding market value 
or principal amount falls below $1 million. See Sections 102.03 and 
703.06 of the NYSE Listed Company Manual, respectively.
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    The Commission has carefully considered the comments received and 
believes that none of the commenters raised any issue that should 
preclude approval of this proposal. The Commission agrees with the 
Exchange's view that trading unregistered debt securities on the 
Exchange would not result in an OTC facility that must, as such, be 
subject to NASD oversight. Such trading will be effected by NYSE 
members, pursuant to NYSE rules, and using systems owned and operated 
by NYSE.
    NASD expressed concerns that market fragmentation might be 
exacerbated as a result of approval of this filing and the NYSE 
Exemption Request. Nasdaq also expressed the view that the corporate 
bond market would be better served by a single regulator. In addition, 
Multiple-Markets argued that a combined trade reporting system would be 
beneficial to investors. The Commission does not believe that these 
commenters' broad anticipatory concerns should preclude approval of 
NYSE's proposal. The Commission, however, will continue to monitor the 
growth of intermarket competition in the corporate bond markets and, in 
the event market fragmentation becomes a concern, will consider 
appropriate means to address the consolidation of market information 
for corporate bonds.
    The BMA noted that current NASD rules would require transactions in 
unregistered bonds effected on the Exchange to be reported to TRACE.\57 
\ However, NASD recently filed a proposed rule change with the 
Commission to amend its rules to provide that transactions in TRACE-
eligible securities \58\ executed on NYSE pursuant to the Section 36 
Exemption Order would be exempt from TRACE reporting for a two-year 
pilot period. In a separate action, the Commission today is approving 
that NASD proposal.\59\ Therefore, transactions in unregistered 
corporate debt securities on NYSE will not have to be double-reported 
to TRACE.
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    \57\ See NASD Rule 6220.
    \58\ See NASD Rule 6210(a).
    \59\ See Securities Exchange Act Release No. 54768 (November 16, 
2006) (notice of filing and accelerated approval of SR-NASD-2006-
110).
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    Commenters also raised various competitive issues with NYSE's 
proposal. The BMA claimed that NYSE's ability to sell trade data would 
give it ``a significant competitive advantage,'' and broker-dealers 
``will be required to pay significant additional charges to obtain 
information for which they are currently already paying TRACE.''\60\ 
The BMA observed that many broker-dealers that trade corporate debt 
securities OTC are not currently members of NYSE, and argued that 
Commission approval of this proposal ``could effectively force those 
firms to become members of the NYSE or to acquire NYSE trading 
rights.''\61\ Finally, the BMA opined that ``there has historically 
been a conflict between an exchange's role as a financial intermediary 
and its role as a regulator of financial intermediaries.''\62\ Nasdaq 
argued that limiting NYSE's proposal only to corporate debt securities 
issued by an entity having an equity security listed on the Exchange 
``may place a substantial barrier to the trading of ABS issues by other 
competing exchanges that lack an equity listing relationship with the 
debt issuer.''\63\ Similarly, the BMA questioned whether, and under 
what conditions, the Commission would permit other exchanges to trade 
unregistered corporate debt securities.\64\
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    \60\ BMA Letter 2 at 3.
    \61\ Id. at 5.
    \62\ Id. at 4.
    \63\ Nasdaq Letter at 2.
    \64\ See BMA Letter 2 at 5-6.
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    The Commission finds that NYSE's proposal is consistent with 
Section 6(b)(8) of the Exchange Act,\65\ which requires that the rules 
of an exchange not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act. The 
Exchange Act sets out a comprehensive regulatory scheme for exchanges. 
Among other things, any fees charged by an exchange for market data on 
trades executed on its facilities must be fair and reasonable, not 
unreasonably discriminatory, and equitably allocated among its members 
and other persons using its facilities.\66\ While an exchange is 
entitled to limit participation to those persons who have qualified for 
membership, the Exchange Act permits denials of membership only for 
specific legitimate reasons.\67\ The Commission, among other things, 
oversees exchanges to ensure that they are enforcing their rules in a 
manner consistent with the Exchange Act and that any changes to an 
exchange's rules are consistent with the Exchange Act. The Commission 
concludes that the commenters have raised no competitive issue that 
would preclude approval of this proposal. The Commission believes that 
NYSE's entry into this segment of the corporate bond market is broadly 
pro-competitive and in the public interest.
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    \65\ 15 U.S.C. 78f(b)(8).
    \66\ See 15 U.S.C. 78f(b)(4).
    \67\ See 15 U.S.C. 78f(c).
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    The Commission does not believe that the Section 36 Exemption Order 
gives NYSE an unfair competitive advantage over other exchanges. Other 
exchanges may petition the Commission for similar relief that would 
permit their members to trade unregistered debt securities on exchange 
facilities subject to the

[[Page 67684]]

conditions imposed by the Commission in NYSE's case.
    The Commission further believes that requiring a debt security that 
trades pursuant to the proposed rule change to be rated by NRSROs, as 
Multiple-Markets suggests, is not necessary or appropriate in the 
public interest, as the decision whether to impose such a requirement 
is a matter typically left to the business discretion of the individual 
markets.\68\ Similarly, with respect to the commenter's concern about 
NYSE's proposed use of a third-party data vendor to supply information 
regarding the actions of corporate bond issuers, selection of a 
particular vendor is generally within the business judgment of the 
Exchange.\69\
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    \68\ See Multiple-Markets Letter at 5.
    \69\ See id. The Commission notes that it is not sanctioning a 
particular vendor by approving the proposed rule change.
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    Finally, the Commission does not believe that there are any blue 
sky issues that would preclude approval of this proposal. Currently, 
any security listed on the Exchange is exempt from state blue sky laws. 
A debt security that is delisted by the Exchange and, instead, traded 
on an unlisted basis could lose its blue sky exemption. However, NYSE 
has represented that it would not involuntarily delist the debt 
security of any issuer (provided that the security otherwise met all 
applicable listing requirements).\70\ Therefore, this proposal will not 
cause undue hardship for any issuer that relies on the Exchange's 
listing of its debt security to obtain a blue sky exemption.
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    \70\ See NYSE Response Letter 2 at 1.
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V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Exchange Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\71\ that the proposed rule change (SR-NYSE-2004-69), as 
amended, is approved.
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    \71\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\72\
Nancy M. Morris,
Secretary.
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    \72\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E6-19723 Filed 11-21-06; 8:45 am]

BILLING CODE 8011-01-P
