[Federal Register: October 3, 2007 (Volume 72, Number 191)]
[Rules and Regulations]
[Page 56562-56568]
[DOCID:fr03oc07-16]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-56502; File No. S7-23-06]
RIN 3235-AJ77

Exemptions for Banks Under Section 3(a)(5) of the Securities
Exchange Act of 1934 and Related Rules

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting rules and rule amendments regarding exemptions from the
definitions of ``broker'' and ``dealer'' under the Securities Exchange
Act of 1934 (``Exchange Act'') for banks' securities activities. In
particular, the Commission is adopting a conditional exemption that
will allow banks to effect riskless principal transactions with non-
U.S. persons pursuant to Regulation S under the Securities Act of 1933
(``Securities Act''). The Commission also is amending and redesignating
an existing exemption from the definition of ``dealer'' for banks'
securities lending activities as a conduit lender. In addition, the
Commission is conforming a rule that grants a limited exemption from
U.S. broker-dealer registration for foreign broker-dealers to the
amended definitions of ``broker'' and ``dealer'' under the Exchange
Act. Finally, the Commission is withdrawing three rules under the
Exchange Act: A rule defining the term ``bank'' for purposes of the
Exchange Act's definitions of ``broker'' and ``dealer,'' due to
judicial invalidation; a time-limited exemption for banks' securities
activities, due to the passage of time; and an exemption from the
definitions of ``broker'' and ``dealer'' for savings associations and
savings banks, as the exemption no longer necessary in light of
subsequent legislation.

DATES: Effective Date: The final rules are effective on November 2,
2007.

FOR FURTHER INFORMATION CONTACT: Catherine McGuire, Chief Counsel,
Linda Stamp Sundberg, Senior Special Counsel, Joshua Kans, Senior
Special Counsel, John Fahey, Branch Chief, or Elizabeth K. MacDonald,
Special Counsel, at<PHONE_NUMBER>, Office of Chief Counsel, Division
of Market Regulation, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting new Rules 3a5-2
[17 CFR 240.3a5-2] and 3a5-3 [17 CFR 3a5-3], amending Rule 15a-6 [17
CFR 240.15a-6], and withdrawing Rules 3b-9 [17 CFR 240.3b-9], 15a-8 [17
CFR 240.15a-8], 15a-9 [17 CFR 240.15a-9] and 15a-11 [17 CFR 15a-11]
under the Exchange Act.

Table of Contents

I. Introduction and Background
II. Adopted Rules and Rule Amendments
    A. Regulation S Transactions with Non-U.S. Persons
    B. Amendment to Exchange Act Rule 15a-6
    C. Securities Lending by Bank Dealers
    D. Withdrawal of Exchange Act Rule 3b-9, Rule 15a-8, and Rule
15a-9
III. Administrative Law Matters
    A. Paperwork Reduction Act Analysis
    B. Consideration of Benefits and Costs
    C. Consideration of Burden on Competition, and on Promotion of
Efficiency, Competition, and Capital Formation
    D. Regulatory Flexibility Certification
IV. Statutory Authority
V. Text of Final Rules and Rule Amendments

I. Introduction and Background

    The rules and rule amendments discussed below complement Regulation
R, which we are adopting jointly with the Board of Governors of the
Federal Reserve System (``Board'').\1\ These rules and rule amendments
in large part reflect changes that the

Gramm-Leach-Bliley Act (``GLBA'') made to the Exchange Act with respect
to the status of banks as ``dealers.'' \2\
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    \1\ Exchange Act Release No. 56501 (Sept. 24, 2007).
    \2\ See Exchange Act Release No. 54947 (Dec. 18, 2006), 71 FR
77550 (Dec. 26, 2006) (``Proposing Release'').
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    As discussed below, we are adopting Exchange Act Rule 3a5-2 to
provide a conditional exemption from the definition of ``dealer'' to
allow banks to engage in certain transactions involving securities
exempted from registration by Regulation S.\3\ We also are adopting a
clarifying amendment to Exchange Act Rule 15a-6,\4\ which provides a
conditional exemption from U.S. broker-dealer registration for certain
foreign broker-dealers. In addition, we are redesignating, as new
Exchange Act Rule 3a5-3, the dealer provisions of current Exchange Act
Rule 15a-11\5\ pertaining to banks' securities lending activities.
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    \3\ 17 CFR 230.901 et seq.
    \4\ 17 CFR 240.15a-6.
    \5\ 17 CFR 240.15a-11.
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    Finally, we are withdrawing three rules under the Exchange Act:
Rule 3b-9,\6\ which defined the term ``bank'' for purposes of the
Exchange Act definitions of ``broker'' and ``dealer,'' due to judicial
invalidation; Rule 15a-8,\7\ which provided a time-limited exemption
for banks' securities activities, due to the passage of time; and Rule
15a-9,\8\ which provided an exemption from the Exchange Act definitions
of ``broker'' and ``dealer'' for savings associations and savings
banks, as this no longer is necessary given the passage of the
Financial Services Regulatory Relief Act of 2006 (``Regulatory Relief
Act'').
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    \6\ 17 CFR 240.3b-9.
    \7\ 17 CFR 240.15a-8.
    \8\ 17 CFR 240.15a-9.
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II. Adopted Rules and Rule Amendments

A. Regulation S Transactions With Non-U.S. Persons

    We are adopting Rule 3a5-2, which exempts banks from the definition
of ``dealer'' under Section 3(a)(5) of the Exchange Act for certain
principal transactions involving Regulation S securities. As with Rule
771 of Regulation R, which will permit banks to engage in certain
Regulation S transactions on an agency basis without being ``brokers,''
this rule recognizes that non-U.S. persons generally will not rely on
the protections of the U.S. securities laws when purchasing Regulation
S securities from U.S. banks, and that non-U.S. persons can purchase
the same securities from banks located outside of the U.S.\9\
Commenters generally supported the proposal while suggesting certain
modifications and clarifications.\10\ The rule, as adopted,
incorporates changes that respond to some of these comments.
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    \9\ See Proposing Release, 71 FR at 77552. When we proposed an
earlier version of this rule as part of Regulation B, we explained
that these securities are not intended to be sold within the U.S.
See Exchange Act Release No. 49879 (June 17, 2004), 69 FR 39682,
39720 (June 30, 2004) (explaining that although we generally believe
that U.S. broker-dealers should be subject to the same standards of
conduct when dealing with non-U.S. persons, this principle is less
compelling when the foreign person has chosen to deal with a U.S.
bank with respect to Regulation S securities that are designed to be
sold to non-U.S. persons offshore).
    \10\ See Institute of Int'l Bankers Letter (``IIB Letter'');
American Bankers Ass'n Letter (``ABA Letter''); The Clearing House
Association Letter (``Clearing House Ass'n Letter'').
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    The exemption will apply only to purchases and sales of ``eligible
securities''--securities that are not in the inventory of the bank or
an affiliate, and that are not underwritten by the bank or an affiliate
on a firm commitment basis (apart from securities acquired from an
unaffiliated distributor).\11\ In addition, this dealer exemption will
apply only to Regulation S transactions that a bank makes on a
``riskless principal'' basis.\12\ This focus will permit U.S. banks to
sell, overseas, securities that foreign banks also sell, thus helping
to avoid placing U.S. banks at a competitive disadvantage with respect
to eligible securities, while also helping to safeguard against
investor protection risks associated with unregistered entities
distributing eligible securities.
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    \11\ Rule 3a5-2(b)(2) specifically defines an ``eligible
security'' as a security that is not being sold from the inventory
of the bank or an affiliate of the bank, and not being underwritten
by the bank or an affiliate of the bank on a firm-commitment basis
unless the bank acquired the security from an unaffiliated
distributor that did not purchase the security from the bank or an
affiliate of the bank.
    Rule 3a5-2(b)(i) defines the term ``distributor'' to have the
same meaning as in 17 CFR 230.902(d). That provision of Regulation S
defines ``distributor'' to mean any underwriter, dealer, or other
person who participates, pursuant to a contractual arrangement, in
the distribution of the securities offered or sold in reliance on
Regulation S.
    \12\ Rule 3a5-2(b)(4) defines a ``riskless principle
transaction'' as a transaction in which, after receiving an order to
buy from a customer, the bank purchased the security from another
person to offset a contemporaneous sale to such customer or, having
received an order to sell from a customer, the bank sold the
security to another person to offset a contemporaneous purchase from
such customer.
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    The exemption is available when a bank purchases a newly issued
eligible security from an issuer or a broker-dealer and sells that
security in compliance with the requirements of Rule 903 of Regulation
S \13\ to a purchaser who is not in the U.S.\14\ The exemption also is
available when a bank purchases, from a person who is not a U.S. person
under Rule 902(k) of Regulation S,\15\ an eligible security after its
initial sale with a reasonable belief that the eligible security was
initially sold outside of the U.S. within the meaning of and in
compliance with the requirements of Rule 903, and resells that security
to a purchaser who is not in the U.S. or to a registered broker-
dealer.\16\ If that resale is made prior to any applicable distribution
compliance period specified in Rules 903(b)(2) or (b)(3) of Regulation
S,\17\ the resale must be made in compliance with the

