Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Eliminate the Requirement That a Floor Official Approve Certain Transactions on the Exchange's Automated Bond System, 22736-22738 [E5-2083]
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22736
Federal Register / Vol. 70, No. 83 / Monday, May 2, 2005 / Notices
15A(b)(6) of the Act,16 which requires,
among other things, that the rules of an
association be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest,
and section 15A(b)(5) of the Act,17
which requires, among other things, that
rules of an association provide for the
equitable allocation of reasonable dues,
fees, and other charges among members,
issuers, and other persons using any
facility or system which the association
operates or controls. Consolidating the
two TRACE data fees into one fee and
reducing the TRACE data fee for
qualifying Tax-Exempt Organizations
appears reasonable and should not
adversely affect the use and distribution
of TRACE data. In addition, the
Commission believes that clarifying
who is a ‘‘Non-Professional’’ and
therefore is not subject to TRACE fees is
reasonable and consistent with the goal
of wide dissemination of TRACE
transaction data.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,18 that the
proposed rule change (SR-NASD–2005–
026) be, and it hereby is, approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.19
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–2079 Filed 4–29–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51613; File No. SR–NYSE–
2004–42]
Self-Regulatory Organizations; New
York Stock Exchange, Inc.; Notice of
Filing of Proposed Rule Change and
Amendment No. 1 Thereto To Eliminate
the Requirement That a Floor Official
Approve Certain Transactions on the
Exchange’s Automated Bond System
3 In
April 26, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
10, 2004, the New York Stock Exchange,
Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with
16 15
U.S.C. 78o–3(b)(6).
U.S.C. 78o–3(b)(5).
18 15 U.S.C. 78s(b)(2).
19 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
17 15
VerDate jul<14>2003
19:05 Apr 29, 2005
strict price-and-time priority basis. ABS
displays current market data and
provides subscribers with immediate
execution reports and locked-in trade
comparisons. ABS also provides realtime last sale and quotation information
to subscribers and market data vendors.
At year-end 2004, ABS had a
subscriber base of 37 member firms with
an installed base of 115 screens. All
bonds listed on the NYSE trade through
ABS. Exchange bond volume for the
I. Self-Regulatory Organization’s
year 2004 was approximately $1.3
Statement of the Terms of Substance of
billion par value. About 94% of NYSE
the Proposed Rule Change
bond volume was in straight, or nonThe NYSE proposes to amend
convertible, debt and the remaining 6%
Exchange Rule 86(g) relating to the
of NYSE bond volume was in
Exchange’s Automated Bond System
convertible bonds.
(‘‘ABS’’). The text of the proposed rule
Exchange Rule 86 governs trading in
change, as amended, is available on the
ABS. Existing NYSE Rule 86(g) requires
NYSE’s Web site (https://www.nyse.com), that all ABS transactions in nonat the NYSE’s principal office, and at
convertible bonds that are made two
the Commission’s Public Reference
points or more away from the last sale,
Room.
or more than 30 days after the last sale,
may be made only with the approval of
II. Self-Regulatory Organization’s
a Floor Official. As a practical matter,
Statement of the Purpose of, and
the Floor Official may require that the
Statutory Basis for, the Proposed Rule
bonds be bid up or offered down before
Change
approving such transactions.4
In its filing with the Commission, the
The Exchange proposes to eliminate
NYSE included statements concerning
the current NYSE Rule 86(g). The
the purpose of, and basis for, the
requirement in Exchange Rule 86(g) for
proposed rule change and discussed any Floor Officials to approve orders entered
comments it received on the proposed
at an increment of two points or greater
rule change. The text of these statements from the last transaction has long been
may be examined at the places specified made unnecessary by the fact that ABS
in Item IV below. The Exchange has
is an order-driven system in which
prepared summaries, set forth in
subscribing firms may enter only priced
sections A, B, and C below, of the most
orders, and a firm entering an order in
significant aspects of such statements.
