Notice: Self-Regulatory Organizations Proposed Rule Changes

Federal Register / Vol. 71, No.
140 / Friday, July 21, 2006 / Notices 41493
change is consistent with the Act. SECURITIES AND EXCHANGE proposed rule change. The text of these
Comments may be submitted by any of COMMISSION statements may be examined at the
the following methods: places specified in Item IV below. The
[Release No. 34–54142; File No. SR–NYSE–
Exchange has prepared summaries, set
Electronic Comments 2006–46]
forth in sections A, B, and C below, of
• Use the Commission’s Internet Self-Regulatory Organizations; New the most significant aspects of such
York Stock Exchange LLC; Notice of statements.
comment form (http://www.sec.gov/
rules/sro.shtml); or Filing and Immediate Effectiveness of A. Self-Regulatory Organization’s
Proposed Rule Change to Revise Statement of the Purpose of, and
• Send an e-mail to rule-
Equity Transaction Fees and to Statutory Basis for, the Proposed Rule
comments@sec.gov. Please include File Exempt Specialist Firms From ETF Change
Number SR–NYSE–2006–48 on the Transaction Fees
subject line. 1. Purpose
July 13, 2006. The Exchange proposes (i) to revise
Paper Comments Pursuant to Section 19(b)(1) of the the fees it charges to its member
• Send paper comments in triplicate Securities Exchange Act of 1934 organizations in connection with
to Nancy M. Morris, Secretary, (‘‘Act’’),1 and Rule 19b–4 thereunder,2 transactions in equity securities, and (ii)
Securities and Exchange Commission, notice is hereby given that on July 10, to exempt specialist firms from the fees
2006, the New York Stock Exchange it charges to its member organizations in
100 F Street, NE., Washington, DC
LLC (‘‘Exchange’’ or ‘‘NYSE’’) filed with connection with transactions in ETF
20549–1090.
the Securities and Exchange securities. The fee changes will take
All submissions should refer to File Commission (‘‘Commission’’) the effect on August 1, 2006. The amended
Number SR–NYSE–2006–48. This file proposed rule change as described in section of the 2006 Exchange Price List
number should be included on the Items I, II, and III below, which Items was filed with the Commission as
subject line if e-mail is used. To help the have been prepared by the Exchange. Exhibit 5 to the proposed rule filing.
Commission process and review your The Exchange has designated this The fee changes are also described
comments more efficiently, please use proposal as one establishing or changing below.
only one method. The Commission will a due, fee, or other charge imposed by The Exchange proposes to implement
post all comments on the Commission’s the Exchange under Section a more simplified transaction fee
Internet Web site (http://www.sec.gov/ 19(b)(3)(A)(ii) of the Act 3 and Rule 19b– structure for equities that it believes will
rules/sro.shtml). Copies of the 4(f)(2) thereunder,4 which renders the make its fees more transparent and will
submission, all subsequent proposed rule change effective upon distribute costs more equitably across
filing with the Commission. The our customer base. In place of the
amendments, all written statements
Commission is publishing this notice to current policy of charging a variable fee
with respect to the proposed rule
solicit comments on the proposed rule on equity transactions depending on the
change that are filed with the
change from interested persons. number of shares traded, the Exchange
Commission, and all written
I. Self-Regulatory Organization’s intends to implement a flat fee of
communications relating to the $0.00025 per share, which will continue
proposed rule change between the Statement of the Terms of Substance of
the Proposed Rule Change to be subject to the current $80 per
Commission and any person, other than transaction cap. System trades (trades
those that may be withheld from the The Exchange proposes (i) to revise executed electronically) for less than
public in accordance with the the fees it charges to its member 2,100 shares, which were previously
provisions of 5 U.S.C. 552, will be organizations in connection with exempt from Exchange transaction fees,
available for inspection and copying in transactions in equity securities, and (ii) will be subject to the same $0.00025 per
the Commission’s Public Reference to exempt specialist firms from the fees share fee as all other equity transactions.
Room. Copies of the filing also will be it charges to its member organizations in The Exchange is also eliminating the
available for inspection and copying at connection with transactions in 1.2% rebate on floor brokerage (fees a
the principal office of the Exchange. All Exchange Traded Fund (‘‘ETF’’) member organization receives from
comments received will be posted securities. The fee changes will take another member organization for which
without change; the Commission does effect on August 1, 2006. The text of the it executes a transaction) previously
not edit personal identifying proposed rule change is available on paid to the member organization that
information from submissions. You NYSE’s Web site (http://www.nyse.com), had paid the floor brokerage.
should submit only information that at NYSE’s principal office, and at the Monthly equity transaction fees are
