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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transactions” (e.g., Information Memo 05-102) have been rescinded by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Withdrawn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.)
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Robert
A. Marchman
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Executive
Vice President
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Market
Surveillance
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