requirements of Rule 904 of Regulation S.\18\
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    \13\ 17 CFR 230.903. Rule 903 of Regulation S provides that an
offer or sale of securities by the issuer, a distributor, or an
affiliate or a person acting on their behalf shall be deemed to
occur outside the U.S. within the meaning of Rule 901 if the offer
or sale is made in an offshore transaction, and no directed selling
efforts are made in the U.S. by the issuer, a distributor,
affiliate, or person acting on their behalf. Other conditions may
also apply depending on the place of incorporation and reporting
status of the issuer, and the amount of U.S. market interest in the
securities. (Rule 901 of Regulation S generally provides that for
the purposes of Section 5 of the Securities Act, the terms
``offer,'' ``offer to sell,'' ``sell,'' ``sale'' and ``offer to
buy'' include offers and sales that occur within the U.S., but not
those that occur outside the U.S.)
    \14\ Rule 3a5-2(a)(1).
    \15\ Rule 902(k) of Regulation S defines the term ``U.S.
person'' to mean: (i) Any natural person resident in the U.S.; (ii)
any partnership or corporation organized or incorporated under the
laws of the U.S.; (iii) any estate of which any executor or
administrator is a U.S. person; (iv) any trust of which any trustee
is a U.S. person; (v) any agency or branch of a foreign entity
located in the U.S.; (vi) any non-discretionary account or similar
account (other than an estate or trust) held by a dealer or other
fiduciary for the benefit or account of a U.S. person; and (vii) any
discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the U.S., and (viii) any
partnership or corporation if (A) organized or incorporated under
the laws of any foreign jurisdiction, and (B) formed by a U.S.
person principally for the purpose of investing in securities not
registered under the Act, unless it is organized or incorporated,
and owned, by accredited investors (as defined in Rule 501(a)) who
are not natural persons, estates or trusts.
    \16\ Rule 3a5-2(a)(2).
    \17\ Under Rule 903 of Regulation S, Category 1 encompasses
certain securities: (i) Issued by a foreign issuer, for which there
is no substantial U.S. market interest, (ii) that are offered and
sold in an overseas directed offering, (iii) that are backed by the
full faith and credit of a foreign government, or (iv) that are
offered and sold to employees of the issuer or its affiliates
pursuant to certain foreign employee benefit plans. Category 2
encompasses securities, not eligible for Category 1, that are equity
securities of a reporting foreign issuer, or debt securities of a
reporting issuer or of a non-reporting foreign issuer. Category 3
applies to all offerings of securities that do not fall within
Category 1 or 2.
    Rules 903(b)(2) and (b)(3) of Regulation S subject Category 2
securities and Category 3 debt securities to a 40-day distribution
compliance period, and subject Category 3 equity securities to a
one-year distribution compliance period.
    \18\ Rule 904 of Regulation S provides that an offer or sale of
securities by any person other than the issuer, a distributor, an
affiliate (except an officer or director who is an affiliate solely
by virtue of that position) or person acting on their behalf will be
deemed to occur outside the U.S. within the meaning of Rule 901 if
the offer or sale are made in an offshore transaction, and no
directed selling efforts are made in the U.S. by the seller, an
affiliate or person acting on their behalf. Additional conditions
apply in the case of resales of Category 2 or 3 securities by
dealers and persons receiving selling concessions, and in the case
of resales by certain affiliates of the issuer or a distributor.
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    Finally, the exemption is available when a bank purchases, from a
registered broker-dealer, an eligible security after its initial sale
with a reasonable belief that the eligible security was initially sold
outside of the U.S. within the meaning of and in compliance with the
requirements of Rule 903, and resells that security to a purchaser who
is not in the U.S.\19\ This provision also requires compliance with
Rule 904 if the resale is made prior to the expiration of the
security's distribution compliance period.
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    \19\ Rule 3a5-2(a)(3).
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    In adopting Rule 3a5-2, we have modified the proposed rule to
address concerns raised by commenters and to clarify the exemption. As
revised, each section of Rule 3a5-2 specifically addresses a bank's
purchase of a Regulation S security and the bank's subsequent sale or
resale of the security--a structure that reflects the nature of banks'
riskless principal transactions involving Regulation S securities \20\
and helps Rule 3a5-2 better parallel the equivalent provisions of Rule
771 of Regulation R regarding banks' Regulation S transactions as
agent.\21\
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    \20\ Paragraph (a)(1) addresses a bank's sale of newly issued
Regulation S securities, paragraph (a)(2) addresses a bank's
riskless principal transaction with a customer who wants to reduce
or unwind a position in a Regulation S security, and paragraph
(a)(3) addresses a riskless principal transaction with a customer
who wants to increase or establish a position in a Regulation S
security.
    \21\ As proposed, paragraph (a)(1) of the rule would have
addressed a bank's sale of an eligible security, paragraph (a)(2)
would have addressed a bank's purchase of an eligible security from
a non-U.S. person, and paragraph (a)(3) would have addressed a
bank's purchase of an eligible security from a broker-dealer
together with the bank's subsequent resale.
    One commenter requested that we clarify the relationship between
provisions of proposed Rule 3a5-2 and proposed Rule 771. See IIB
Letter (suggesting that there may be a discrepancy between Rule
771(a)(2) and Rule 3a5-2(a)(2) and asking for clarification as to
whether paragraph (a)(2) of Rule 3a5-2 was intended to apply to
resales).
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    In adopting Rule 3a5-2, we have modified the proposal to provide
that when the bank purchases an eligible security from a broker-dealer
after the security's initial sale (for resale to a non-U.S. person),
the bank may rely on its reasonable belief that the eligible security
was initially sold outside of the U.S. consistent with Rule 903. The
proposed rule would have allowed a bank to rely on its reasonable
belief only when it purchases a security from a non-U.S. person, but
not when it purchases a security from a broker-dealer. We have made
this change in light of comments we have received, as we are persuaded
that the process of determining whether a security initially was issued
in compliance with Regulation S would require banks to obtain the same
information whether the purchase is from a broker-dealer or a non-U.S.
person.\22\
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    \22\ See IIB Letter (``In both cases * * * a Bank is required to
make a determination regarding the manner in which the eligible
security that is the subject of the transaction was initially
issued.''); Clearing House Ass'n Letter. Those comments also
addressed the agency provisions of Rule 771, which has been revised
in a similar way.
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    As revised, the provisions of Rule 3a5-2 that apply to a bank's
resale of previously issued Regulation S securities (but not the
provision related to a bank's sale of a newly issued security) require
compliance with Rule 904 of Regulation S if the resale is made prior to
the expiration of the security's distribution compliance period.\23\ We
also have revised the rule to enhance its clarity and to better conform
it to Regulation S.\24\
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    \23\ Specifically, the condition requiring compliance with Rule
904 is included in paragraphs (a)(2) and (a)(3) of the rule, related
to a bank's resale of previously issued securities. While the
condition is not included in paragraph (a)(1), related to a bank's
sale of newly issued securities, because the requirements of Rule
904 are targeted to resales of Regulation S securities, a bank's
sale of a newly issued security would still have to comply with Rule
903 of Regulation S.
    \24\ We are replacing the phrase ``purchaser who is outside of
the United States within the meaning of 17 CFR 230.903'' with
``purchaser who is not in the United States'' to better conform to
Regulation S. We also are making other technical changes, such as
removing references to ``broker'' and Section 3(a)(4) under the
Exchange Act, together with conforming changes.
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    Commenters requested that we state that this exemption would
continue to be available after the expiration of the applicable
Regulation S distribution compliance period.\25\ Commenters also
questioned whether it is necessary for the rule to condition the
exemption on a bank's compliance with Rule 904 of Regulation S if the
resale is made prior to the end of the Rule 903 distribution
period.\26\ We can clarify that this rule (like Rule 771) requires the
bank to meet the conditions of Rule 904 during, but not after, the
distribution compliance period. During the distribution compliance
period, a bank thus will have to comply with Regulation S to take
advantage of the exception. Even after the end of the distribution
compliance period, however, a bank may rely on this exemption from the
dealer definition so long as it satisfies the other requirements of
Rule 3a5-2. After the expiration of the applicable distribution
compliance period, although the securities may be offered and sold in
the U.S. pursuant to registration of the securities under the
Securities Act or pursuant to an available exemption from the
registration requirements of that Act, the bank will not be permitted
to sell them to persons other than a broker-dealer or a person who is
not in the United States.
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    \25\ See IIB Letter (stating that the Proposing Release
contained language suggesting that would not be the case); Clearing
House Ass'n Letter.
    \26\ See IIB Letter (stating that it assumed this provision
merely required compliance with Regulation S to the extent
applicable, and requested that we confirm that understanding, or
delete the provision as unnecessary and potentially confusing).
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    One commenter stated that Rule 3a5-2 (as well as Rule 771) simply
should refer to sales to a ``purchaser,'' rather than, as proposed,
being specifically limited to sales to a purchaser who is outside the
U.S.\27\ We decline, however, to expand the exemption beyond offshore
sales or sales to registered broker-dealers. Consistent with Regulation
S, which permits the offshore resale of securities, the purpose of the
exemption is to permit U.S. banks to sell Regulation S securities to
their foreign customers. It does not permit banks to sell those
securities domestically.
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    \27\ See IIB Letter (maintaining that the provision would be
unduly restrictive by ``supporting the erroneous view that the
Regulation S Exemption expires once an eligible security has been
seasoned,'' and that the provision is unnecessary given that Rule
904 of Regulation S specifically imposes an offshore transaction
requirement on resales effected prior to expiration of the
applicable seasoning period).
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    Commenters also requested that we clarify that the definition of
``eligible security'' in Rule 3a5-2 (as well as in Rule 771)--which
excludes any security sold from the inventory of an affiliate or that
is underwritten by an affiliate on a firm-commitment basis--would not
prohibit a bank from effecting Regulation S exempt transactions in
securities that have been issued by an affiliate.\28\ The ``eligible
security'' definition in general does not exclude proprietary products
such as structured

