
[Federal Register: July 14, 2008 (Volume 73, Number 135)]
[Notices]               
[Page 40413-40415]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jy08-136]                         


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58108; File No. SR-NYSE-2007-64]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change, as Modified by Amendment No. 1, Relating to Section 31 
Accumulated Funds

July 7, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 12, 2007, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been substantially prepared by 
the Exchange. On June 26, 2008, the Exchange filed Amendment No. 1 to 
the proposed rule change. The Commission is publishing this notice and 
order to solicit comments on the proposed rule change from interested 
persons and to approve the proposed rule change, as modified by 
Amendment No. 1, on an accelerated basis.
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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 Exchange proposes to adopt Supplementary Material .30 to NYSE 
Rule 440H (``Activity Assessment Fee'') to allow member firms to 
voluntarily submit, during a six-month period after the effective date 
of this rule proposal, funds previously accumulated by member firms to 
satisfy their, and subsequently NYSE's, obligation to remit SEC Section 
31-related fees, to the Exchange. In addition, a member or member 
organization may designate all or part of any accumulated excess held 
by the Exchange and allocated to such member or member organization to 
be used by the Exchange in accordance with the terms of proposed 
Supplementary Material .30. Finally, to the extent the payment of these 
historically accumulated funds or Exchange-accumulated excess is in 
excess of the fees due the Commission from NYSE under Section 31 of the 
Act,\3\ such surplus shall be used by the Exchange to offset Exchange 
regulatory costs.
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    \3\ 15 U.S.C. 78ee.
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    The text of the proposed rule changes is available on the 
Exchange's Web site (http://www.nyse.com), at the Exchange's principal 
office, and at the Commission's Public Reference Room.

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Pursuant to Section 31 of the Act and Rule 31 thereunder,\4\ 
national securities exchanges and associations (collectively, ``self-
regulatory organizations'' or ``SROs'') are required to pay a 
transaction fee to the SEC that is designed to recover the costs 
related to the government's supervision and regulation of the 
securities markets and securities professionals. To offset this 
obligation, the Exchange assesses its members and member organizations 
an Activity Assessment Fee in accordance with NYSE Rule 440H. NYSE Rule 
440H requires members and member organizations effecting ``covered 
sales'' (as defined in Section 31 of the Act) of securities on the 
Exchange to pay Activity Assessment Fees based upon their covered 
sales. The Exchange calculates such fees by multiplying the aggregate 
dollar amount of covered sales effected on the Exchange during the 
appropriate period by the Section 31(b) fee rate in effect during that 
period. Clearing members may in turn seek to charge a fee to their 
customers or correspondent firms. Any allocation of the fee between the 
clearing member and its correspondent firm or customer is the 
responsibility of the clearing member.
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    \4\ 17 CFR 240.31.
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    Reconciling the amounts billed by the Exchange and the amounts 
collected from the customers historically had been difficult for member 
firms, causing surpluses to accumulate at some broker-dealer firms 
(referred to herein as ``accumulated funds''). These accumulated funds 
were not remitted to NYSE by certain firms, despite the fact that these 
charges may have been previously identified as ``Section 31 Fees'' or 
``SEC Fees'' by the firms.\5\ In addition, prior to direct billing of 
members and member organizations of Activity Assessment Fees as of June 
1, 2005, the Exchange utilized ``self-reporting'' on Form 120-A of 
amounts payable under Rule 440H, and the Exchange has accumulated 
amounts so paid in excess of amounts paid by the Exchange to the SEC 
pursuant to Section 31 of the Act (``Exchange accumulated excess'').
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    \5\ The SEC stated in its release adopting new Rule 31 and Rule 
31T that ``it is misleading to suggest that a customer or [SRO] 
member incurs an obligation to the Commission under Section 31.'' 
See Securities Exchange Act Release No. 49928 (June 28, 2004), 69 FR 
41060, 41072 (July 7, 2004). In response to this statement, the 
Exchange amended Rule 440H to refer to this fee as an ``Activity 
Assessment Fee.'' See Securities Exchange Act Release No. 52018 
(July 12, 2005), 70 FR 41467 (July 19, 2005) (SR-NYSE-2005-39). The 
Exchange issued Information Memos regarding the Exchange's 
``Activity Assessment Fee'' and the SEC's ``Section 31 Fee'', and 
provided guidance for members and member organizations that choose 
to charge their customers fees. See Information Memo 05-48 (July 19, 
2005) and Information Memo 05-36 (May 13, 2005).
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    In November 2004, the Exchange and other SROs received a letter 
from the SEC's Division of Market Regulation \6\ requesting, among 
other things, that the Exchange conduct an analysis to ascertain the 
amount of accumulated funds and present a plan for broker-dealers to 
dispose of or otherwise resolve title to such accumulated funds. 
Following discussion among the SROs and staff of the Division of Market 
Regulation, in an effort to ascertain the amount of accumulated funds, 
NASD surveyed 240 member clearing and self-clearing firms to review 
their practices regarding the collection of such fees from customers. 
After compiling and analyzing the data provided by member firms, NASD 
staff found that over half of the firms surveyed did not have an 
accumulated funds balance. NASD worked with the other SROs to recommend 
a potential solution to allow NASD and other SRO member firms to 
resolve title to the accumulated funds. It was determined, based upon 
information provided in connection with NASD's survey, that it would be 
virtually impossible to return customer-related accumulated funds to 
the