ABS at a variation of two points or
greater is already required to
A. Self-Regulatory Organization’s
immediately confirm the price of such
Statement of the Purpose of, and
order prior to the order’s acceptance
Statutory Basis for, the Proposed Rule
into ABS. The entering firm would no
Change
longer need to confirm an order entered
1. Purpose
into ABS more than 30 days from the
The NYSE’s Fixed Income Market is
last trade of the bond issue, if the price
centered on its ABS, a fully automated
of the entered order were less than two
trading and information system that
points from the previous trade price.
allows subscribing firms to enter,
4 If, for example, an order is entered into ABS to
maintain, view, and execute bond
buy 10 XYZ bonds at 93 when the last sale for XYZ
orders through screen displays in their
occurred at 90, the Floor Official could determine
offices. Orders are maintained,
that XYZ bond should be ‘‘bid up’’ at a decided
displayed, and matched in ABS on a
price increment away from the limit order for a
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 NYSE. On
March 30, 2005, the NYSE filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
Jkt 205001
Amendment No. 1, which replaced and
superceded the original filing in its entirety, the
NYSE supplemented its rationale for the proposal
by, among other things, describing the process that
a Floor Official follows when considering whether
to approve a transaction that would occur at a price
that is at least two points or more than 30 days from
the last transaction; recounting some of the history
of bond trading on the NYSE; explaining that the
Exchange has not found it necessary to reinstate the
two-point/30-day provision for convertible bonds
since it eliminated its applicability to convertible
bonds in 1998; and noting that Exchange Rule 86(g)
requires all orders to be entered into ABS at a limit
price, and that ABS automatically asks a user to
reconfirm the price of an order that is entered at a
price two or more points away from the last sale.
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
decided period of time, typically one ‘‘point’’ for
one minute. The NYSE bond supervisor would then
enter the bidding-up starting price, price increment,
time increment, and final price into ABS, upon
which a message appears on all ABS screens
alerting subscribing firms that bidding up in XYZ
has commenced. An ABS user could execute
against that ‘‘bid’’ by entering an order to sell at 91
into the system. If, after one minute, the ‘‘bid’’ at
91 generated no interest among ABS users, the
order would be bid at 92 for one minute. If that
‘‘bid’’ generated no interest, then the order would,
after one minute, be bid at 93 or be matched
(traded) at 93, depending on whether there was a
contra-side order to sell at 93 in the ABS at that
point in time. Telephone conversation between
Fred Siesel, Consultant, NYSE, and Tim Fox,
Attorney, Commission on April 18, 2005.
E:\FR\FM\02MYN1.SGM
02MYN1
Federal Register / Vol. 70, No. 83 / Monday, May 2, 2005 / Notices
The requirements that orders entered
into ABS be priced and that the user
entering the order must reconfirm the
price of an order entered at a variation
of two points or greater from the last
sale have been programmed into ABS
since its inception.
The Exchange believes that, because
firms entering orders into ABS control
and are responsible for the orders they
enter into ABS, the requirements of
current NYSE Rule 86(g) are
unnecessary. They are a legacy from the
time when NYSE bond trading was
floor-based, rather than screen-based.
These requirements slow down trading
in ABS and may result in a loss of
liquidity. For example, during the
period when an order is ‘‘bid up’’ or
‘‘offered down’’ under the existing rule,
a resting offer/bid in the system might
be cancelled, thus causing the order
being bid up/offered down to miss the
opportunity to interact with the resting
order. The time involved in the Floor
Official’s review of the situation, and
the time for the Floor Official to
determine whether to bid up/offer down
can act to the detriment of the order.
Once an order is entered into ABS, the
process is electronic and still provides
a price confirmation component to help
ensure that orders are priced correctly.
Before ABS was developed, the
NYSE’s bond floor involved two trading
‘‘arenas.’’ One was the ‘‘free crowd,’’
where bond floor brokers primarily
traded convertible bonds and a handful
of active non-convertible bonds. The
other arena involved ‘‘cabinet’’ trading.
In the free crowd, brokers left their
mnemonic broker identifications with
indications of buying or selling interest
next to the bond symbol on one of a
number of boards containing multiple
bond symbols. The indications were
entered in pencil and the boards were
erasable and cleaned after the close of
trading. If a broker had an interest on
the contra side of an existing indication,
the broker would announce that interest
to the broker on the opposite side. The
brokers would agree on price, subject to
the undisclosed limits of their orders.
Also, with the broker’s announcement
of interest in a particular bond, other
brokers would often join the crowd and
trade according to the floor trading rules
of precedence and parity.
Cabinet trading involved cards of
orders to buy and sell bonds which were
organized, by bond, in racks. The order
cards were organized in sequence
according to price and time priority
under former NYSE Rule 85. When
orders matched, bond floor clerks took
the matching orders to bond floor
brokers to write the trade tickets. Firms
not having brokers regularly on the
VerDate jul<14>2003
19:05 Apr 29, 2005
Jkt 205001
bond floor were represented by one of
the bond floor brokers; however, any
equity floor broker could execute bond
orders on the bond floor. All completed
bond trades were reported on the
dedicated bond ticker.