notes and mutual funds that are issued by affiliates but not
underwritten on a firm commitment basis. The exclusion of inventory
securities and securities underwritten on a firm-commitment basis is
intended to prevent banks from dumping third-party securities overseas.
It is not intended to extend to all proprietary products issued by a
bank affiliate. Proprietary products are sold by foreign banks, and
permitting U.S. banks to sell comparable products will avoid placing
U.S. banks at a competitive disadvantage with respect to those foreign
banks.\29 \
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    \28\ See IIB Letter (``Thus, for example, a Bank could sell a
structured note or other investment product (whether or not
customized for the particular customer) that is issued by the Bank
or an affiliate of the Bank, or shares in an offshore mutual fund
controlled by the Bank or an affiliate of the Bank.''); ABA Letter.
    \29\ Although there could be higher fees associated with
proprietary securities than with independent investment company
securities, this also is true with respect to proprietary securities
sold by foreign banks. Accordingly, we do not believe that these
potentially higher fees provide a sufficient reason to exclude
proprietary securities from these exemptions.
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B. Amendment to Exchange Act Rule 15a-6

    We are adopting, without change, a clarifying amendment to Exchange
Act Rule 15a-6(a)(4)(i).\30\ This amendment conforms Rule 15a-6--which
in general permits foreign broker-dealers to engage in certain
transactions involving U.S. persons without having to register as
broker-dealers--to revisions to the Exchange Act and its underlying
regulations resulting from GLBA. We received no comment on the proposed
amendment.
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    \30\ 17 CFR 240.15a-6(a)(4)(i).
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    This amendment updates Rule 15a-6 to reflect the current Exchange
Act definitions of ``broker'' and ``dealer'' \31\ and their underlying
rules. While the ``broker'' and ``dealer'' definitions completely
excluded banks prior to GLBA, now they provide that banks engaging in
the activities permitted by the conditional exceptions in those
definitions ``shall not be considered to be'' brokers or dealers.
Currently, paragraph (a)(4)(i) of Rule 15a-6 permits a foreign broker-
dealer to engage in certain securities activities with a registered
broker-dealer or with ``a bank acting in a broker or dealer capacity as
permitted by U.S. law.'' As amended, that paragraph will refer to ``a
bank acting pursuant to an exception or exemption from the definition
of `broker' or `dealer' in sections 3(a)(4)(B), 3(a)(4)(E) or
3(a)(5)(C) of the Act * * * or the rules thereunder.'' \32\ This
amendment does not change the substance of Rule 15a-6.\33\
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    \31\ Exchange Act Sections 3(a)(4) and 3(a)(5), 15 U.S.C.
78c(a)(4) and (a)(5).
    \32\ Sections 3(a)(4)(B) of the Exchange Act provide exceptions
from the ``broker'' definition for certain bank activities, while
Section 3(a)(4)(E) provides an exception from that definition for
banks that, prior to the enactment of GLBA, were subject to Exchange
Act Section 15(e), 15 U.S.C. 78o(e), which requires certain non
broker-dealer members of national security exchanges to comply with
the rules that govern broker-dealers. Section 3(a)(5)(C) provides
exceptions from the ``dealer'' definition for certain bank
activities.
    \33\ A U.S. bank's foreign affiliate could rely on Rule 15a-
6(a)(4)(i) for transactions with the bank, and the bank could rely
on the statutory exception regarding affiliate transactions
(Exchange Act 3(a)(4)(B)(vi), 15 U.S.C. 78c(a)(4)(B)(vi)) for
transactions with the foreign affiliate. Exchange Act Rule 15a-
6(a)(4)(i), however, does not permit a foreign broker-dealer or bank
to have direct contact with customers of the U.S. bank. Exchange Act
Release No. 44291 (May 11, 2001) 66 FR 27760 (May 18, 2001). Of
course, the exemptions for transactions in Regulation S securities
we are adopting today (Exchange Act Rule 3a5-2 and Rule 771 of
Regulation R) will permit a bank to sell Regulation S securities to
non-U.S. persons, including customers of a foreign affiliate, as
long as it meets the conditions of that exemption.
    Nothing in this release should be construed as modifying the
Exchange Act Section 3(a)(6) definition of ``bank'' as it applies to
foreign banks. Generally, foreign banks doing business with U.S.
customers will not meet this definition and would be considered
broker-dealers under the U.S. securities laws. As such, foreign
banks generally will be required to register as U.S. broker-dealers
unless they qualify for an exemption from registration under
Exchange Act Rule 15a-6.
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C. Securities Lending by Bank Dealers

    We are adopting, as proposed, Rule 3a5-3 under the Exchange Act to
provide banks engaged in certain securities lending transactions with a
conditional exemption from the definition of ``dealer.'' Rule 3a5-3
incorporates the dealer provisions of Exchange Act Rule 15a-11, which
we are withdrawing.\34\
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    \34\ In 2003, the Commission adopted Exchange Act Rule 15a-11 to
provide an exemption from the definitions of both ``broker'' and
``dealer'' for banks engaging in securities lending transactions.
See Exchange Act Release No. 47364 (Feb .13, 2003), 68 FR 8686 (Feb.
24, 2003) (http://www.sec.gov/rules/final/34-47364.htm). As

applicable to banks' broker activities, the Rule 15a-11 exemption
was never operable because of the temporary exemptions applicable to
all bank broker activities. The Regulatory Relief Act required the
Commission and the Federal Reserve Board to jointly propose rules
governing banks' broker activities, and we are adopting Rule 772 of
Regulation R jointly with the Federal Reserve Board to exempt banks
from the ``broker'' definition for certain securities lending
activities. Exchange Act Release No. 56501 (Sept. 24, 2007). The
Regulatory Relief Act does not directly affect the operation of the
rules the Commission adopted concerning banks' dealer activities.
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    The rule provides that a bank is exempt from the dealer definition
to the extent that, as a ``conduit lender,'' \35\ it engages in or
effects certain ``securities lending transactions'' \36\ and
``securities lending services'' \37\ in connection with such
transactions.\38\ The exemption applies only to securities lending
activities with or on behalf of a person that the bank reasonably
believes to be: (1) A qualified investor as defined in Section
3(a)(54)(A) of the Exchange Act; \39\ or (2) any employee benefit plan
that owns and invests, on a discretionary basis, not less than $25
million in investments.
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    \35\ Rule 3a5-3(d) defines the term ``conduit lender'' to mean a
bank that borrows or loans securities, as principal, for its own
account, and contemporaneously loans or borrows the same securities,
as principal, for its own account. The rule further states that a
bank that qualifies under this definition as a conduit lender at the
commencement of a transaction will continue to qualify,
notwithstanding whether: (1) The lending or borrowing transaction
terminates and so long as the transaction is replaced within one
business day by another lending or borrowing transaction involving
the same securities; and (2) any substitutions of collateral occur.
Rule 3a5-3(d).
    \36\ Rule 3a5-3(b) defines the term ``securities lending
transaction'' to mean a transaction in which the owner of a security
lends the security temporarily to another party pursuant to a
written securities lending agreement under which the lender retains
the economic interests of an owner of such securities, and has the
right to terminate the transaction and to recall the loaned
securities on terms agreed by the parties.
    \37\ Rule 3a5-3(c) defines the term ``securities lending
services'' to mean: (1) Selecting and negotiating with a borrower
and executing, or directing the execution of the loan with the
borrower; (2) receiving, delivering, or directing the receipt or
delivery of loaned securities; (3) receiving, delivering, or
directing the receipt or delivery of collateral; (4) providing mark-
to-market, corporate action, recordkeeping or other services
incidental to the administration of the securities lending
transaction; (5) investing, or directing the investment of, cash
collateral; or (6) indemnifying the lender of securities with
respect to various matters.
    \38\ Rule 3a5-3(a).
    \39\ 15 U.S.C. 78c(a)(54)(A). In part, this definition
encompasses corporations and partnerships with at least $25 million
in investments.
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    We are adopting the rule as proposed to permit banks to continue to
engage in securities lending as conduit lenders, under the conditions
they have followed since Rule 15a-11 became effective in 2003.\40\ One
commenter took the position--in the parallel context of banks' agency
activities--that banks should be able to engage in securities lending
services for institutional customers that have less than $25 million in
investments.\41\ We have, however, not expanded the group of persons
with or on behalf of which a bank may rely on the securities lending
exemption, inasmuch as we believe that the parameters of the exemption
reflect banks' existing securities lending businesses.\42\
---------------------------------------------------------------------------

    \40\ One commenter specifically emphasized the need for a
securities lending exemption to continue to apply to a bank's
conduit lending activity. See America's Community Bankers Letter.
    \41\ See Union Bank of California Letter.
    \42\ Broker-dealers are the most frequent borrowers of
securities. In this context, we note that borrowers of securities
who are not qualified investors do not directly borrow securities
from noncustodial banks, but instead generally borrow securities
through intermediaries that would be qualified investors. The rule,
however, permits banks to lend securities to employee benefit plans
with at least $25 million in investments, even though those plans do
not meet all of the requirements of the ``qualified investor''
definition, yet are sophisticated market participants. That latter
provision in part addresses industry concerns. See Letter from
Edward J. Rosen, Cleary, Gottlieb, Stein & Hamilton, to Annette
Nazareth, Director, Division of Market Regulation, Commission, dated
Oct. 9, 2002 (requesting that the exemption encompass banks'
securities lending activity involving any entity that owns and
invests on a discretionary basis at least $25 million in
investments).