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customers that had paid these funds to the firms.\7\
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    \6\ As of November 2007, the Division of Market Regulation was 
renamed the Division of Trading and Markets.
    \7\ NASD had asked all surveyed firms whether they could 
``identify and relate the funds to specific customers on a 
transaction by transaction basis.'' The surveyed firms universally 
stated that tracking fractions of a penny to individual customers 
would be impossible and any over-collections could not be passed 
back at the customer level. See Securities Exchange Act Release No. 
55886 (June 8, 2007), 72 FR 32935 (June 14, 2007) (Order approving 
SR-NASD-2007-027).
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    The proposed rule change is aimed at enabling those fees that may 
have been collected for purposes of paying an ``SEC Fee'' or ``Section 
31 Fee'' to be used to pay such fees. The Exchange is proposing new 
Supplementary Material .30 to NYSE Rule 440H that will allow firms, on 
a one-time-only basis, voluntarily to remit historically accumulated 
funds to the Exchange. These funds then would be used to pay the 
Exchange's current Section 31 fees in conformity with prior 
representations made by member firms. In addition, a member or member 
organization could designate all or part of the Exchange accumulated 
excess held by the Exchange and allocated to such member or member 
organization to be used by the Exchange in accordance with the terms of 
Supplementary Material .30.
    Finally, to the extent the payment of these historically 
accumulated funds or Exchange accumulated excess is in excess of the 
fees due the SEC from NYSE under Section 31, such surplus shall be used 
by the Exchange to offset Exchange regulatory costs. Specifically, the 
Exchange will subject such surplus to the same treatment utilized with 
respect to unused fine income that has accumulated beyond a level 
reasonably necessary for future contingencies. That is, the board of 
directors of NYSE Regulation would utilize any such surplus to fund one 
or more special projects of NYSE Regulation, to reduce fees charged by 
NYSE Regulation to its member organizations or the markets that it 
serves, or for a charitable purpose.\8\
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    \8\ See Securities Exchange Act Release No. 55003 (December 22, 
2006), 71 FR 78497 (December 29, 2007) (SR-NYSE-2006-109) (approved 
in Securities Exchange Act Release No. 55216 (January 31, 2007), 72 
FR 5779 (February 7, 2007) (relating to NYSE Regulation policies 
regarding exercise of power to fine NYSE member organizations and 
use of money collected as fines).
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    The Exchange proposes that the effective date of the proposed rule 
change be the date on which any Commission order approving the proposed 
rule change is published in the Federal Register. In addition, 
Supplementary Material .30 to Rule 440H would automatically sunset six 
months after the effective date.\9\
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    \9\ The proposed effective date and sunset date of the proposed 
rule change are comparable to those approved by the Commission for a 
similar proposed rule change by the American Stock Exchange LLC 
(``Amex''). See Securities Exchange Act Release No. 57829 (May 16, 
2008), 73 FR 30173 (May 23, 2008) (SR-Amex-2007-107).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\10\ in general, and further the objectives 
of Section 6(b)(5),\11\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and 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 will provide a transparent way of addressing 
the issue of accumulated funds held at the member firm level as well as 
the Exchange accumulated excess. As this proposed rule change would 
automatically sunset, it will be of limited duration. Moreover, based 
on the reminder set for this in the proposed Supplementary Material .30 
to NYSE Rule 440H and the issuance of prior Information Memos on this 
matter, the accumulation of funds that are collected and disclosed as 
``Section 31 Fees'' or ``SEC Fees'' should not reoccur.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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. 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 rule-comments@sec.gov. Please include 
File Number SR-NYSE-2007-64 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2007-64. 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 inspection and 
copying 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-2007-64 and should be submitted on or before August 4, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Changes

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\12\ In addition, the Commission finds good cause to approve 
the proposed rule change prior to the thirtieth day after the date of 
publication of the notice of filing. The Commission previously found 
similar proposals from other SROs to be

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consistent with the Act.\13\ The Commission is not aware of any issue 
that should cause it to revisit those findings or preclude the 
Commission from approving the NYSE proposal on the same basis. The 
Commission notes that, because the program is voluntary, it imposes no 
obligation on any NYSE member that believes that accumulated funds 
should be retained or disposed of in another manner.
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    \12\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \13\ See Securities Exchange Act Release No. 57829 (May 16, 
2008), 73 FR 30173 (May 23, 2008) (SR-Amex-2007-107); Securities 
Exchange Act Release No. 55886 (June 8, 2007), 72 FR 32935 (June 14, 
2007) (SR-NASD-2007-027).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-2007-64), as modified 
by Amendment No. 1, be and hereby is approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15816 Filed 7-11-08; 8:45 am]

BILLING CODE 8010-01-P