you wish to make available publicly. All Commission’s Public Reference Room. currently capped at the lesser of: (i)
submissions should refer to File II. Self-Regulatory Organization’s $600,000 per month or (ii) 2% of the
Number SR–NYSE–2006–48 and should Statement of the Purpose of, and member organization’s self-reported
be submitted on or before August 11, Statutory Basis for, the Proposed Rule monthly net commissions.5 The
2006. Change Exchange proposes to increase the cap,
for the first time since 2003, from
For the Commission, by the Division of In its filing with the Commission, the $600,000 to $750,000 per month and to
Market Regulation, pursuant to delegated Exchange included statements eliminate the 2% cap alternative, which
authority.13 concerning the purpose of, and basis for, has been in place since 1981. The
Jill M. Peterson, the proposed rule change and discussed Exchange believes that doing so will
rwilkins on PROD1PC63 with NOTICES_1
Assistant Secretary. any comments it received on the enable it to grow its trading revenues
[FR Doc. E6–11569 Filed 7–20–06; 8:45 am] 1 15 U.S.C. 78s(b)(1). 5 A member organization’s net commissions are
BILLING CODE 8010–01–P 2 17 CFR 240.19b–4. calculated as the difference between gross
3 15 U.S.C. 78s(b)(3)(A)(ii).
commissions charged and commissions payable to
13 17 CFR 200.30–3(a)(12). 4 17 CFR 240.19b–4(f)(2). other members.
VerDate Aug<31>2005 17:59 Jul 20, 2006 Jkt 208001 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 E:\FR\FM\21JYN1.SGM 21JYN1
41494 Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Notices
over time, as it will be able to charge disproportionately low transaction fees. changes are not designed to adversely
fees on certain transactions that are The Exchange believes that the impact any particular business model or
currently free because a significant elimination of the 2% cap will allow it any individual member organization or
number of member organizations to more equitably allocate fees among category of member organizations. In
routinely exceed the 2% cap. Since member organizations based on system contrast with the current pricing system,
trading volume has increased usage rates. under which some trades are completely
substantially since 2003, the average fee Since the implementation of the free of charge, all trades will be charged
per share executed by member decimalization of equities trading in the same $0.00025 per share fee. The
organizations paying the $600,000 cap 2001 and the growing influence of $750,000 fee cap is a bulk discount to
has deceased significantly over that program and algorithmic trading, there attract more business to the Exchange,
period. The proposed increase is has been an increasing trend towards which furthers competition among
intended to raise the average fee per smaller order sizes. The average markets and is consistent with the
share paid by member organizations that execution size on the Exchange is now Exchange’s own historical fee structure
pay under the cap to a level that is less than 600 shares per trade. System and general industry practice. The
closer to the historical average paid by orders constituted 72% of the Exchange’s fee cap has not been
those member organizations. Raising the Exchange’s equity trading volume in the changed in response to the large growth
cap to $750,000 compensates the first six months of 2006, and in the in trading volume since it was last
Exchange for additional system usage, week of June 26, 2006, 95% of system increased in 2003, so the average fee per
but continues to reward customers that orders were for less than 2,100 shares. share executed by member organizations
significantly enhance the NYSE The Exchange expects even more trades paying the cap has deceased
liquidity pool. to be executed in the form of system significantly over that period. The
Under the Exchange’s historical orders as its hybrid market initiative is proposed increase is intended to raise
structure as a member-owned New York fully implemented. In light of this trend, the average fee per share paid by
not-for-profit corporation, the 2% fee it is not a sustainable business model for member organizations that pay under
cap was a requirement of Article X, the Exchange to continue to exempt the cap to a level that is closer to the
Section 4 of the Exchange’s constitution. these trades from fees. Given the historical average paid by those member
At the annual members’ meeting of the Exchange’s investment in technology organizations.
Exchange on April 7, 2005, the members and system redundancy, it is essential The Exchange has received written
of the Exchange adopted an amendment that the Exchange generate revenue from comments from two parties on the
to Article X, Section 4 to eliminate the this large and growing aspect of the proposed rule change.8 In addition, the
2% cap. The Exchange’s membership at equities trading business. Exchange has been provided with a
the time of its 2005 annual meeting was The Exchange proposes to exempt letter that was submitted directly to the
composed largely of representatives of specialists from the fees payable with Commission.9 The commenters argue
the Exchange’s current member respect to transactions in ETF securities. that subjecting system trades of less
