
[Federal Register: September 15, 2008 (Volume 73, Number 179)]
[Notices]               
[Page 53304-53306]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15se08-125]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58488; File No. SR-NYSE-2008-81]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Rule Proposed by New York Stock Exchange LLC To 
Suspend the Operation of NYSE Rule 123D With Respect to Trading in the 
Securities of Fannie Mae and Freddie Mac

September 8, 2008.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 8, 2008, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed the original filing with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the self-regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 17 C.F.R. 40.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') is 
proposing to suspend the operation of NYSE Rule 123D(3) with respect to 
trading in all securities of Fannie Mae and Freddie Mac.\4\ The 
suspension would operate through the close of primary trading on the 
NYSE on September 15, 2008. If additional time is needed, the Exchange 
will submit

[[Page 53305]]

another rule filing to the Commission pursuant to section 19(b)(1) of 
the Securities Exchange Act \5\ and Rule 19b-4 \6\ thereunder.\7\
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    \4\ This rule proposal affects the following securities: FRE 
Voting common stock; FRE 19Z Zero Coupon Subordinated Capital 
Debentures, due November 29, 2019; FRE PR B Variable Rate, Non-
Cumulative Preferred Stock; FRE PR F 5% Non-Cumulative Preferred 
Stock; FRE PR G Variable Rate, Non-Cumulative Preferred Stock; FRE 
PR H 5.1% Non-Cumulative Preferred Stock; FRE PR K 5.79% Non-
Cumulative Preferred Stock; FRE PR L Variable Rate, Non-Cumulative 
Preferred Stock; FRE PR M Variable Rate, Non-Cumulative Preferred 
Stock; FRE PR Q Variable Rate, Non-Cumulative Preferred Stock; FRE 
PR P 6% Non-Cumulative Preferred Stock; FRE PR N Variable Rate, Non-
Cumulative Preferred Stock; FRE PR O 5.81% Non-Cumulative Preferred 
Stock; FRE PR R 5.7% Non-Cumulative Preferred Stock; FRE PR S 
Variable Rate, Non-Cumulative Perpetual Preferred Stock; FRE PR T 
6.42% Non-Cumulative Perpetual Preferred Stock; FRE PR U 5.9% Non-
Cumulative Perpetual Preferred Stock; FRE PR V 5.57% Non-Cumulative 
Perpetual Preferred Stock; FRE PR W 5.66% Non-Cumulative Perpetual 
Preferred Stock; FRE PR X 6.02% Non-Cumulative Perpetual Preferred 
Stock; FRE PR Y 6.55% Non-Cumulative Perpetual Preferred Stock; FRE 
PR Z Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred 
Stock, $1.00 Par Value; FNM Common stock; FNM 19Z Zero Coupon 
Subordinated Capital Debentures due October 9, 2019; FNM 14Z Zero 
Coupon Debentures due July 5, 2014; FNA 8.75% Non-Cumulative 
Mandatory Convertible Prefered Stock, Series 2008-1; FNM PR H 5.81% 
Non-Cumulative Preferred Stock, Series H; FNM PR L 5.125% Non-
Cumulative Preferred Stock, Series L; FNM PR M 4.75% Non-Cumulative 
Preferred Stock, Series M; FNM PR N 5.50% Non-Cumulative Preferred 
Stock, Series N, without par value; FNM PR G Variable Rate, Non-
Cumulative Preferred Stock, Series G; FNM PR P Variable Rate, Non-
Cumulative Preferred Stock, Series P; FNM PR Q 6.75% Non-Cumulative 
Preferred Stock, Series Q; FNM PR R 7.625% Non-Cumulative Preferred 
Stock, Series R; FNM PR S Fixed-to-Floating Rate Non-Cumulative 
Preferred Stock, Series S; FNM PR T 8.25% Non-Cumulative Preferred 
Stock, Series T; FNM PR F Variable Rate, Non-Cumulative Preferred 
Stock, Series F; FNM PR I 5.375% Non-Cumulative Preferred Stock, 
Series I. See email from Dan Labovitz, Vice President, Office of the 
General Counsel, NYSE Euronext, to Nathan Saunders, Special Counsel, 
Commission, dated September 8, 2008 (``September 8 Email'').
    \5\ 17 CFR 240.19b-4.
    \6\ 15 U.S.C.78s(b)(1).
    \7\ See September 8 Email, supra note 4.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE 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 IV below. NYSE 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
    Regulation NMS, adopted by the Securities and Exchange Commission 
(``SEC'') in April 2005,\8\ provides that each trading center intending 
to qualify for trade-through protection under Regulation NMS Rule 611 
\9\ is required to have a Regulation NMS-compliant trading system fully 
operational by March 5, 2007 (the ``Trading Phase Date'').\10\
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    \8\See Securities Exchange Act Release No. 51808 (June 9, 2005), 
17 CFR Parts 200, 201, 230, 240, 242, 249 and 270.
    \9\ See 17 C.F.R. Sec.  242.611.
    \10\ See Securities Exchange Act Release No. 55160 (January 24, 
2007), 72 FR 4202 (January 30, 2007) (S7-10-04).
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    For stocks priced below $1.00 per share, Regulation NMS Rule 612 
\11\ permits markets to accept bids, offers, orders and indications of 
interest in increments smaller than a $0.01, but not less than $0.0001, 
and to quote and trade such stocks in sub-pennies. Markets may choose 
not to accept such bids, offers, orders or indications of interest and 
the NYSE has done so, maintaining a minimum trading and quoting 
variation of $0.01 for all securities trading below $100,000. See NYSE 
Rule 62.
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    \11\ See 17 C.F.R. Sec.  242.612. Rule 612 originally was to 
become effective on August 29, 2005, but the date was later extended 
to January 29, 2006. See Securities Exchange Act Release No. 52196 
(Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005).
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    The SEC's interpretation of Rule 612 requires a market that routes 
an order to another market in compliance with Rule 611 and receives a 
sub-penny execution, to accept the sub-penny execution, report that 
execution to the customer, and compare, clear and settle that trade. 
The SEC, however, provided a limited exemption to Rule 611's 
proscription against trade-throughs to protected quotes that include a 
sub-penny component to such quotes that are better-priced by a minimum 
of $0.01.\12\
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    \12\ Order Granting National Securities Exchanges a Limited 
Exemption from Rule 612 of Regulation NMS under the Securities 
Exchange Act of 1934 to Permit Acceptance by Exchanges of Certain 
Sub-Penny Orders. See Securities and Exchange Commission Release No. 
54714 (November 6, 2006).
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    In March, 2007, the Exchange amended Rule 123D to provide for a 
``Sub-penny trading'' condition because the Exchange's trading systems 
did not then accommodate sub-penny executions on orders routed to 
better-priced protected quotations, nor could it recognize a quote 
disseminated by another market center if such quote had a sub-penny 
component and, therefore, could have inadvertently traded through 
better protected quotations. The amended rule automatically halts 
trading on the Exchange in a security whose price was about to fall 
below $1.00, without delisting the security, so that the security could 
continue to trade on other markets that deal in bids, offers, orders or 
indications of interest in sub-penny prices, until the price of the 
security had recovered sufficiently to permit the Exchange to resume 
trading in minimum increments of no less than one penny or the issuer 
is delisted for failing to correct the price condition within the time 
provided under NYSE rules.\13\ A subsequent amendment established that 
any orders received by the NYSE in a security subject to a ``Sub-penny 
trading'' condition would be routed to NYSE Arca, Inc. and handled in 
accordance with the rules governing that market.\14\
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    \13\ See Securities and Exchange Commission Release No. 34-
55398; File No. SR-NYSE-2007-25 (Mar. 5, 2007).
    \14\ See Securities and Exchange Commission Release No. 34-
55537; File No. SR-NYSE-2007-30 (Mar. 27, 2007).
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Federal Government Takeover of Fannie Mae and Freddie Mac
    On September 7, 2008, Secretary of the Treasury Henry Paulson 
announced that the federal government would force Fannie Mae and 
Freddie Mac into a conservatorship that will result in the companies 
issuing warrants to the federal government representing approximately 
80% ownership of the entities. Details of the plan are available at the 
Department of the Treasury's Web site, at http://www.treas.gov/press/
releases/reports/pspa_factsheet_090708%20hp1128.pdf.
    The NYSE anticipates that the government's action will have a 
significantly disruptive effect on the trading in the common stock of 
both Fannie Mae and Freddie Mac, which may cause those shares to trade 
below $1.00 per share. Ordinarily, such an action would result in the 
NYSE invoking its sub-penny trading halt, which would halt trading on 
the primary listing venue of the securities. But, given the scope of 
the government's action, the NYSE believes that the market will 
substantially benefit from having the most available liquidity and the 
greatest number of venues in which investors can trade the securities 
of Fannie Mae and Freddie Mac, and would further benefit from the 
efforts of the NYSE specialists in those securities to stabilize the 
markets as public investors react to the news. The NYSE further 
believes that these benefits outweigh the potential harms that NYSE 
Rule 123D was intended to address, and that therefore, a temporary 
suspension of that rule for this limited purpose would serve the 
interests of customers and the investing public, notwithstanding the 
possibility that some investors may receive an inferior execution due 
to sub-penny quoting. The NYSE recognizes that the suspension of Rule 
123D does not thereby exempt the Exchange from Reg NMS Rules 611 and 
612, but notes that the inferior executions that may result would only 
amount to fractions of a penny per share, and therefore the potential 
harm, even in the case of large orders, would be minimal.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \15\ of 
the Securities Exchange Act of 1934 (the ``Act''), in general, and 
furthers the objectives of Section 6(b)(5) \16\ 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.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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.