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

    Some commenters suggested exempting banks involved in securities
repurchase and reverse repurchase transactions for non-exempt
securities from the ``dealer'' definition, based on the view that
repurchase and reverse repurchase activities constitute the functional
equivalent of financing or securities lending activities.\43\ We and
the Federal Reserve Board are soliciting comments about banks'
involvement in repurchase and reverse repurchase transactions, as
discussed more fully in the Joint Adopting Release. The information we
receive through this process should help inform any future actions the
Commission may take in this area.
---------------------------------------------------------------------------

    \43\ See ABA Letter (specifically addressing repurchase
transactions involving non-exempt corporate debt; stating that while
banks could provide similar financing services by converting
repurchases into secured loans, they would have weaker creditor
rights in bankruptcy; also stating that some investors may be
permitted by governing documents to enter into repurchases, but not
secured loans); Clearing House Ass'n Letter (``We note that
providing financing and liquidity to customers via repurchase and
reverse repurchase transactions is a traditional banking activity,
and permitting banks to engage in such transactions with respect to
non-exempt securities will benefit customers that do not have exempt
securities against which to borrow.''); Citigroup Letter (``Given
the economic equivalence between repurchase and reverse repurchase
transactions and the traditional bank activity of secured lending,
it is unclear why the exemption from dealer registration has been
limited to transactions involving only exempted securities.''); IIB
Letter (stating that repurchase transactions are the functional
equivalent of securities lending, and also questioning whether these
transactions actually constitute securities transactions for
purposes of the GLBA push-out provisions). One commenter also urged
the Commission to consider an exemption for banks engaged in
repurchase transactions in an agency capacity. See Clearing House
Ass'n Letter.
    Banks are permitted by statutory exception to engage in purchase
and sale activities with respect to exempt securities such as
government securities. Exchange Act Section 3(a)(5)(C)(i)(II).
---------------------------------------------------------------------------

D. Withdrawal of Exchange Act Rule 3b-9, Rule 15a-8, and Rule 15a-9

    Finally, we are withdrawing three outdated rules under the Exchange
Act. No commenters addressed the proposed withdrawal of these rules.
    We are withdrawing Exchange Act Rule 3b-9, in which the Commission
defined the term ``bank'' for purposes of the Exchange Act definitions
of ``broker'' and ``dealer,'' because the rule was invalidated by the
U.S. Court of Appeals for the District of Columbia Circuit.\44\ We also
are withdrawing Exchange Act Rule 15a-8, which provided a temporary
exemption--that has since expired--from Exchange Act Section 29
liability for banks' securities activities. In addition, we are
withdrawing Exchange Act Rule 15a-9, which provides an exemption from
the definitions of ``broker'' and ``dealer'' for savings associations
and savings banks. The Regulatory Relief Act made Rule 15a-9
unnecessary by causing savings associations and savings banks to be
treated as ``banks,'' thus eliminating the need to differentiate
between these entities for the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \44\ American Bankers Association v. SEC, 804 F.2d 739 (D.C.
Cir. 1986).
---------------------------------------------------------------------------

III. Administrative Law Matters

A. Paperwork Reduction Act Analysis

    These rules and rule amendments do not impose recordkeeping or
information collection requirements, or other collections of
information that require approval of the Office of Management and
Budget under 44 U.S.C. 3501, et seq. Accordingly, the Paperwork
Reduction Act does not apply.\45\ We received no comments on this
issue.
---------------------------------------------------------------------------

    \45\ We note that, as a practical matter, banks likely already
keep records that could be used to show they meet the terms of the
exemption. We also note that Section 203 of the GLBA specifically
requires the bank regulators to promulgate recordkeeping
requirements.
---------------------------------------------------------------------------

B. Consideration of Benefits and Costs

    We believe the rules and rule amendments that we are adopting are
consistent with Congress's intent in enacting the GLBA, and will
facilitate banks' compliance with the federal securities laws and
provide banks with greater legal certainty regarding their conduct with
respect to securities transactions. These changes are very limited in
scope. Specifically, we are: (1) Adopting Exchange Act Rule 3a5-2 to
permit banks to purchase from and sell to non-U.S. persons and
registered broker-dealers securities exempt under Regulation S; (2)
adopting a clarifying amendment to Exchange Act Rule 15a-6 to conform
the rule to the revised statutory definition of ``broker'' and
``dealer'' under the Exchange Act as well as to the rules adopted
thereunder, without changing the substance of the exemption; (3)
amending Exchange Act Rule 15a-11 to eliminate its reference to banks'
``broker'' activities and clarify its continued availability for banks'
``dealer'' activities, and redesignating it as Rule 3a5-3; and (4)
withdrawing three outdated rules under the Exchange Act--Rule 3b-9
because of its invalidation by the U.S. Court of Appeals for the
District of Columbia Circuit; Rule 15a-8(b) because that exemption
expired on March 31, 2005; and Rule 15a-9, which is no longer necessary
after passage of the Regulatory Relief Act. In light of comments
received, we are adopting Rule 3a5-2 with changes to make the rule more
flexible and to address technical matters. We are adopting the other
rule changes as proposed. We received no comments on the costs and
benefits of these rule changes.\46\
---------------------------------------------------------------------------

    \46\ As discussed in the release adopting Regulation R, two
commenters stated that the start-up and ongoing costs of complying
with Regulation R will be significant, that the Agencies
underestimated the amount of time associated with compliance, and
that the Agencies should modify Regulation R to reduce the cost
burden. See Ass'n of Colorado Trust Companies letter; Fiserv Trust
Company letter. Those comments, which were general in nature, did
not discuss the Exchange Act ``dealer'' amendments addressed here.
---------------------------------------------------------------------------

    Rule 3a5-2, by permitting banks to purchase from and sell to non-
U.S. persons and registered broker-dealers securities that are exempt
under Regulation S, provides the benefit of allowing U.S. banks to
engage in overseas Regulation S transactions on the same basis as
foreign banks, subject to terms that are reasonably crafted to maintain
appropriate standards of functional regulation and investor protection.
In adopting this rule, we have liberalized the proposal to permit banks
to rely on their ``reasonable belief'' that the securities initially
were sold in compliance with Regulation S when purchasing from a
broker-dealer, as well as when purchasing from a non-U.S. person. This
change is intended to prevent banks from losing the exemption due to
inadvertent errors in identifying the source of securities sold under
the exemption. We believe that permitting banks to engage in these
Regulation S transactions on a riskless principal basis will provide
banks with competitive benefits, without imposing significant
costs.\47\
---------------------------------------------------------------------------

    \47\ Under their current blanket exemption from broker
registration, banks have been able to engage in economically
equivalent transactions in an agency capacity. This exemption will
permit banks to engage in such activities in a riskless principal
capacity, without substantially changing either the costs of the
activities or the benefits provided. Further, Exchange Act Rule 3a5-
1 already exempts banks from acting as ``dealers'' for engaging in
riskless principal transactions, provided that they engage in fewer
than 500 such transactions per year in the aggregate under the
exemption and the de minimis broker exception in Exchange Act
Section 3(a)(4)(b)(vi).
---------------------------------------------------------------------------

    The revisions to Rules 15a-6 and 15a-11, and the redesignation of
Rule 15a-11 as Rule 3a5-3, are technical in nature to bring those rules
up-to-date in light

of the GLBA and the Regulatory Relief Act without changing their
substance in the context of banks' dealer activities. Moreover, the
withdrawal of the three outdated Rules 3b-9, 15a-8(b), and 15a-9 under
the Exchange Act is administrative in effect. These changes will impose
no costs and will provide administrative certainty and clarity.