organizations. As such, while the This is consistent with the Exchange’s than 2,100 shares to the same per share
Exchange is no longer a member-owned current policy of charging no fees in fee as all other transactions is unfairly
not-for-profit corporation, the connection with trading by specialists discriminatory to smaller member
Exchange’s member organizations have in equity securities. The Exchange organizations and smaller investors.10
previously accepted the removal of the believes that the specialists are paying Moreover, they believe the proposed
2% cap. The constitutional amendment a sufficient amount for their pricing will be advantageous to large
approved by the members at the 2005 transactions through the specialist member organizations whose fee
annual members’ meeting specified that trading privilege fee in connection with obligations will be limited by the
the Exchange’s board would determine each stock or ETF for which they act as monthly cap.11 One letter also notes that
the effective date of the removal of the specialist. member organizations will lose the
2% cap. Although approved last year by benefit of the cap of 2% of monthly
the members, the Exchange has not 2. Statutory Basis commissions.12
implemented the elimination of the cap The Exchange believes that the The Exchange does not believe that it
to this point as it had always intended proposed rule change is consistent with is anticompetitive or discriminatory to
to do so in conjunction with a broader Section 6(b) of the Act 6 in general and impose fees on system orders for less
revision of Exchange pricing. furthers the objectives of Section than 2,100 shares. The average
The 2% cap was originally introduced 6(b)(4) 7 in particular in that it is execution size on the Exchange is now
in 1981 when the Exchange first moved intended to provide for the equitable less than 600 shares per trade and the
away from charging members a fee allocation of reasonable dues, fees, and
based on their net commissions and other charges among its members and 8 See letter from Mark D. Fitterman, Partner,
introduced the variable, transaction- other persons using its facilities. Morgan, Lewis & Bockius LLP, to John A. Thain,
related fee structure in use today. The CEO, and Catherine R. Kinney, President and Co-
B. Self-Regulatory Organization’s COO, NYSE Group, Inc., dated June 27, 2006 (on
cap was intended to alleviate concerns behalf of Jeffries Execution Services, Inc.) (‘‘Jeffries
of certain members at that time that the Statement on Burden on Competition Letter’’); and e-mail from Joseph McCaffrey, CEO
variable fee structure would result in The Exchange has carefully and Managing LLC Member, Bay Crest Partners,
substantially higher fees, thereby LLC, to Bob Airo, Vice President, and Laura
considered the impact of the proposed Morrison, Managing Director, NYSE Group, dated
rendering trading activity unprofitable. fee changes on member organizations July 6, 2006 (‘‘Bay Crest Letter’’).
However, as a result of the dramatic and does not believe that the proposed 9 See letter from Mark D. Fitterman, Partner,
reduction in commission rates, a shift to rule change will impose any burden on Morgan, Lewis & Bockius LLP, to Nancy M. Morris,
business models not based on competition that is not necessary or Secretary, Commission, dated June 30, 2006 (on
commissions, and a greater emphasis on behalf of RBC Capital Markets Corporation) (‘‘RBC
appropriate in furtherance of the Letter’’).
principal trading as a source of revenue purpose of the Act. The proposed fee 10 See Jeffries Letter at 2; RBC Letter at passim.
since 1981, many member organizations 11 See Jeffries Letter at 2; RBC Letter at 1; Bay
who continue to pay transaction fees 6 15 U.S.C. 78f(b). Crest Letter at passim.
based on the 2% cap currently pay 7 15 U.S.C. 78f(b)(4). 12 See RBC Letter at 2.
Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Notices 41495
Exchange expects even more trades to C. Self-Regulatory Organization’s Two commenters claim that member
be executed in the form of system orders Statement on Comments on the organizations have had little notice of
as its hybrid market initiative is fully Proposed Rule Change Received from the proposed changes and a limited
implemented. System orders constituted Members, Participants or Others 13 ability to provide input.21 The Exchange
72% of the Exchange’s equity trading The Exchange has not solicited notes that the elimination of the 2%
volume in the first six months of 2006, written comments on the proposed rule cap, which is the most significant
and in the week of June 26, 2006, 95% change and has received the two written change, was voted on by the
of system orders were for less than 2,100 comments and the letter addressed to membership at the Exchange’s April
shares. This increasing trend towards the Commission described above.14 The 2005 annual meeting. Member
smaller order sizes is largely attributable letters focus primarily on the organizations were clearly aware from
to changes in trading behavior in commenters’ belief that the proposed that time that the Exchange intended to
response to the introduction of the fees are anticompetitive, which is eliminate the cap. Furthermore, the