ABS initially replaced manual cabinet
trading, providing immediate matching
and reporting of non-free-crowd bond
trades and quotations with size. Free
crowd trade prices, without quotations,
were also reported through ABS. In the
mid-1980s, the few non-convertible
bonds that traded in the free crowd were
moved to ABS. In 1998, the convertible
bonds commenced trading in ABS on a
price-and-time priority basis.
The two-point/30-day provision was
eliminated for convertible bonds when,
in 1998, the physical bond floor was
closed and trading in convertible bonds
was transferred to ABS.5 The Exchange
asserts that, since that time, there have
not been any problems with respect to
the trading of convertible bonds, nor has
there been a situation requiring the
reinstatement of the requirement of
Floor Official approval if a transaction
would occur at two points or more away
or more than 30 days away from the last
sale.6 In addition, since the complete
closing of the bond floor, the only
officials available to make bond rulings
are equity Floor Officials who, in
addition to being less familiar with
bond trading, may be diverted from
their responsibilities to the Exchange’s
equity market.
In sum, since ABS accepts only
limited price orders, and since the
entering firm must reconfirm the price
of the order being entered if that order
is at a price that is two points or more
away from the last sale price, the
bidding up/offering down requirement
of the current NYSE Rule 86(g) is
unnecessary.
The Exchange also is proposing to
codify in NYSE Rule 86(g) two features
that have been programmed into ABS
since its inception: (1) The acceptance
of priced orders only; and (2) price
confirmation, by the entering firm, of
orders entered at a price two or more
points inferior to the last sale price.
2. Statutory Basis
The basis under the Exchange Act for
this proposed rule change is the
requirement under section 6(b)(5) of the
Act 7 that an exchange have rules that
to moving convertible bonds to ABS,
convertible bond quotes were non-firm price
indications only, with no size. In ABS, convertible
bond quotes are firm, with size, and are ‘‘live.’’
6 Pursuant to NYSE Rule 86(g), a Floor Governor
may, if prevailing market conditions warrant,
impose similar requirements on convertible bonds.
7 15 U.S.C. 78f(b)(5).
PO 00000
5 Prior
Frm 00111
Fmt 4703
Sfmt 4703
22737
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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The NYSE does not believe that the
proposed rule change, as amended,
would 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
Written comments were neither
solicited nor received.
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 the NYSE consents, the
Commission will:
A. By order approve such proposed
rule change, as amended; or
B. Institute proceedings to determine
whether the proposed rule change, as
amended, 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, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2004–42 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–NYSE–2004–42. This file
number should be included on the
E:\FR\FM\02MYN1.SGM
02MYN1
22738
Federal Register / Vol. 70, No. 83 / Monday, May 2, 2005 / Notices
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 (https://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
Section Room. Copies of such filing also
will be available for inspection and
copying at the principal office 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
publicly available. All submissions
should refer to File Number SR–NYSE–
2004–42 and should be submitted on or
before May 23, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.8
Margaret H. McFarland
Deputy Secretary.
[FR Doc. E5–2083 Filed 4–29–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51608; File No. SR–PCX–
2005–48]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Revise PCX Rule 6.88
To Eliminate the Prohibition on
Computer Generated Orders
April 26, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 13,
2005, the Pacific Exchange, Inc. (‘‘PCX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by PCX. The Exchange has designated
the proposed rule change as ‘‘noncontroversial’’ under section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder,4 which renders the proposal
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend PCX
Rule 6.88 in order to eliminate the
prohibition on orders that are created
and communicated electronically
without manual input (‘‘Computer
Generated Orders’’). Below is the text of
the proposed rule change. Proposed new
language is italicized; proposed
deletions are in [brackets].
*
*
*
*
*
Rules of the Pacific Exchange, Inc.
Rule 6
Rule 6.88(a)—No Change.
Rule 6.88(b) Reserved. [Except as
provided in subsection (b)(1), OTP
Holders and OTP Firms may not enter
orders via the MFI or permit the entry
of orders via the MFI if those orders are
created and communicated
electronically without manual input
(‘‘computer generated orders’’). Except
as provided in subsection (b)(1), order
entry by public customers or associated
persons of OTP Holders and OTP Firms
must involve manual input such as
entering the terms of an order into an
order-entry screen or manually selecting
a displayed order so that the order will
be sent. Nothing in this Rule prohibits
OTP Holders or OTP Firms from
electronically sending to the Exchange
orders manually entered by customers
into front-end communications systems
(e.g., Internet gateways, online
networks, etc).