C. Consideration of Burden on Competition, and on Promotion of
Efficiency, Competition, and Capital Formation

    Section 3(f) of the Exchange Act requires the Commission, whenever
it engages in rulemaking and is required to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider whether the action will promote efficiency, competition,
and capital formation.\48\ In addition, Section 23(a)(2) of the
Exchange Act requires the Commission, when making rules under the
Exchange Act, to consider the impact such rules would have on
competition.\49\ Exchange Act Section 23(a)(2) prohibits the Commission
from adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. We received no comment on these issues.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78w(a)(2).
    \49\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    We do not believe that the rules and rule amendments addressed here
will result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Exchange Act. The
rules and rule amendments will provide exemptions for banks that are
consistent with the exceptions added to the Exchange Act by Congress in
the GLBA. They will not impose any additional competitive burdens on
banks engaging in a securities business, other than those imposed by
Congress through functional regulation in the GLBA. The revisions to
Rules 15a-6 and 15a-11, and the redesignation of Rule 15a-11 as Rule
3a5-3, are technical in nature to bring those rules up-to-date in light
of the GLBA and the Regulatory Relief Act without changing their
substance in the context of banks' dealer activities. Further, the
withdrawal of Rules 3b-9, 15a-8(b), and 15a-9 is administrative in
nature, and will not have any impact on efficiency, competition or
capital formation.
    As we noted in the proposing release, the types of dealer
activities that are the subject of these rules and rule amendments
generally are not the types of activities in which small banks or small
broker-dealers directly participate, and accordingly there will likely
be little, if any, competitive costs to small banks.
    We do not believe that the rules and rule amendments impose any
effects on efficiency, competition, or capital formation that are not a
consequence of the GLBA statutory provisions. Rule 3a5-2 and Rule 3a5-3
in particular make it easier for banks to conduct sales of Regulation S
securities to persons located abroad and securities lending activities,
respectively, after the GLBA changes to the federal securities laws.
More generally, the rules and rule amendments also give banks enhanced
legal certainty for these securities activities. Nothing in the rules
and rule amendments will adversely affect capital formation. In
enacting the GLBA, Congress adopted functional regulation for bank
securities activities, with certain exceptions from Commission
oversight for specified activities. These rules and rule amendments are
consistent with Congress' intent and make it easier for banks to comply
with the requirements of the GLBA.

D. Regulatory Flexibility Certification

    Pursuant to Section 605(b) of the Regulatory Flexibility Act
(``RFA''),\50\ the Commission certifies that the rules and rule
amendments will not have a significant economic impact on a substantial
number of small entities.
---------------------------------------------------------------------------

    \50\ 5 U.S.C. 603.
---------------------------------------------------------------------------

    In the proposing release, the Commission requested written comments
on matters discussed in the initial regulatory flexibility analysis
(``IRFA''), particularly on (a) the number of small entities that would
be affected by the amendments; (b) the nature of any impact the
amendments would have on small entities and empirical data supporting
the extent of the impact; and (c) how to quantify the number of small
entities that would be affected by and/or how to quantify the impact of
the amendments. We received no comments and believe that the rules and
rule amendments will not have a significant economic impact on a
substantial number of small entities.

IV. Statutory Authority

    Pursuant to authority set forth in the Exchange Act and
particularly Sections 3(a)(4), 3(b), 15, 17, 23(a), and 36 thereof (15
U.S.C. 78c(a)(4), 78c(b), 78o, 78q, 78w(a), and 78mm, respectively) the
Commission is repealing current Rules 3b-9, 15a-8(b), and 15a-9
(Sec. Sec.  240.3b-9, 240.15a-8(b), and 240.15a-9, respectively).
Pursuant to the same authority, the Commission also is adopting
Exchange Act Rule 3a5-2 (Sec.  240.3a5-2) adopting the amendments to
Exchange Act Rule 15a-6 (Sec.  240.15a-6), and adopting amendments to
and redesignating Exchange Act Rule 15a-11 as Rule 3a5-3 (Sec.
240.15a-11 and Sec.  240.3a5-3, respectively).

V. Text of Final Rules and Rule Amendments

List of Subjects in 17 CFR Part 240

    Broker-dealers, Reporting and recordkeeping requirements,
Securities.

0
For the reasons set forth in the preamble, Title 17, Chapter II of the
Code of Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5,
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4,
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise
noted.

* * * * *

0
2. Sections 240.3a5-2 and 240.3a5-3 are added to read as follows:

Sec.  240.3a5-2  Exemption from the definition of ``dealer'' for banks
effecting transactions in securities issued pursuant to Regulation S.

    (a) A bank is exempt from the definition of the term ``dealer''
under section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)), to the extent
that, in a riskless principal transaction, the bank:
    (1) Purchases an eligible security from an issuer or a broker-
dealer and sells that security in compliance with the requirements of
17 CFR 230.903 to a purchaser who is not in the United States;
    (2) Purchases from a person who is not a U.S. person under 17 CFR
230.902(k) an eligible security after its initial sale with a
reasonable belief that the eligible security was initially sold outside
of the United States within the meaning of and in compliance with the
requirements of 17 CFR 230.903, and resells that security to a
purchaser who is not in the United States or to a registered broker or
dealer, provided that if the resale is made prior to the expiration of
any applicable distribution compliance period specified in 17 CFR
230.903(b)(2) or (b)(3), the resale is made in compliance with the
requirements of 17 CFR 230.904; or

    (3) Purchases from a registered broker or dealer an eligible
security after its initial sale with a reasonable belief that the
eligible security was initially sold outside of the United States
within the meaning of and in compliance with the requirements of 17 CFR
230.903, and resells that security to a purchaser who is not in the
United States, provided that if the resale is made prior to the
expiration of any applicable distribution compliance period specified
in 17 CFR 230.903(b)(2) or (b)(3), the resale is made in compliance
with the requirements of 17 CFR 230.904.
    (b) Definitions. For purposes of this section:
    (1) Distributor has the same meaning as in 17 CFR 230.902(d).
    (2) Eligible security means a security that:
    (i) Is not being sold from the inventory of the bank or an
affiliate of the bank; and
    (ii) Is not being underwritten by the bank or an affiliate of the
bank on a firm-commitment basis, unless the bank acquired the security
from an unaffiliated distributor that did not purchase the security
from the bank or an affiliate of the bank.
    (3) Purchaser means a person who purchases an eligible security and
who is not a U.S. person under 17 CFR 230.902(k).
    (4) Riskless principal transaction means a transaction in which,
after having received an order to buy from a customer, the bank
purchased the security from another person to offset a contemporaneous
sale to such customer or, after having received an order to sell from a
customer, the bank sold the security to another person to offset a
contemporaneous purchase from such customer.

Sec.  240.3a5-3  Exemption from the definition of ``dealer'' for banks
engaging in securities lending transactions.

    (a) A bank is exempt from the definition of the term ``dealer''
under section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)), to the extent
that, as a conduit lender, it engages in or effects securities lending
transactions, and any securities lending services in connection with
such transactions, with or on behalf of a person the bank reasonably
believes to be:
    (1) A qualified investor as defined in section 3(a)(54)(A) of the
Act (15 U.S.C. 78c(a)(54)(A)); or
    (2) Any employee benefit plan that owns and invests, on a
discretionary basis, not less than $25,000,000 in investments.
    (b) Securities lending transaction means a transaction in which the
owner of a security lends the security temporarily to another party
pursuant to a written securities lending agreement under which the
lender retains the economic interests of an owner of such securities,
and has the right to terminate the transaction and to recall the loaned
securities on terms agreed by the parties.
    (c) Securities lending services means:
    (1) Selecting and negotiating with a borrower and executing, or
directing the execution of the loan with the borrower;
    (2) Receiving, delivering, or directing the receipt or delivery of
loaned securities;
    (3) Receiving, delivering, or directing the receipt or delivery of
collateral;
    (4) Providing mark-to-market, corporate action, recordkeeping or
other services incidental to the administration of the securities
lending transaction;
    (5) Investing, or directing the investment of, cash collateral; or
    (6) Indemnifying the lender of securities with respect to various
matters.
    (d) For the purposes of this section, the term conduit lender means
a bank that borrows or loans securities, as principal, for its own
account, and contemporaneously loans or borrows the same securities, as
principal, for its own account. A bank that qualifies under this
definition as a conduit lender at the commencement of a transaction
will continue to qualify, notwithstanding whether:
    (1) The lending or borrowing transaction terminates and so long as
the transaction is replaced within one business day by another lending
or borrowing transaction involving the same securities; and
    (2) Any substitutions of collateral occur.

Sec.  240.3b-9  [Removed and reserved]

0
3. Section 240.3b-9 is removed and reserved.

0
4. Section 240.15a-6 is amended by revising paragraph (a)(4)(i) to read
as follows:

Sec.  240.15a-6  Exemption of certain foreign brokers or dealers.

    (a) * * *
    (4) * * *
    (i) A registered broker or dealer, whether the registered broker or
dealer is acting as principal for its own account or as agent for
others, or a bank acting pursuant to an exception or exemption from the
definition of ``broker'' or ``dealer'' in sections 3(a)(4)(B),
3(a)(4)(E), or 3(a)(5)(C) of the Act (15 U.S.C. 78c(a)(4)(B), 15 U.S.C.
78c(a)(4)(E), or 15 U.S.C. 78c(a)(5)(C)) or the rules thereunder;
* * * * *

Sec.  240.15a-8  [Removed and reserved]

0
5. Section 240.15a-8 is removed and reserved.

