NYSE Request for No-Action Relief Regarding Average Price and Multiple Capacity Confirmations

March 3, 2005

Mr. Michael Rufino Vice President, Sales Practice Review Unit New York Stock Exchange, Inc. 20 Broad Street New York, NY 10005

Re: Rule 10b-10 / Average Price, Multiple Capacity Confirmations

Dear Mr. Rufino: In your letter of March 3, 2005, on behalf of the New York Stock Exchange, Inc. ("NYSE"), you request assurance that the staff of the Division of Market Regulation ("Staff") will not recommend enforcement action to the Commission under Rule 10b-10 under the Securities Exchange Act of 1934 ("Exchange Act") if NYSE members or member organizations effect transactions in NYSE-listed equity securities and give or send a single confirmation that (1) reflects the average price and/or multiple capacities of multiple executions undertaken to fill a single customer order, and (2) provides other information related to such transactions as described more fully below. In considering your request, we have also considered whether any relief extended to NYSE members and member organizations should also be extended to other broker-dealers that effect transactions in reported securities. 1

You represent that the requirements of best execution, together with the advent of decimal trading and the May 2000 rescission of NYSE Rule 390 (which generally had prohibited NYSE members and their affiliates from effecting certain transactions in NYSE-listed securities away from the NYSE), raise a strong possibility that a single customer order may be executed at multiple prices, in multiple capacities, and/or on multiple markets. You also note that NYSE member organizations have stated that multiple confirmations may result in higher costs and that some customers could find multiple confirmations confusing.

Based on the facts presented and the representations you have made, the Staff will not recommend enforcement action to the Commission under Exchange Act Rule 10b-10 if, within the circumstances defined below, any broker-dealer gives or sends average price and/or multiple capacity confirmations to confirm single customer orders for reported securities, 2 effected in multiple executions, in order to achieve best execution for the customer.

This staff position is limited to those circumstances in which the broker-dealer complies with the following conditions:

The broker-dealer will average the execution prices of each individual execution that filled the market order or crossing limit order and report the average price per share on the confirmation as the unit price, with a notation that the confirmed price is an average price. The confirmation will note that details regarding the actual prices are available to the customer upon request.

The confirmation will identify each of the capacities in which the broker-dealer actually acted in executing the order, e.g., "principal," "agent," "agent and agent for another," "principal and agent," "or "principal, agent, and agent for another," as applicable. 3 The confirmation will note that details regarding the capacity (including, when acting as agent for another, the name or names of the person or persons from whom the security was purchased, or to whom it was sold) with regard to each execution are available to the customer upon request.

The commission, markup, markdown, service fee, and any other remuneration to the broker-dealer associated with each individual execution will not be detailed separately, but will be stated in a single amount for the transaction as a whole. The confirmation will note that further details regarding the remuneration are available to the customer upon request.

The confirmation will include all other information required by Rule 10b-10.

Each individual execution will be reported separately under the applicable trade reporting rules.

Each broker-dealer that issues average price and/or multiple capacity confirmations will create and maintain records required under Exchange Act Rules 17a-3 and 17a-4, in a manner that reflects the processing and confirmation of orders as described above and the details of each underlying execution. 4

This position concerns enforcement action only and is limited strictly to the facts and conditions set forth above. Any different facts or circumstances may require a different response.

We express no view with respect to other questions the proposed activities of any broker-dealer relying on this relief may raise, including the applicability of any other federal or state laws or the applicability of self-regulatory organization rules concerning customer account statements or confirmations.

Sincerely,

Brian A. Bussey Assistant Chief Counsel

Endnotes

1 As you note in your letter, the Staff has previously granted no-action relief in similar circumstances to the National Association of Securities Dealers, Inc. ("NASD"), the Nasdaq Stock Market, Inc. ( "Nasdaq"), and NASD members. Letter re: The Nasdaq Stock Market, Inc. (May 6, 1997).

2 As defined in Exchange Act Rule 11Aa3-1(a)(4).

3 Item 2 in Letter re: The Nasdaq Stock Market, Inc. (May 6, 1997) requires disclosure that a broker-dealer acted as "'principal,' 'agent,' or both 'principal and agent,' as applicable." Although the 1997 letter included an example in which shares were executed in part as principal and in part as "agent crossing the market order against [other] customer limit orders," item 2 in the letter did not directly address the confirmation of customer orders that are executed in whole or in part in a "dual agent" capacity. Consistent with the terms of item 2 above, the Staff would not recommend enforcement action against NASD members that give or send multiple capacity confirmations to confirm single customer orders executed as "agent and agent for another" or "principal, agent, and agent for another" if the NASD member complies with the terms of item 2 above and otherwise complies with the requirements for multiple price and/or multiple capacity confirmations as described in the 1997 letter. To the extent that the 1997 letter could be read not to require disclosure of dual agency in the manner described above, this staff position supersedes the 1997 letter with respect to the confirmation of customer orders that are executed in whole or in part in a "dual agent" capacity.

4 By maintaining records that reflect the details of each underlying execution, the broker-dealer will also be able to provide, at the request of a self-regulatory organization or of Commission examiners or at the request of a customer receiving a confirmation as described above, information regarding each separate underlying execution, including the actual price, capacity in which the broker-dealer acted, market, and, when acting as agent for another, the name or names of the person or persons from whom the security was purchased, or to whom it was sold.

