
[Federal Register: December 15, 2008 (Volume 73, Number 241)]
[Notices]               
[Page 76082-76084]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de08-109]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59064; File No. SR-NYSE-2008-91]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change To Adopt a Policy Relating to Its 
Treatment of Trade Reports That It Determines To Be Inconsistent With 
the Prevailing Market

December 5, 2008.

I. Introduction

    On September 26, 2008, the New York Stock Exchange LLC (``NYSE'' or

[[Page 76083]]

``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 allow the Exchange to exercise the discretion 
to append an indicator (an ``Aberrant Report Indicator'') to a trade 
report to indicate that the market believes that the trade price in a 
trade executed on that market does not accurately reflect the 
prevailing market for the security. The proposed rule change was 
published for comment in the Federal Register on October 10, 2008.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58736 (October 6, 
2008), 73 FR 60380.
---------------------------------------------------------------------------

II. Description of the Proposal

    Trades in listed securities occasionally occur at prices that 
deviate significantly from prevailing market prices and those trades 
sometimes establish a high, low or last sale price for a security that 
does not reflect the true market for the security.
    The Exchange proposes to adopt as policies of the Exchange that it 
will:
    i. Monitor for trade prices that do not accurately reflect the 
prevailing market for a security;
    ii. Append an Aberrant Report Indicator to any trade report with 
respect to any trade executed on the Exchange that the Exchange 
determines to be inconsistent with the prevailing market; and
    iii. Discourage vendors and other data recipients from using prices 
to which the Exchange has appended the Aberrant Report Indicator in any 
calculation of the high, low or last sale price of a security.
    The Exchange proposes to append retroactively the Aberrant Report 
Indicator to trades that do not accurately reflect the prevailing 
market for a security, commencing as of January 1, 2007.
    The Exchange intends to urge vendors to disclose the exclusion from 
high, low or last sale price data of any aberrant trades excluded from 
high, low or last sale price information that they disseminate and to 
provide to data users an explanation of the parameters used in the 
Exchange's aberrant trade policy. Upon adoption of the Aberrant Report 
Indicator, the Exchange also will contact all of its listed companies 
to explain the aberrant trade policy and will notify users of the 
information that these are still valid trades. The Exchange will inform 
the affected listed company each time the Exchange or another market 
\4\ appends the Aberrant Report Indicator to a trade in an NYSE-listed 
stock and will remind the users of the information that these are still 
valid trades in that they were executed and not broken, such as in the 
case of clearly erroneous trades.
---------------------------------------------------------------------------

    \4\ The Commission notes that any proposal by another regulatory 
organization to establish a policy to append an Aberrant Report 
Indicator to any trade report with respect to any trade executed on 
its market that it determines to be inconsistent with the prevailing 
market must be filed with the Commission as a proposed rule change 
under Section 19(b) of the Act.
---------------------------------------------------------------------------

    The NYSE noted that, while the Consolidated Tape Association 
disseminates its own calculations of high, low and last sale prices, 
vendors and other data recipients frequently determine their own 
methodology by which they wish to calculate high, low and last sale 
prices. Therefore, the Exchange proposes to explain to those vendors 
and other data recipients the potential impact of including in those 
calculations a trade to which the Aberrant Report Indicator has been 
appended.
    In determining whether to append the Aberrant Report Indicator, the 
Exchange will consider all factors related to a trade, including, but 
not limited to, the following:
     Material news released for the security;
     Suspicious trading activity;
     System malfunctions or disruptions;
     Locked or crossed markets;
     A recent trading halt or resumption of trading in the 
security;
     Whether the security is in its initial public offering;
     Volume and volatility for the security;
     Whether the trade price represents a 52-week high or low 
for the security;
     Whether the trade price deviates significantly from recent 
trading patterns in the security;
     Whether the trade price reflects a stock-split, 
reorganization or other corporate action;
     The validity of consolidated tape trades and quotes in 
comparison to national best bids and offers; and
     The general volatility of market conditions.
    Currently, the Exchange does not trade on an unlisted trading 
privilege (``UTP'') basis any securities listed on other markets. In 
the event that the Exchange commences UTP trading at some future date, 
the Exchange proposes that its policy will be to consult with the 
listing exchange and with other markets (in the case of executions that 
take place across multiple markets) and to seek a consensus as to 
whether the trade price is consistent with the prevailing market for 
the security.
    In monitoring trade prices that may be inconsistent with the 
prevailing market, the Exchange proposes that Exchange policy will be 
to follow the following general guidelines: The Exchange will review 
whether a trade price does not reflect the prevailing market for a 
security if the trade occurs during regular trading hours (i.e., 9:30 
a.m. to 4 p.m.) and occurs at a price that deviates from the 
``Reference Price'' by an amount that meets or exceeds the following 
thresholds:

------------------------------------------------------------------------
                                                 Numerical threshold
                Trade price                           (percent)
------------------------------------------------------------------------
Between $0 and $15.00.....................  Seven.
Between $15.01 and $50.00.................  Five.
In excess of $50.00.......................  Three.
------------------------------------------------------------------------

    The ``Reference Price'' refers to: (a) If the primary market for 
the security is open at the time of the trade, the national best bid or 
offer for the security; or (b) if the primary market for the security 
is not open at the time of the trade, the first executable quote or 
print for the security on the primary market after execution of the 
trade in question. However, if the circumstances suggest that a 
different Reference Price would be more appropriate, the Exchange will 
use the different Reference Price. For instance, if the national best 
bid and offer for the security are so wide as to fail to reflect the 
market for the security, the Exchange might use as the Reference Price 
a trade price or best bid or offer that was available prior to the 
trade in question.
    If the Exchange determines that a trade price does not reflect the 
prevailing market for a security and the trade represented the last 
sale of the security on the Exchange during a trading session, the 
Exchange may also determine to remove that trade's designation as the 
last sale. The Exchange may do so either on the day of the trade or at 
a later date, so as to provide reasonable time for the Exchange to 
conduct due diligence regarding the trade, including the consideration 
of input from other markets and market participants.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the

[[Page 76084]]

Act and the rules and regulations thereunder applicable to a national 
securities exchange and, in particular, with Section 6(b) of the Act 
\5\ and the rules and regulations thereunder. Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \6\ which requires, among other things, that 
the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to, and perfect 
the mechanism of, a free and open market and a national market system, 
to protect investors and the public interest, and are not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers.\7\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposal to append an 
Aberrant Report Indicator to certain trade reports is a reasonable 
means to alert investors and others that the Exchange believes that the 
trade price for a trade executed in its market does not accurately 
reflect the prevailing market for the security. In addition, the 
Commission notes that the Exchange will use objective numerical 
thresholds in determining whether a trade report is eligible to have an 
Aberrant Trade Indicator appended to it. The Commission further notes 
that the Exchange's appending the Aberrant Trade Indicator to a trade 
report has no effect on the validity of the underlying trade.
    For the reasons set forth above, the Commission finds that the 
proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NYSE-2008-91) be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Florence E. Harmon,
Acting Secretary.
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. E8-29558 Filed 12-12-08; 8:45 am]

BILLING CODE 8011-01-P