Sec.  240.15a-9  [Removed and reserved]

0
6. Section 240.15a-9 is removed and reserved.

Sec.  240.15a-11  [Removed and reserved]

0
7. Section 240.15a-11 is removed and reserved.
* * * * *

    By the Commission.

    Dated: September 24, 2007.
Nancy M. Morris,
Secretary.
 [FR Doc. E7-19093 Filed 10-2-07; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 83, Number 139 (Thursday, July 19, 2018)]
[Rules and Regulations]
[Page 34042]
[FR Doc No: 2018-15438]

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

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket Number USCG-2018-0578]
RIN 1625-AA00

Safety Zone; Alaska Marine Highway System Port Valdez Ferry
Terminal, Port Valdez; Valdez, AK; Correction

AGENCY: Coast Guard, DHS.

ACTION: Final rule; correction.

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

SUMMARY: The Coast Guard is correcting a final rule that appeared in
the Federal Register on July 12, 2018. The Coast Guard issued a final
rule republishing its 2014 rule that established a permanent safety
zone on the navigable waters of Port Valdez within a 200-yard radius of
the Alaska Marine Highway System (AMHS) Port Valdez Ferry Terminal.

DATES: Effective July 19, 2018.

ADDRESSES: To view documents mentioned in this preamble as being
available in the docket, go to http://www.regulations.gov, type USCG-
2018-0578 in the ``SEARCH'' box and click ``SEARCH.'' Click on Open
Docket Folder on the line associated with this rule.

FOR FURTHER INFORMATION CONTACT: If you have questions about this
rulemaking, call or email LTJG, Carlos M. Quintero, MSU Valdez, U.S.
Coast Guard; telephone<PHONE_NUMBER>, email [email protected].

SUPPLEMENTARY INFORMATION: In FR 2018-14863 appearing on page 32208 in
the Federal Register of Thursday, July 12, 2018, the following
correction is made:

Sec.  165.1712a  [Corrected]

0
1. On page 32209, in the second column, in part 165, in amendment 2,
the section heading ``Sec.  165.1712a Safety Zone; Alaska Marine
Highway System Port Valdez Ferry Terminal, Port Valdez, Valdez, AK.''
is corrected to read ``Sec.  165.1714 Safety Zone; Alaska Marine
Highway System Port Valdez Ferry Terminal, Port Valdez, Valdez, AK.''.

    Date: July 16, 2018.
Katia Kroutil,
Chief, Office of Regulations and Administrative Law.
[FR Doc. 2018-15438 Filed 7-18-18; 8:45 am]
 BILLING CODE 9110-04-P


[Federal Register: March 10, 2009 (Volume 74, Number 45)]
[Notices]
[Page 10330-10334]
[DOCID:fr10mr09-115]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59489; File No. SR-NYSE-2009-18]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1, Amending Rule 123C To Provide the Exchange With the Ability To
Temporarily Suspend Certain NYSE Requirements Relating to the Closing
of Securities at the Exchange

March 3, 2009.
    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 February 19, 2009, New York Stock Exchange LLC (``NYSE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. On March 2, 2009, the Exchange filed Amendment No. 1. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend Rule 123C to provide the Exchange
with the ability to temporarily suspend certain NYSE requirements
relating to the closing of securities at the Exchange.
    The text of the proposed rule change is available at http://
www.nyse.com, NYSE, and 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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

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

1. Purpose
    The Exchange is proposing to amend NYSE Rule 123C to provide the
Exchange with the ability to temporarily suspend certain rule
requirements at the close when extreme order imbalances may cause
significant dislocation to the closing price. The amendments proposed
for NYSE Rule 123C are similar in substance to recent amendments to
Rule 48 that added an extreme market volatility condition at the close.
With this rule filing, the Exchange proposes to delete those provisions
from Rule 48 and add them in modified form to Rule 123C. The Exchange
also proposes to amend Rule 48(c)(2) to conform the rule to the actual
practice of how the Exchange notifies the Commission staff when a Rule
48 condition has been declared.\4\
---------------------------------------------------------------------------

    \4\ NYSE Alternext US LLC has submitted a companion rule filing
to conform Rules 48 and 123C-NYSE Alternext Equities to the changes
proposed in this filing. See SR-NYSEALTR-2009-15, formally submitted
February 20, 2009.
---------------------------------------------------------------------------

Background

    On October 2, 2008, the Exchange filed for immediate effectiveness
to amend NYSE Rule 48 to provide the Exchange with the ability to
suspend certain rules at the close when extremely high market
volatility could negatively affect the ability to ensure a fair and
orderly close.\5\ The Exchange amended Rule 48 in order to respond
swiftly to market conditions at that time. Those amendments are
temporary and will end on March 27, 2009.\6\
---------------------------------------------------------------------------

    \5\ See SEC Release No. 58743 (Oct. 7, 2008), 73 FR 60742 (Oct.
14, 2008) (SR-NYSE-2008-102).
    \6\ See NYSE Rule 48.10.
---------------------------------------------------------------------------

    In that filing, the Exchange amended Rule 48 to include the close
of trading as a time when a qualified Exchange officer would be
permitted to declare an extreme market volatility condition. In such
event, the Exchange could temporarily suspend NYSE Rules 52 (Hours of
Operation) and 123C(1) and (2) (Market on the Close Policy and
Expiration Policy), provided that certain requirements are met.
    To enable a qualified Exchange officer to declare a Rule 48
condition at the close, the Exchange amended Rule 48(c) to include that
a qualified Exchange officer may consider the volatility during that
day's trading session and evidence of significant order imbalances
across the market at the close for purposes of determining whether to
declare an extreme market volatility condition at the close. Under
amended Rule 48, an extreme market volatility condition at the close is
a separate event and must be considered in light of the facts and
circumstances leading to the close. A Rule 48 condition at the open of
trading does not extend to the close; a qualified Exchange officer
needs to make an independent determination to invoke Rule 48 at the
close regardless of whether Rule 48 was invoked at the open. Such a
Rule 48 condition at the close must be declared by a qualified Exchange
officer before the scheduled close of trading.
    Once an extreme market volatility condition at the close has been
declared Floor wide, under NYSE Rule 48(b)(2)(A), the Exchange may
temporarily suspend Rule 52 on a security-by-security basis so that
interest can be solicited and entered into Exchange systems to offset
an imbalance in a security that may be present after the scheduled
close of trading. During an extreme market volatility condition,
interest may be solicited--including interest that may not have been
present prior to 4 p.m.--to offset any imbalance that may exist as of 4
p.m. (or earlier, in the case of an earlier scheduled close).\7\ If
offsetting interest is received in response to such solicitation,
rather than have the DMM represent such offsetting interest in the
close pursuant to Rule 902, such interest could be entered by the DMM
directly into Exchange systems on behalf of the member or member
organization representing such interest. Because Exchange systems do
not allow for the electronic entry of orders after 4 p.m., such
interest must be represented manually by a Floor broker in the closing
auction process and entered into Exchange systems by the DMM by no
later than 4:30 p.m.\8\ The entry of any orders after 4 p.m. pursuant
to the rule must be under the supervision and approval of a Floor
Governor.\9\
---------------------------------------------------------------------------

    \7\ See NYSE Rule 48(b)(2)(A)(i).
    \8\ See NYSE Rule 48(b)(2)(A)(ii).
    \9\ See NYSE Rule 48(b)(2)(A)(iv).
---------------------------------------------------------------------------

    To ensure a complete audit trail, any offsetting interest entered
after 4 p.m. during an extreme market volatility condition must also be
entered into the Front End Systemic Capture database (``FESC''), as
required by NYSE Rule

123. Because such interest may not have been known until after 4 p.m.,
under NYSE Rule 48(b)(2)(A)(iii), a Floor broker may represent such
offsetting interest after 4 p.m. without first entering the details of
the order into FESC, as required by NYSE Rule 123, so long as such
orders are entered into FESC on an ``as of'' basis immediately
following execution of the order.
    During an extreme market volatility condition at the close, the
Exchange also has the ability to temporarily suspend, on a security-by-
security basis, the NYSE Rule 123C(1) and (2) requirements that MOC and
LOC orders that are legitimate errors cannot be cancelled or reduced
after 3:50 p.m. Under NYSE Rule 48(b)(2)(B), only an erroneous MOC or
LOC that would cause significant closing price dislocation for a
particular security could be considered for cancellation. In other
words, an MOC or LOC order that is as a result of a legitimate error
that would have no impact on the closing price could not take advantage
of the proposed temporary suspension, even in an extreme market
volatility condition. If it is determined that such an MOC/LOC
legitimate error would significantly dislocate the close, such order
can be cancelled or reduced at any time up until that particular
security has closed. To further ensure that the ability to cancel an
MOC or LOC order after 3:50 is not abused, under NYSE Rule
48(b)(2)(B)(iii), such an order can be cancelled or reduced only with
the supervision and approval of both an Executive Floor Governor and a
qualified Exchange officer. In the event an Executive Floor Governor is
not available, a Floor Governor's approval must be obtained.

