PROHIBITION AGAINST PRE-ARRANGED TRADING
 

Information Memo  06-84  is available for viewing or printing with Adobe Acrobat
 
Number 06-84 12/21/2006
 
ATTENTION:  
 
TO:   ALL MEMBERS AND MEMBER ORGANIZATIONS
 
SUBJECT:   PROHIBITION AGAINST PRE-ARRANGED TRADING
 



I. Purpose of the Memo

The purpose of this Information Memo is to remind members and member organizations that NYSE Rule 78 prohibits pre-arranged trades, and to advise that members and member organizations that previous Information Memos regarding “tax-switch transactions” (e.g., Information Memo 05-102) have been rescinded by NYSE Regulation and should not be relied upon for interpretive guidance.

II. Prohibition on Pre-Arranged Trades

Members and member organizations are reminded that NYSE Rule 78 prohibits members from executing pre-arranged trades on the Floor. Pre-arranged trades are trades in which an offer to sell is coupled with an offer to buy back at the same or an advanced price (or the reverse). Such trades are prohibited because they are not actually exposed to the risk of the market; to be at the risk of the market, at the time of the first transaction there can be no guarantee or assurance of the price of the second. Note that the period of time between the two transactions would not of itself determine whether the trading had been effected at the risk of the market.

The prohibition in NYSE Rule 78 also applies to “switching transactions” whose purpose is to move positions between accounts having the same beneficial ownership, unless the buy and sell order are accompanied by an instruction not to cross those orders with each other. Failure to append the do-not-cross instruction could result in the orders being crossed against one another, which would be a prohibited “wash” transaction. Similarly, member organizations may not contemporaneously send a buy and a sell order in the same security for the same beneficial owner through the Opening Automated Report System (OARS) to effect a “switching transaction” on the opening, or through SuperDOT (DOT) to effect a “switching transaction” at the close.





III. Previous Guidance Regarding Tax Switches is Withdrawn

Members and member organizations are advised that the Exchange is rescinding previous guidance regarding tax switches, including guidance set forth in Information Memo 05-102.

IV. Staff contacts

Questions concerning this memorandum may be addressed to the following people:
      Clare F. Saperstein, Principal Rule Counsel, Market Surveillance, at (212) 656-2355,
Jerome Reda, Director, Market Surveillance, at (212) 656-6804, or
Susan Lui-Facendola, Director, Market Surveillance, at (212) 656-4347

Questions may also be directed to OFSU via the White Phone or in person at their booth in the EBR. Questions that are not time sensitive may also be submitted to Ask Market Surveillance. (For information about the Ask Market Surveillance system, refer to Member Education Bulletin 2006-3, which was issued on January 30, 2006, if you or your firm is not already a subscriber.)



_______________________________________
Robert A. Marchman
Executive Vice President
Market Surveillance