discussed in Section II.B. above. In Exchange has communicated with
decimalization of equities trading in
addition, two commenters argued that it member organizations since mid-2005
2001 and the growing influence of
is inappropriate for the proposed fee about its intention to undertake a
program and algorithmic trading. In significant revision of its pricing
light of this trend, it is not a sustainable changes to be filed for immediate
effectiveness pursuant to Section structure, soliciting member
business model for the Exchange to organizations’ views on a number of
continue to exempt these trades from 19(b)(3)(A) of the Act 15 and that the
filing should be subject to the public proposed pricing structures since then.
fees. Given the Exchange’s investment Indeed, the changes the commenters
in technology and system redundancy, notice and comment process of Section
19(b)(1) of the Act 16 prior to becoming oppose have been among those the
it is essential that the Exchange generate Exchange has discussed openly with
revenue from this large and growing effective.17 The Exchange believes it is
appropriate to file the proposed fee member organizations during that
aspect of the equities trading business. period.
changes for immediate effectiveness
The dramatic reduction in pursuant to Section 19(b)(3)(A) of the III. Date of Effectiveness of the
commission rates, a shift to business Act. Pursuant to Section 19(b)(3)(A)(ii) Proposed Rule Change and Timing for
models not based on commissions, and of the Act 18 and Rule 19b–4(f)(2) Commission Action
a greater emphasis on principal trading thereunder,19 a proposed rule change
The foregoing proposed rule change
as a source of revenue since the may take effect upon filing with the
has become effective upon filing
introduction of the 2% cap in 1981 has Commission if properly designated by
pursuant to Section 19(b)(3)(A) of the
allowed many member organizations the self-regulatory organization as
Act 22 and Rule 19b–4(f)(2) 23 thereunder
who continue to pay transaction fees establishing or changing a due, fee, or
because it establishes or changes a due,
based on the 2% cap to pay other charge applicable to a member.
fee, or other charge imposed by the
disproportionately low transaction fees. The proposed fee changes are of the
Exchange. At any time within 60 days
Rather than seeking to discriminatorily type contemplated by Rule 19b–4(f)(2)
of the filing of the proposed rule change,
increase the fees levied on those and it has been the Exchange’s
the Commission may summarily
member organizations, the Exchange is consistent historical practice to file such
abrogate such rule change if it appears
actually eliminating the 2% cap so as to fee changes for immediate effectiveness.
to the Commission that such action is
more equitably allocate fees among The Exchange does not believe that
necessary or appropriate in the public
member organizations. there is any reason to do otherwise in
interest, for the protection of investors,
this instance.
The Exchange has examined the or otherwise in furtherance of the
One letter asks why the Exchange has
impact of the proposed fee changes on purposes of the Act.
determined to exempt specialists from
its member organizations by analyzing fees in connection with their trades in IV. Solicitation of Comments
how much each member organization ETF securities.20 This is consistent with Interested persons are invited to
would pay based on its trading activity the Exchange’s current policy of submit written data, views, and
for the second half of 2005. The small charging no fees in connection with arguments concerning the foregoing,
number of member organizations that trading by specialists in equity including whether the proposed rule
currently pay the Exchange’s $600,000 securities. The Exchange believes that change is consistent with the Act.
fee cap would all reach the new the specialists are paying a sufficient Comments may be submitted by any of
$750,000 cap and would therefore pay amount for their transactions through the following methods:
$150,000 more in fees per month. The the specialist trading privilege fee in
majority of member organizations would connection with each stock or ETF for Electronic Comments
pay more in fees under the proposed fee which they act as specialist. • Use the Commission’s Internet
structure. As is clear from these comment form (http://www.sec.gov/
13 The Commission notes that subsequent to the
statistics, the Exchange is not seeking to rules/sro.shtml); or
filing of this proposed rule change, the Commission
discriminate in favor of the largest received a comment letter from Lek Securities • Send an e-mail to rule-
member organizations or against those Corporation, a NYSE member. See letter from comments@sec.gov. Please include File
that are smaller. Rather, the impact of Samuel F. Lek, CEO, Lek Securities Corporation, to No. SR–NYSE–2006–46 on the subject
Nancy M. Morris, Secretary, Commission, dated line.
the fee changes on a particular member July 6, 2006.
organization will result from a number 14 See supra notes 8 and 9 and accompanying
Paper Comments
of variables, including its business text.
15 15 U.S.C. 78s(b)(3)(A). • Send paper comments in triplicate