Proposed Amendments to Rule 123C

    The Exchange believes that the temporary amendments to Rule 48
provide the Exchange with invaluable tools to ensure a fair and orderly
close during extreme situations. However, the Exchange does not believe
that a Floor-wide condition needs to be present in order to warrant the
use of these tools. The Exchange therefore proposes to adopt the
amendments to Rule 48 on a permanent basis by deleting those provisions
from Rule 48 and moving them to NYSE Rule 123C. As part of the
amendments to Rule 123C, the Exchange further proposes modifying the
terms of the temporary suspensions by permitting the Exchange to invoke
such relief on a security-by-security basis without first declaring a
Floor-wide extreme market volatility condition and codifying certain
practices for the entry of orders after 4 p.m.

A. Relocating Temporary Suspensions to Rule 123C

    As noted above, the amendments to Rule 48 were adopted as an
emergency measure to respond to the extreme market volatility that the
markets experienced in September and October 2008. Under current Rule
48, the Exchange must first declare a Floor-wide extreme market
volatility condition before it can consider, on a security-by-security
basis, whether to temporarily suspend either Rule 52 or Rule 123C(1) or
(2). Because the temporary suspensions are already granted on a
security-by-security basis, the Exchange does not believe that going
forward it needs to first declare a Floor-wide event in order to
provide relief on an individual security basis. Indeed, the need for
declaring a Floor-wide extreme market volatility condition before 4
p.m. could hamper the ability of the Exchange to invoke the temporary
suspensions when they are needed most.
    For example, during normal market conditions that would not
otherwise warrant a Rule 48 condition at the close, Exchange systems
may receive a large market order in a security at 3:59:59 p.m. Such a
large order entered so near to the close could cause the type of
extreme imbalance that would merit a temporary suspension of Rule 52,
yet such relief would be unavailable because overall market conditions
did not require a Rule 48 condition. The Exchange therefore believes
that the ability to temporarily suspend rules at the close should be
part of Rule 123C, which governs the closing process at the Exchange,
and be available on a security-by-security basis, even after 4 p.m.\10\
The Exchange therefore proposes deleting the extreme market volatility
at the close condition and returning Rule 48 to a form substantively
identical to its form prior to the October 2, 2008 amendments to that
rule.
---------------------------------------------------------------------------

    \10\ See proposed Rule 123C(8)(c).
---------------------------------------------------------------------------

    In deleting the provisions of Rule 48 condition at the close and
moving those temporary suspensions to Rule 123C, the Exchange proposes
certain modifications to the application of the temporary suspensions.
These modifications are designed to provide clarity of how this tool
should be used. Namely, the ability to temporarily suspend NYSE rules
at the close should be used sparingly and only in extreme situations.
    The Exchange therefore proposes to qualify that temporary
suspensions under proposed Rule 123C(8) are intended to be used to
prevent a closing price dislocation that may result from an order
entered into Exchange systems, or represented to a DMM orally at or
near the close, that may result in an extreme order imbalance at or
near the close.\11\ In such case, as with Rule 48, the rules that may
be suspended are Rules 52 (Hours of Operation) and Rules 123C(1) and
(2) (Market on the Close Policy and Expiration Policy).
---------------------------------------------------------------------------

    \11\ See proposed Rule 123C(8)(a).
---------------------------------------------------------------------------

B. Temporary Suspension of Rule 52

    As with Rule 48, the Exchange proposes to provide for the ability
to temporarily suspend Rule 52 for the sole purpose of allowing the
entry of orders after 4 p.m. to offset an extreme order imbalance at
the close. As proposed, the process replaces the more cumbersome Rule
902 process, whereby the DMM represents interest on behalf of a Floor
broker in the close on a riskless basis and then enters a coupled order
in Crossing Session I to liquidate the DMM position taken on behalf of
the Floor broker.\12\
---------------------------------------------------------------------------

    \12\ See NYSE Rules 902(a)(ii)(B) and 903(d)(ii).
---------------------------------------------------------------------------

    With respect to the temporary suspension of Rule 52, the Exchange
proposes to adopt without change the language of Rule 48(b)(2)(A)(i)
and (iii) (proposed as NYSE Rule 123C(8)(a)(1)(i) and (v)). These
provisions concern, respectively, the purpose of soliciting orders
after 4 p.m. and the use of the FESC system on an ``as of'' basis
following execution of an order.
    The Exchange proposes to codify as NYSE Rule 123C(8)(a)(1)(ii) that
when soliciting orders to offset an imbalance in a security that may
exist after 4 p.m., such interest will be solicited from off-Floor
participants directly and via their Floor broker representatives.\13\
Such solicitation requests shall be transmitted electronically both
off-Floor and on-Floor and shall include, at a minimum, information
about the security symbol, the imbalance amount and side, the last sale
price, and an order acceptance cut-off time.
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    \13\ Interest is solicited from off-Floor participants via NYSE
Trader Update Messages, which is an NYSE product with over 2,000
subscribers that provides a wide range of up-to-the minute notices
of particular interest to the professional trading community. NYSE
Trader Updates provide messages both via e-mail and on an RSS
subscription basis.
---------------------------------------------------------------------------

    As proposed, the order acceptance cut-off time included in the
solicitation request would be a time period designated by the Exchange.
Because the goal is to close NYSE-listed securities as close to the
closing bell as possible, such time period will

generally be no longer than five minutes. As in Rule 48(b)(2)(A)(ii),
in no event shall the order acceptance cut-off time be later than 4:30
p.m. (or 30 minutes after the scheduled close in the case of an earlier
scheduled close). The Exchange includes this 4:30 p.m. time period as
an outside limit and it is not intended to provide a 30-minute window
within which to receive offsetting interest, or that the Exchange seeks
to close securities at 4:30 p.m. Rather, as proposed, if a solicitation
request is transmitted at 4:02 p.m., the Exchange generally would
include an order acceptance cut-off time of five minutes, requiring all
offsetting interest to be received by 4:07 p.m. so that the DMM can
close the security on or about 4:07 p.m. In the rare circumstance that
a solicitation request is not transmitted until 4:27 p.m., the order
acceptance cut-off time would be 4:30 p.m., and not a five-minute
period. The 4:30 p.m. end time is therefore included to ensure that
this proposed temporary suspension of Rule 52 would not be used to
extend the close indefinitely.
     The Exchange also proposes adding conditions on the type of order
that may be entered in response to such a solicitation request. As
proposed in Rule 123C(8)(a)(1)(iii), any offsetting interest received
in response to a solicitation request must be a limit order priced no
worse than the last sale and irrevocable. Therefore, if there is a buy
imbalance, the offsetting interest must be sell orders priced no lower
than the last sale price, or if there is a sell imbalance, the
offsetting interest must be buy orders priced no higher than the last
sale price. The Exchange believes that these conditions are necessary
to ensure that the offsetting interest received is simply that:
Interest that is intended to offset the existing imbalance to ensure
that the closing price is not too far dislocated from the last sale.
The Exchange does not believe that this process should be used to re-
open the auction market or to permit the imbalance to swing in the
opposite direction.
    The Exchange also proposes to add to the rule certain parameters
regarding the timing of the closing of a security when such offsetting
interest is solicited. As proposed in Rule 123C(8)(a)(1)(iv), in such
circumstances, the DMM should close the security the earlier of the
order acceptance cut-off time or if the imbalance is paired off at or
reasonably contiguous to the last sale price. The Exchange believes
that this provision will enable the DMM to arrange for a fair and
orderly close that is as close to 4 p.m. as possible. For example, if
the Exchange receives a limited response to the solicitation request,
the DMM would have up to the order acceptance cut-off time for orders
to be entered. If, however, the DMM receives sufficient interest before
the order acceptance cut-off time to close the security either at the
last sale price, or at a reasonably contiguous price to the last sale
price, the DMM could close the security earlier. As proposed, a
reasonably contiguous price refers to a price point that is within
cents of the last sale price, and would be a price point that during a
regular closing auction would not be considered a dislocating closing
price as compared to the last sale price. As discussed in more detail
below in subsection D, such closings would be subject to approval of
either an Executive Floor Governor or qualified NYSE Euronext staff
employee and supervision of a qualified Exchange Officer, as defined in
Rule 48(d).
    The Exchange believes that the parameters on when to close the
security are necessary to ensure that securities trading at the
Exchange close as near to 4 p.m. as possible, notwithstanding the fact
that the Exchange seeks additional offsetting interest after 4 p.m. In
either case, the Exchange proposes that any offsetting interest entered
after 4 p.m., but before the DMM closes the security, would trade on
parity.\14\ As discussed in greater detail in the Exchange's proposal
to adopt the Next Generation Market Model,\15\ under the Exchange's
parity model, Exchange systems will divide the size of the executing
order by the number of participants. The DMM and each Floor broker are
each considered a single participant. A Floor broker that represents
multiple orders gets parity for the aggregate of orders. With parity,
the total number of shares to be allocated to each participant will be
distributed equally among the participants where possible and
executions will be allocated in round-lots. In the event the number of
shares to be executed at the price point is insufficient to allocate
round lots to all the participants eligible to receive an execution at
the price point, the Exchange systems will create an allocation wheel
of the eligible participants at the price point and the available
shares will be distributed to the participants in turn. If the DMM
closes the security before the order acceptance cut-off time, any
interest received before closing the security would trade on parity
with other interest, including the DMM's interest at the close.
---------------------------------------------------------------------------

