

[Federal Register: January 17, 2007 (Volume 72, Number 10)]
[Notices]               
[Page 2056-2057]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ja07-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55079; File No. SR-NYSE-2006-97]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change Relating to Exchange Rule 342 
(``Offices--Approval, Supervision and Control'')

January 10, 2007.

I. Introduction

    On October 26, 2006, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change amending NYSE Rule 342.30 (``Annual Reports'') to 
require submission of the process report prepared in connection with 
the Chief Executive Officer (``CEO'') certification, as required under 
Rule 342.30(e)(iii), to the Board of Directors and Audit Committee (if 
such committee exists) of the member organization on or before April 
1st of

[[Page 2057]]

each year. The proposed rule change was published for comment in the 
Federal Register on December 7, 2006.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 54847 (November 30, 2006), 71 
FR 71012 (December 7, 2006) (the ``Notice'').
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II. Description of the Proposed Rule Change

A. Description of the Proposal

1. Background
    NYSE Rule 342 requires supervision of the offices, departments and 
business activities of members and member organizations. NYSE Rule 
342.30 requires members and member organizations to prepare an Annual 
Report addressing specified compliance issues by April 1 of each year. 
The Exchange proposed to amend Rule 342.30 to require the report 
required pursuant to Rule 342.30(e)(iii) (the ``Process Report'') in 
connection with a member organization's CEO certification to be 
submitted to the member organization's board of directors and audit 
committee (if such committee exists) on or before April 1st of each 
year. The purpose of the rule change was to better harmonize the 
requirements of Rule 342.30 with those of NYSE Rule 354 (``Reports to 
Control Persons'').
Background
Rule 342.30
    Rule 342.30 requires each member not associated with a member 
organization and each member organization to file with the Exchange, by 
April 1st of each year, a report (the ``Annual Report'') outlining its 
supervision and compliance efforts in prescribed regulatory areas 
during the preceding year and assessing the adequacy of its ongoing 
compliance processes and procedures. The Annual Report submitted to the 
Exchange is also required to include, pursuant to Rule 342.30(e), a 
certification by the CEO of each member organization confirming that 
the member organization has in place processes to:
    (A) Establish and maintain policies and procedures reasonably 
designed to achieve compliance with applicable Exchange rules and 
Federal securities laws and regulations;
    (B) modify such policies and procedures as business, regulatory and 
legislative changes and events dictate; and
    (C) test the effectiveness of such policies and procedures on a 
periodic basis, the timing and extent of which is reasonably designed 
to ensure continuing compliance with Exchange and Federal securities 
laws and regulations.
    Subsection (e)(iii) of Rule 342.30 requires these processes to be 
evidenced in the Process Report, which is to be reviewed by the CEO, 
the Chief Compliance Officer, and any other officers that the member 
organization may deem necessary to make the certification. Subsection 
(e)(iii) also requires the Process Report to be submitted to the member 
organization's board of directors and audit committee (if such 
committee exists), although the timing of this submission was not 
explicitly stated in the rule. Prior to the proposed rule change, the 
Exchange interpreted the rule to require the submission prior to CEO 
certification.
Rule 354
    Subsection (a) of Rule 354 requires, in relevant part, that each 
member organization submit, by April 1st of each year, a copy of the 
Rule 342.30 Annual Report (also due to the Exchange by April 1st) to 
one or more of its control persons or, if the member organization has 
no control person, to the audit committee of its board of directors or 
its equivalent committee or group.
    In order to better harmonize the Process Report submission 
requirements of Rule 342.30(e)(iii) with the Annual Report submission 
requirements of Rule 354(a), the Exchange proposed to amend Rule 
342.30(e)(iii) to require each member organization to submit the 
Process Report to its board of directors and audit committee (if such 
committee exists) on or before April 1st of each year, consistent with 
the timing requirements of Rule 354(a) with respect to submission of 
the Annual Report. The Exchange stated that it believed that this would 
promote timely submission of the Process Report to member 
organizations' boards of directors and audit committees, while also 
serving the practical purpose of allowing member organizations to 
submit the Process Report together with the Annual Report so that the 
two may be reviewed as a single comprehensive package.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with Section 6(b)\4\ of the Act in general and 
Section 6(b)(5) of the Act``\5\ in particular, which require that the 
rules of the Exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade and, in general, to protect investors and the 
public interest.\6\ The proposed rule change promotes timely submission 
of substantive regulatory material to member organizations' governing 
bodies by coordinating the timing requirements of Rule 342.30(e)(iii) 
(Process Report) and Rule 354(a) (Submission of Annual Report to 
Control Persons). This should promote compliance by allowing member 
organizations' governing bodies to review both reports at the same 
time. The proposed rule change will also clarify the appropriate timing 
for submission of the Process Report and the Annual Report.
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    \4\ 15 U.S.C. 78f(b)
    \5\ 15 U.S.C. 78f(b)(5)
    \6\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\7\ that the proposed rule change (SR-NYSE-2006-97) be, and hereby is, 
approved.
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    \7\ 15 U.S.C. 78s(b)(2).
    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-528 Filed 1-16-07; 8:45 am]

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