model and the volume of trades it sends 16 15 U.S.C. 78s(b)(1). to Nancy M. Morris, Secretary,
to the Exchange. 17 See Jeffries Letter at 3; RBC Letter at 2.
18 15 U.S.C. 78s(b)(3)(A)(ii). 21 See Jeffries Letter at 1; RBC Letter at 2.
19 17 CFR 240.19b–4(f)(2). 22 15 U.S.C. 78s(b)(3)(A).
20 See RBC Letter at 2. 23 17 CFR 19b–4(f)(2).
41496 Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Notices
Securities and Exchange Commission, SECURITIES AND EXCHANGE broker may place within the Display
100 F Street, NE., Washington, DC COMMISSION Book system broker agency interest
20549–1090. files at multiple price points on both
[Release No. 34–54150; File No. SR–NYSE–
sides of the market at or outside the
All submissions should refer to File 2006–36]
Exchange best bid and offer with respect
Number SR–NYSE–2006–46. This file to each security trading in the
number should be included on the Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of [location(s) comprising the] Crowd such
subject line if e-mail is used. To help the Floor broker is a part of, [with respect
Filing of Proposed Rule Change and
Commission process and review your to orders he or she is representing on
Amendment Nos. 1 and 2 Thereto
comments more efficiently, please use the Floor,] except that the agency
Relating to Exchange Rule 70 To
only one method. The Commission will Provide Floor Brokers With the Ability interest files shall not include any
post all comments on the Commissions To Enter Discretionary Instructions customer interest that restricts the
Internet Web site (http://www.sec.gov/ and/or Pegging Instructions With specialist’s ability to be on parity
rules/sro.shtml). Copies of the Respect to Floor Broker Agency pursuant to Exchange Rules
submission, all subsequent Interest Files (e-Quotes) 104.10(6)(i)(C) and 108(a). Broker
amendments, all written statements agency interest files shall also be
with respect to the proposed rule July 14, 2006. referred to as ‘‘e-QuotesSM’’.
change that are filed with the Pursuant to Section 19(b)(1) of the * * * * *
Commission, and all written Securities Exchange Act of 1934 (b) All Floor broker agency interest
communications relating to the (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 placed within files in the Display Book
proposed rule change between the notice is hereby given that on May 16, system at the same price and on the
Commission and any person, other than 2006, the New York Stock Exchange same side shall be on parity with each
those that may be withheld from the LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with other, except agency interest that
public in accordance with the the Securities and Exchange establishes the Exchange best bid or
Commission (‘‘Commission’’) the offer shall be entitled to priority in
provisions of 5 U.S.C. 552, will be
proposed rule change as described in accordance with Exchange Rule 72. No
available for inspection and copying in
Items I, II, and III below, which Items Floor broker agency interest placed
the Commission’s Public Reference
have been prepared by the Exchange. within files in the Display Book system
Room. Copies of such filing also will be On June 14, 2006, NYSE filed
available for inspection and copying at shall be entitled to precedence based on
Amendment No. 1 to the proposed rule size.
the principal office of the NYSE. All change.3 On July 11, 2006, NYSE filed