Incoming Letter:

The Incoming Letter is in Acrobat form.

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U d- UU- _U----
. NYSE
March 3, 2005
Ms. Catherine McGuire, Esq.
Associate Director and Chief Counsel
Division of Market Regulation
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Rule 10b-IO- Request forNo-Action Relief
Dear Ms. McGuire:
Weare writing to request assurance that the staff of the Division of Market Regulation ("Staff') will not recommend enforcement action under Ru1e IOb-I0 under the Securities Exchange Act of 1934 ("Exchange Act") to the Securities and Exchange Commission ("Commission") if members or member organizations of the New York Stock Exchange, Inc. ("NYSE") effect transactions in NYSE-listed equity securities and give or send a single confirmation that (1) reflects the average price and/or multiple capacities of multiple executions undertaken to fill a single customer order, and (2) provides other information related to such transactions as described more fully below. The requirements of best execution, together with the advent of decimal trading and the May 2000 rescission ofNYSE Rule 390 (which generally had prohibited NYSE members and their affiliates from effecting certain transactions in NYSE-listed securities away from the NYSE), raise a strong possibility that a single customer order received by an NYSE member organization may be executed at multiple prices, in mu1tiplecapacities, and/or on mu1tiplemarkets. The following are examples of each scenario:

• • • _dUU u--n-- -- ------
      Example 1: A 1000 share limit order to buy XYZ at $50 is executed on the floor of the NYSE as follows: 500 shares at $50,300 shares at $49.99, and 200 shares at $49.98. Example 2: A 1000 share limit order to buy XYZ at $50 is executed on multiple venues as follows: 500 shares at $50 on the NYSE and 500 shares at an ECN for $50. Example 3: A 1000 share limit order to buy XYZ at $50 is partially internalized and partially executed on the floor of the NYSE as follows: 500 shares internalized at the broker-dealer at $50 and 500 shares executed on the floor of the NYSE at $50. In such situations, member organizations have stated that they are concerned that a series of confirmationsfor each piece of the trade may result in higher costs. Specifically, in certain situations when a fmn uses a service bureau, multiple confirmations for each part of the execution of the order could result in a separate fee for each confirmation. In addition, some customers could find multiple confirmations confusing. Accordingly, members and member organizations may prefer to give or send a single confirmation at a price that is an average price derived from each individual execution and/or reflects multiple capacities. This request for no-action relief is limited to those situationsin which the member or member organization complies with the following conditions:

1. The member or member organizationwill average the execution
   prices of each individual execution that filled the market order or crossing limit order and report the average price per share on the confirmation as the unit price, with a notation that the confirmed price is an averaged price. The confmnation will note that details regarding the actual prices are available to the customer upon request.
2. The confIrmationwill identify the capacity in which the member or
   member organization acted in executing the order, whether as "principal," "agent," "agent and agent for another," "principal and agent," or "principal, agent, and agent for another," as applicable. The confirmation will note that detailsregarding the capacity (including, when acting as agent for another, the name or names of the person or persons from whom the security was purchased, or to 2

whom it was sold) with regard to each execution are available to the customer upon request.
3. The commission, markup, markdown, service fee, and any other
remuneration associated with each individual execution will not be detailed separately, but rather will be stated in a single amount. The conftrmation will note that detailsregarding each separate element comprising the total amount are available to the customer upon request.
4. The confIrmationwill include all other information required by Rule
IOb-IO.
Each individual execution will be reported separately under NYSE trade reporting rules. In addition, each member or member organization issuing such average price and/or multiple capacity confIrmationswill create and maintain records required under Exchange Act Rules 17a-3 and 17a-4, in a manner that reflects the processing and confIrmation of orders as described above and the details of each underlying execution.1 We believe that, with the requests for relief from the specifIc requirements of Rule IOb-I0 contained herein, the confIrmation as described above will continue to provide customers with the necessary information regarding the transactions that fIlled their orders, while also providing efficiencies in reporting that may assist in reducing a customer's execution charges. The proposed approach to confIrmation reporting under Rule lOb￾10 is similar to an approach for which the Staff has previously granted no￾action relief. 2 Accordingly, we request assurance that the Staff will not recommend to the Commission any enforcement action under Rule IOb-l0 ifNYSE By maintaining records that reflect the details of each underlying execution, the member or member organization will also be able to provide, at the request ofNYSE and Commission examiners or at the request of a customer receiving a confirmation as described above, information regarding each separate underlying execution, including the actual price, capacity in which the member or member organization acted, market, and, when acting as agent for another, the name or names of the person or persons trom whom the security was purchased, or to whom it was sold. 2 See Letter re: The Nasdaq Stock Market, Inc. (May 6, 1997). 3

members or member organizations give or send a single confirmation reflecting the average price or multiple capacities of multiple transactions undertaken to fulfill a single customer order, as described above. If you have any questions regarding this letter, please do not hesitate to contact me at (212) 656-5685. Sincerely, ~~ Michael Rufino cc: Brian A. Bussey Assistant Chief Counsel Tara Prigge Special Counsel 4