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Communications from the Institute do not constitute, and should not be considered a substitute for, legal advice.
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January 20, 2006
TO: EQUITY MARKETS ADVISORY COMMITTEE No. 3-06
SEC RULES COMMITTEE No. 4-06
RE: NYSE PROPOSED RULE CHANGE RELATING TO PROPOSED
NYSE/ARCHIPELAGO MERGER
The Securities and Exchange Commission has issued a notice of the filing of a proposed
rule change by the New York Stock Exchange relating to the NYSE’s proposed merger with
Archipelago.1 The most significant aspects of the proposed rule change are summarized below.
Comments on the proposed rule change must be received by the SEC no later than
February 2, 2006. If you have any comments you would like the Institute to consider
including in its comment letter on the proposal, please contact Ari Burstein by phone at 202-
371-5408 or by e-mail at aburstein@ici.org no later than January 26.
Proposed Corporate Structure
The Release states that the merger will (1) convert the NYSE from a not-for-profit entity
into a for-profit entity (other than with respect to the regulatory responsibilities currently
conducted by the NYSE), (2) demutualize the NYSE by separating equity ownership of the
NYSE from trading privileges on the Exchange, and (3) combine the businesses of the NYSE and
Archipelago. In particular, as a result of the proposed merger, the businesses of the NYSE and
Archipelago will be held under a single, for-profit, publicly-traded holding company named
“NYSE Group.” The NYSE’s current businesses and assets will be held in three separate entities
affiliated with the NYSE Group – New York Stock Exchange LLC, NYSE Market, and NYSE
Regulation. As proposed, New York Stock Exchange LLC will succeed to the registration of the
NYSE as a national securities exchange and will be the parent company of NYSE Market and
NYSE Regulation. The market functions of New York Stock Exchange LLC will be delegated to
NYSE Market and the regulatory functions of New York Stock Exchange LLC will be delegated
to NYSE Regulation.
Following the merger, Archipelago will become a wholly owned subsidiary of NYSE
Group. PCX Holdings will remain a wholly owned subsidiary of Archipelago and the Pacific
1 Securities Exchange Act Release No. 53074 (January 6, 2006), 71 FR 2080 (January 12, 2006) (“Release”). The NYSE’s
proposal can be found on the SEC’s website at http://www.sec.gov/rules/sro/nyse/34-53073.pdf.
2
Exchange will remain a wholly owned subsidiary of PCX Holdings and will maintain its status
as a registered national securities exchange and self-regulatory organization. The Release states
that the operations of the Pacific Exchange will remain unchanged except with regard to its
regulatory responsibilities, many of which will be performed by NYSE Regulation after the
merger.
New York Stock Exchange Membership
According to the Release, after the merger, there will continue to be “members” and
“member organizations” of the New York Stock Exchange. Such members or member
organizations will be comprised of (1) organizations that obtain “trading licenses” in
accordance with the rules of New York Stock Exchange LLC and (2) broker-dealers that agree to
submit to the jurisdiction and rules of New York Stock Exchange LLC, without obtaining a
trading license (and therefore without having rights to directly access the trading facilities of
NYSE Market).
Organizations holding trading licenses will be subject to rules applicable to member
organizations, which will be substantively the same as current rules applicable to NYSE
member organizations. Each trading license will entitle its holder to have physical and
electronic access to the trading facilities of the NYSE Market and in each case will include the
right to designate a natural person, subject to pre-approval by NYSE Regulation, who may have
physical access to trade on the NYSE floor and use the facilities of NYSE Market.2 The Release
states that after the merger, NYSE Market also may decide to issue separate licenses for
electronic-only access or access limited to particular products.
Other provisions of the proposal address the makeup, nomination process and election
procedures for the board of directors of the NYSE Group and affiliated entities, voting and
ownership limitations of NYSE Group stock, specific regulatory activities of NYSE Regulation,
and other rule changes necessary to effect the merger.
Ari Burstein
Associate Counsel
2 The quantity and price of trading licenses issued will be determined annually by a “Dutch auction.”