comments received will be posted * * * * *
Amendment No. 2 to the proposed rule (j)(i) Floor broker agency interest
without change; the Commission does change.4 The Commission is publishing
not edit personal identifying placed within files may participate in
this notice to solicit comments on the the opening and closing trades in
information from submissions. You proposed rule change, as amended, from accordance with Exchange policies and
should submit only information that interested persons. procedures governing the open and
you wish to make available publicly. All close.
submissions should refer to File I. Self-Regulatory Organization’s
Statement of the Terms of Substance of * * * * *
Number SR–NYSE–2006–46 and should
the Proposed Rule Change (k) The ability of a Floor broker to
be submitted on or before August 11,
The Exchange proposes to amend have reserve interest will not be
2006. available during the open and during
Exchange Rule 70 to reflect that Floor
For the Commission, by the Division of
brokers will have the ability to enter the close. During the close, a Floor
Market Regulation, pursuant to delegated
discretionary instructions (‘‘d-Quotes’’) broker’s reserve interest, if any, will be
authority.24 added to the size of his or her displayed
with respect to their Floor broker agency
Jill M. Peterson, interest files (‘‘e-Quotes’’) and that their agency (‘‘e-Quoted’’) interest. The
Assistant Secretary. e-Quotes and d-Quotes will be able to ability of a Floor broker to exclude
[FR Doc. E6–11575 Filed 7–20–06; 8:45 am] peg to the Exchange best bid and offer. volume from aggregated agency interest
The Exchange also proposes to amend information available to the specialist
BILLING CODE 8010–01–P
NYSE Rules 70.20, 123(e), 104, and will not be available during the open.
1000. Below is the text of the proposed Floor broker agency interest excluded
rule change, as amended. Proposed new from the aggregate agency interest
language is italicized; proposed information available to the specialist
deletions are in brackets. will not participate in the close.
* * * * * .25 Discretionary Instructions for Bids
and Offers Represented via Floor Broker
Bids and Offers Agency Interest Files (e-QuotesSM)
Rule 70 (a)(i) A Floor broker may enter
.20 (a)(i) With respect to orders he or discretionary instructions as to size
she is representing on the Floor, a Floor and/or price with respect to his or her
e-Quotes (‘‘discretionary e-Quotes’’ or
1 15
U.S.C. 78s(b)(1). ‘‘d-Quotes’’). The discretionary
2 17
CFR 240.19b–4. instructions relate to the price at which
3 In Amendment No. 1, NYSE proposed
the d-Quote may trade and the number
additional changes and clarifications to the
proposal.
of shares to which the discretionary
4 Amendment No. 2 supersedes and replaces the price instructions apply.
original proposed rule change and Amendment No. (ii) Discretionary instructions are
24 17 CFR 200.30–3(a)(12). 1 in its entirety. active only when the e-Quote is at or

Notice: Self-Regulatory Organizations Proposed Rule Changes

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Notice: Self-Regulatory Organizations Proposed Rule Changes

Uploaded by

Copyright:

Available Formats

Federal Register / Vol. 71, No.

140 / Friday, July 21, 2006 / Notices 41493

15 15 U.S.C. 78s(b)(3)(A). • Send paper comments in triplicate

You might also like