    \14\ The Exchange notes that all MOC and marketable LOC orders
entered before 4 p.m. that otherwise would have participated in the
close will continue to participate in the close. Because the MOC/LOC
imbalance dictates the closing price (see Rule 123C(3)), any
additional interest solicited after 4 p.m. under proposed Rule
123C(8)(a)(1) is simply to ensure that the existing imbalance of MOC
and marketable LOC orders can be filled at a price that does not
cause a significant price dislocation from the last sale price.
    \15\ See SEC Release No. 58845 (Oct. 24, 2008), 73 FR 64379
(Oct. 29, 2008) (SR-NYSE-2008-46).
---------------------------------------------------------------------------

    The Exchange also proposes to maintain, as in Rule 48(b)(2)(A)(ii),
that any offsetting interest must be represented by a Floor broker. As
noted in the Exchange's filing to amend Rule 48, Exchange systems do
not have the capability to receive electronic interest after 4 p.m. As
with any technology, it would be possible to reconfigure Exchange
systems to accept orders electronically after 4 p.m. However, such
technology changes would be costly and would divert resources away from
other necessary technology changes that are already scheduled.
Therefore, even if the Exchange could make such technology changes,
they likely could not be implemented until mid to late 2009, and at
great cost.
    The benefit, however, to implementing such a technology change
would be limited. The temporary suspension of Rule 52 to attract
offsetting interest is intended to be used for extreme, and likely rare
circumstances where there exists such a large imbalance at the close
that the DMM could not close the security without significantly
dislocating the price of the security. For example, since October 2,
2008, when the Exchange adopted the amendments to Rule 48, the Exchange
has invoked Rule 48 at the close eight times. However, because the DMM
does not know what the actual imbalance will be until 4 p.m., the
Exchange has solicited offsetting interest for only one security on one
such trading day pursuant to these procedures. The Exchange notes that
this has been a period of historic market volatility; the Exchange
therefore expects that in times of calmer markets, the relief requested
would be used in even rarer circumstances.
    The Exchange further notes that requiring Floor brokers to
represent such offsetting interest does not unfairly discriminate
against any market participants. The requirement to use a Floor broker,
who would be acting only as an agent, does not deny anyone access to
trading at the Exchange. It simply requires an agent as intermediary.
Indeed, during the inherently manual process of closing a security,
using a Floor broker to represent offsetting interest will provide
customers with the most up-to-date

information about the closing process in such a scenario.
    Moreover, the imbalance that would warrant such a temporary
suspension would likely be of such a size that the type of customers
that would be able to meaningfully and timely respond to such a
solicitation request are sophisticated market participants who likely
already have, or could easily arrange for, a relationship with a Floor
broker to represent orders on their behalf. Such sophisticated
participants have the wherewithal to enter into arrangements with Floor
brokers that are financially competitive with entering orders directly
into Exchange systems, e.g., via reduced commissions or pass through of
Floor broker rebates.
    The Exchange therefore believes that the time and cost that would
be necessary to reconfigure Exchange systems to electronically accept
orders after 4 p.m. for this limited purpose far outweighs any benefit
that may accrue from such technology changes. In any event, the
Exchange believes that more information is necessary before the
Exchange undertakes to implement any such technology change. The
Exchange therefore proposes that six months after the approval of this
proposed rule change, the Exchange will provide the Commission with
information regarding how many times a Rule 52 temporary suspension
under proposed Rule 123C(8)(a)(1) has been invoked. At that time, both
the Exchange and the Commission can make a more informed decision of
whether the benefit in accepting orders electronically after 4 p.m.
outweighs the costs associated with making such changes. To provide
both the Exchange and the Commission with time to evaluate the proposed
rule, the Exchange proposes that Rule 123C(8)(a)(1) be approved on a
Pilot basis to end six months after the approval date of this filing.

C. Temporary Suspension of Rule 123C(1) and (2)

    The Exchange proposes to adopt permanently the provisions of Rule
48(b)(2)(B) as proposed Rule 123C(8)(a)(2), without any change.
Therefore, as with Rule 48, the Exchange would have the ability to
temporarily suspend, on a security-by-security basis, the NYSE Rule
123C(1) and (2) requirements that MOC and LOC orders that are
legitimate errors cannot be cancelled or reduced after 3:50 p.m. The
same conditions that were adopted as part of Rule 48 would apply here
as well, i.e., that only an erroneous MOC or LOC that would cause
significant closing price dislocation for a particular security could
be considered for cancellation and that if it is determined that such
an MOC/LOC legitimate error would dislocate the close, such order can
be cancelled or reduced at any time up until that particular security
has closed. As discussed below, the Exchange proposes to move Rule
48(b)(2)(B)(iii) to proposed Rule 123C(8)(b).

D. Parameters for Obtaining Temporary Rule Suspensions

    The Exchange further proposes codifying the practices concerning
how a temporary suspension under proposed Rule 123C(8)(a) would be
invoked and who should be involved. As proposed in Rule 123C(8)(b),
only the DMM assigned to a particular security may request a temporary
suspension under proposed section 8(a) of the Rule. The Exchange
believes that because the DMM is responsible for facilitating the close
of trading of securities registered to that DMM, including supplying
liquidity if needed, the DMM is in the unique position to know whether
he or she would need additional interest to ensure a fair or orderly
close.
    To ensure that such temporary suspensions are not invoked
indiscriminately, the Exchange further proposes that any such
determination, as well as any entry or cancellation of orders or
closing of a security under proposed Rule 123C(8)(a), must be approved
by either an Executive Floor Governor or a qualified NYSE Euronext
employee, as defined in NYSE Rule 46(b)(v). The Exchange also proposes
requiring that any temporary suspensions under proposed NYSE Rule
123C(8)(a) should be under the supervision of a qualified Exchange
Officer, as defined in NYSE Rule 48(d).
    These requirements are identical to the requirement under Rule
48(b)(2)(B)(iii), but more stringent than the current requirement under
Rule 48(b)(2)(A)(iv), which requires only the supervision of a Floor
Governor. The Exchange believes that these heightened approval and
supervision requirements will ensure that, as contemplated by the
proposed rule, only extreme situations such as when a late-arriving
order would cause significant price dislocation at the close would
result in a temporary suspension of Exchange rules at the close. To
assist the DMM and officials, proposed Rule 123C(8)(b) identifies a
number of factors that may be considered when making such a
determination. Such factors include, but are not limited to, when the
order(s) that impacted the imbalance were entered into Exchange systems
or orally represented to the DMM, the impact of such order(s) on the
closing price of the security, the volatility of the security during
the trading session, and the ability of the DMM to commit capital to
dampen the price dislocation.

Proposed Amendment to Rule 48(c)(2)

    In addition to the above-described amendments, the Exchange also
proposes to amend Rule 48(c)(2), which concerns the method by which the
Exchange notifies Commission staff when it declares a Rule 48 extreme
market volatility condition.
    The current rule provides that the qualified Exchange officer will
make a reasonable effort to consult with Commission staff before
declaring an extreme market volatility condition and granting a
suspension of the NYSE rules or procedures. In the event that the
qualified Exchange officer cannot reach the Commission staff, the
qualified Exchange officer will, as promptly as practicable in the
circumstances, inform the Commission staff of such declaration.
    Given the limited relief that can be granted during a Rule 48
condition--certain Floor Official approvals are suspended and mandatory
indications can be suspended--the Exchange believes that the
requirement to consult with Commission staff before declaring an
extreme market volatility condition imposes an undue burden on
regulatory resources. Accordingly, the Exchange proposes to amend Rule
48(c)(2) to delete the requirement that the qualified Exchange officer
undertake reasonable efforts to consult with Commission staff before
declaring an extreme market volatility condition. As required by the
rule, the Exchange will continue to inform the Commission staff, as
promptly as practicable under the circumstances, when it has declared a
Rule 48 extreme market volatility condition.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \16\ that an Exchange have rules that
are designed 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 and, in general, to protect
investors and the public interest. As noted above, the proposed rule is
intended to be used in extreme circumstances when a large order
imbalance or order entered in error could cause a closing price to be
far dislocated from the last sale price. The rule is therefore intended
to protect

investors and the public interest to ensure that the closing price at
the Exchange is not significantly dislocated from the last sale price
by virtue of an extreme order imbalance at or near the close.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which NYSE consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

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<EMAIL_ADDRESS>Please include
File Number SR-NYSE-2009-18 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2009-18. 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, 100 F Street, NE., Washington, DC
20549, 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 offices 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-2009-18 and should be submitted on
or before March 31, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-4964 Filed 3-9-09; 8:45 am]

BILLING CODE 8011-01-P