

[Federal Register: January 22, 2008 (Volume 73, Number 14)]
[Notices]               
[Page 3791-3792]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ja08-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57158; File No. SR-NYSEArca-2007-120]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change Relating to Restrictions on Acting as Market 
Makers and Floor Brokers

January 15, 2008.
    On November 27, 2007, the NYSE Arca, Inc. (``NYSE Arca'' 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 to amend certain Exchange rules to restrict an OTP 
Holder from concurrently registering as both a Market Maker and a Floor 
Broker. The proposed rule change was published for comment in the 
Federal Register on December 11, 2007.\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 Securities Exchange Act Release No. 56899 (December 5, 
2007), 72 FR 70367 (``Notice'').
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    Presently, OTP Holders may be registered as either a Market Maker 
or a Floor Broker, or in certain situations, both. An OTP Holder that 
wished to act in both capacities must apply for and receive approval 
from the Exchange.\4\ The Exchange represented that presently there are 
no OTP Holders registered in the dual capacity of Market Maker and 
Floor Broker, nor does the Exchange have any pending applications from 
existing OTP Holders.
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    \4\ See NYSE Arca Rule 6.38(b)(4).
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    The Exchange further represented that the practice of dual 
registration dates back to the early days of floor-based, open outcry 
trading. Open outcry trading was for the most part a manual process, 
necessitating the need for a large number of Floor Brokers. On 
occasion, often in periods of unusually active market conditions, there 
might have been a shortage of brokers on the floor, and in the interest 
of maintaining a fair and orderly market, Market Makers might be called 
upon to act as a Floor Broker. The vast majority of trades on NYSE Arca 
now occur electronically, and thus, there is a dramatic decrease in 
open outcry trading executions done by Floor Brokers.
    For the reasons stated above, the Exchange proposes to establish 
new Rule 6.33(b) stating that an OTP Holder registered as a Market 
Maker on NYSE Arca may not be concurrently registered as a Floor Broker 
on NYSE Arca. Accordingly, the Exchange also proposes establishing new 
Rule 6.44(b), stating that an OTP Holder presently registered as a 
Floor Broker on NYSE Arca cannot be concurrently registered as a Market 
Maker on NYSE Arca. The Exchange also proposes making non-substantive 
changes regarding the numbering of existing rules in order to 
accommodate the new rules.
    Pursuant to NYSE Arca Rule 6.82(h)(3), Lead Market Makers (``LMM'') 
may perform the functions of a Floor Broker. Historically, LMMs might 
perform the duties of a Floor Broker and represent public customer 
orders when there was a shortage of Floor Brokers available. As stated 
above, due to increased automation in the marketplace, the Exchange 
does not anticipate a shortage of Floor Brokers such that it would 
necessitate an LMM to have to act as a Floor Broker. As such, the 
Exchange proposes deleting Rule 6.82(h)(3) in its entirety. The 
Exchange also proposes deleting Commentary .02 to Rule 6.82 relating to 
a LMMs handling of public customer orders.
    Presently, OTP Holders acting as both Floor Broker and Market Maker 
are subject to certain restrictions under NYSE Arca Rule 6.38. Upon 
approval of the above mentioned rule changes, these restrictions will 
become obsolete. Since Market Makers will be prohibited from acting as 
a Floor Broker, and visa-versa, there is no need to have specific 
restrictions governing their trading activity. Therefore, the Exchange 
proposes eliminating Rule 6.38 in is entirety.
    The Exchange noted that LMMs and InterMarket Linkage Maker Makers 
(``IMM'') are exempt from certain provisions contained in NYSE Arca 
Rule 6.38. Currently, LMMs and IMMs may be called upon to send 
Principal Acting as Agent (``P/A'') Orders through the InterMarket 
Linkage System (``Linkage'') pursuant to NYSE Arca Rules 6.92 and 6.93. 
Linkage is a fully automated process on NYSE Arca, and while the IMM or 
LMM may be acting in an agency capacity, as the responsible party for 
sending the order, they are not acting in the capacity of a Floor 
Broker.

[[Page 3792]]

Thus, the Exchange proposes to add language to Rule 6.33(b) stating 
that a prohibition on concurrent registration as both a Market Maker 
and Floor Broker will not prevent an IMM or LMM from acting in an 
agency capacity for Linkage purposes.
    The Commission finds that the proposed rule change is consistent 
with the requirements of section 6(b) of the Act \5\ and the rules and 
regulations thereunder applicable to a national securities exchange.\6\ 
In particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\7\ which requires that a 
national securities exchange's rules be designed to facilitate 
transactions in securities, to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts and, in general, to 
protect investors and the public interest. The Commission notes that 
the practice of OTP Holders registering in the dual capacity of Market 
Maker and Floor Broker dates back to the days of floor-based, open 
outcry trading environment. The Commission also notes that the vast 
majority of trades on NYSE Arca now occur electronically, such that the 
need for dual registration by the OTP Holders may no longer be 
necessary. Further, the Commission notes that the Exchange stated that 
currently, there are no OTP Holders registered in this dual capacity, 
and the Exchange does not have any pending applications from existing 
OTP Holders to be dually registered in such capacity.
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    \5\ 15 U.S.C. 78(f)(b).
    \6\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that it is reasonable and consistent with 
the Act for the Exchange to delete Rule 6.38, and also promulgate new 
rule provisions within Rules 6.33 and 6.44 to prohibit dual 
registration by OTP Holders as Market Makers and Floor Brokers. The 
Commission recognizes that eliminating the dual registration of OTP 
Holders as Market Makers and Floor brokers will not affect the ability 
of LMMs and IMMs, who may continue to be called upon today, to act in 
an agency capacity, to send P/A Orders through Linkage.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NYSEArca-2007-120) be, and 
hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-998 Filed 1-18-08; 8:45 am]

BILLING CODE 8011-01-P
