
[Federal Register: September 17, 2008 (Volume 73, Number 181)]
[Notices]               
[Page 53912-53914]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se08-146]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58522; File No. SR-NYSE-2008-83]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC To 
Resume the Operation of NYSE Rule 123D(3) With Respect to Trading in 
the Securities of Fannie Mae and Freddie Mac Beginning on September 11, 
2008, Following the Suspension of That Rule Pursuant to SR-NYSE-2008-81

 September 11, 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 11, 2008, New York Stock Exchange LLC 
(``NYSE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II 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\ 5 U.S.C. 78a.
    \3\ 17 CFR 40.19b-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 resume the operation of NYSE Rule 123D(3) 
with respect to trading in the securities of Fannie Mae and Freddie Mac 
beginning on September 11, 2008, following the suspension of that rule 
pursuant to SR-NYSE-2008-81.\4\
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    \4\ See Securities Exchange Act Release No. 58488 (September 8, 
2008). For a complete list of the securities affected by this 
filing, see SR-NYSE-2008-81.
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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,\5\ provides that each trading center intending 
to qualify for trade-through protection under Regulation NMS Rule 611 
\6\ is required to have a Regulation NMS-compliant trading system fully 
operational by March 5, 2007 (the ``Trading Phase Date'').\7\
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    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 17 CFR Parts 200, 201, 230, 240, 242, 249 and 270.
    \6\ See 17 CFR 242.611.
    \7\ 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 
\8\ permits markets to accept bids, offers, orders and indications of 
interest in increments smaller than $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

[[Page 53913]]

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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    \8\ See 17 CFR 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.\9\
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    \9\ 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.\10\ 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.\11\
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    \10\ See Securities and Exchange Commission Release No. 34-
55398; File No. SR-NYSE-2007-25 (Mar. 5, 2007).
    \11\ See Securities and Exchange Commission Release No. 34-
55537; File No. SR-NYSE-2007-30 (Mar. 27, 2007).
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Suspension of NYSE Rule 123D(3)
    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 was concerned that the Treasury Department's action could 
cause securities of Fannie Mae and Freddie Mac to trade below $1.00, 
and that as a result, trading on the NYSE in such securities would have 
been halted automatically under the NYSE Rule 123D(3), which governs 
Sub-penny trading halts. The NYSE was further concerned that, given the 
scope of the government's action, it would have been deleterious to the 
overall depth and quality of the market if the NYSE halted NYSE trading 
in those issues. As a result, the NYSE filed with the SEC for immediate 
effectiveness a proposal to suspend the operation of NYSE Rule 123D 
with respect to the securities of Fannie Mae and Freddie Mac. That rule 
filing proposed suspending the rule through the end of the primary 
trading session on September 15, 2008.
    Notwithstanding that proposal, the NYSE now believes that the 
impact of the Treasury Department's action has been fully absorbed by 
the market, and that as a result, the need to continue trading on the 
NYSE below $1.00 is significantly less, while the potential for NYSE 
trades below $1.00 to cause the Exchange to violate its obligations 
under Reg NMS remains constant. As a result, commencing on September 
11, 2008, the NYSE is proposing to lift the suspension of its Rule 
123D(3) and to halt trading in securities of Fannie Mae and Freddie Mac 
any time they trade, or would open below $1.05 per share, as prescribed 
by the rule.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \12\ of 
the Securities Exchange Act of 1934 (the ``Act''), in general, and 
furthers the objectives of Section 6(b)(5) \13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    In particular, the NYSE notes that the proposed rule change 
reinstates a rule whose initial purpose was to ensure that the NYSE did 
not inadvertently violate Reg NMS; the rule was only suspended in order 
to respond to a highly unusual market situation. The NYSE believes that 
reinstating the rule before September 15 is warranted since the need 
underlying the suspension request appears to have dissipated, and 
therefore it is appropriate to resume applying NYSE Rule 123D(3) as a 
prophylactic.

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. 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 \14\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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.\16\ However, 
Rule 19b-4(f)(6)(iii) \17\ 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

[[Page 53914]]

proposal may become operative, and the suspended rule may be 
reinstated, immediately upon filing. The Exchange believes that, while 
a suspension of Rule 123D(3) for Fannie Mae and Freddie Mac securities 
was warranted by the Treasury Department's actions, the immediate 
benefits of suspending that rule have diminished, and that therefore it 
is consistent with the Exchange Act that the rule be reinstated as 
expeditiously as possible, since the reinstated rule would prevent the 
Exchange from executing transactions in Fannie Mae and Freddie Mac 
securities at prices below $1.00 that may violate Regulation NMS.
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    \16\ 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.
    \17\ 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.\18\
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    \18\ 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-2008-83 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-2008-83. 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-2008-83 and should be submitted on or before October 8, 2008.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21704 Filed 9-16-08; 8:45 am]

BILLING CODE 8010-01-P