[[Page 53306]]

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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated the proposed rule change as one that: 
(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 from the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
Therefore, the foregoing rule change has become effective pursuant to 
section 19(b)(3)(A) of the Act \17\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally does not 
become operative until 30 days after the date of filing.\19\ However, 
Rule 19b-4(f)(6)(iii) \20\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay so that the proposal may 
become operative immediately upon filing. The Exchange believes that 
the proposed relief is limited in nature, and that the benefits of the 
proposed relief outweigh the potential harms. Moreover, given the 
rapidity of recent developments with respect to Fannie Mae and Freddie 
Mac, the Exchange believes that immediate effectiveness is required in 
order to avoid significant disruption to the market.
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    \19\ Id. In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to the date of filing of the proposed rule change, or such 
shorter time as designated by the Commission. NYSE has satisfied 
this requirement.
    \20\ Id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission therefore grants the Exchange's request and designates 
the proposal to be operative upon filing.\21\
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    \21\ For purposes only of waiving the 30-day operative delay of 
this proposal, 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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    At any time within 60 days of the filing of the proposed rule 
change, 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.

IV. 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 No. SR-NYSE-2008-81 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-2008-81. 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 NYSE. 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-2008-81 and should be submitted on or before October 6, 2008.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21333 Filed 9-12-08; 8:45 am]

BILLING CODE 8010-01-P