(1) Computer generated orders may be
sent to the Exchange via the MFI only
if they are properly designated in a form
and manner as prescribed by the
Exchange. Orders so designated will be
re-routed for representation by a Floor
Broker. Computer generated orders are
not eligible for automatic execution via
the Auto-Ex System.]
(c)—No Change.
*
*
*
*
*
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate jul<14>2003
19:05 Apr 29, 2005
3 15
4 17
Jkt 205001
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
Frm 00112
Fmt 4703
Sfmt 4703
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
PCX 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 these 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 aspects 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
PCX Rule 6.88 to eliminate the
prohibition on Computer Generated
Orders. PCX Rule 6.88 was originally
adopted because it was necessary to
protect market makers.5 At the time,
allowing electronic entry directly into
the Exchange’s Pacific Options
Exchange Trading System (‘‘POETS’’)
could give customers with ordergenerating systems a significant
advantage over PCX market makers.
With the development of the Exchange’s
new electronic trading system, PCX
Plus, market makers have the ability to
manage their exposure more quickly
and efficiently, thereby obviating the
need for this rule.6 The Exchange no
longer uses POETS. The Exchange
believes that the elimination of the
prohibition on Computer Generated
Orders will enhance access to the
Exchange, and therefore, provide more
liquidity to PCX.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,7 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,8 in particular, in that it is
designed to facilitate transactions in
securities, to promote just and equitable
principles of trade, to enhance
5 See Securities Exchange Act Release No. 43328
(September 22, 2000), 65 FR 58834 (October 2,
2000).
6 The Philadelphia Stock Exchange, Inc. (‘‘Phlx’’)
eliminated its Electronic Generation rule in 2003.
See Securities Exchange Act Release No. 48648
(October 16, 2003), 68 FR 60762 (October 23, 2003).
The Chicago Board Options Exchange, Incorporated
(‘‘CBOE’’) eliminated its Electronically Generated
and Communicated Orders rule in 2005. See
Securities Exchange Act Release No. 51030 (January
12, 2005), 70 FR 3404 (January 24, 2005).
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(5).
E:\FR\FM\02MYN1.SGM
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]]>Agencies
[Federal Register Volume 70, Number 83 (Monday, May 2, 2005)]
[Notices]
[Pages 22736-22738]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-2083]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51613; File No. SR-NYSE-2004-42]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To
Eliminate the Requirement That a Floor Official Approve Certain
Transactions on the Exchange's Automated Bond System
April 26, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 10, 2004, the New York Stock Exchange, Inc. (``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 NYSE. On March 30,
2005, the NYSE filed Amendment No. 1 to the proposed rule change.\3\
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\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, which replaced and superceded the
original filing in its entirety, the NYSE supplemented its rationale
for the proposal by, among other things, describing the process that
a Floor Official follows when considering whether to approve a
transaction that would occur at a price that is at least two points
or more than 30 days from the last transaction; recounting some of
the history of bond trading on the NYSE; explaining that the
Exchange has not found it necessary to reinstate the two-point/30-
day provision for convertible bonds since it eliminated its
applicability to convertible bonds in 1998; and noting that Exchange
Rule 86(g) requires all orders to be entered into ABS at a limit
price, and that ABS automatically asks a user to reconfirm the price
of an order that is entered at a price two or more points away from
the last sale.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NYSE proposes to amend Exchange Rule 86(g) relating to the
Exchange's Automated Bond System[reg] (``ABS''). The text of the
proposed rule change, as amended, is available on the NYSE's Web site
(https://www.nyse.com), at the NYSE's principal office, and at 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 NYSE 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The NYSE's Fixed Income Market is centered on its ABS, a fully
automated trading and information system that allows subscribing firms
to enter, maintain, view, and execute bond orders through screen
displays in their offices. Orders are maintained, displayed, and
matched in ABS on a strict price-and-time priority basis. ABS displays
current market data and provides subscribers with immediate execution
reports and locked-in trade comparisons. ABS also provides real-time
last sale and quotation information to subscribers and market data
vendors.
At year-end 2004, ABS had a subscriber base of 37 member firms with
an installed base of 115 screens. All bonds listed on the NYSE trade
through ABS. Exchange bond volume for the year 2004 was approximately
$1.3 billion par value. About 94% of NYSE bond volume was in straight,
or non-convertible, debt and the remaining 6% of NYSE bond volume was
in convertible bonds.
Exchange Rule 86 governs trading in ABS. Existing NYSE Rule 86(g)
requires that all ABS transactions in non-convertible bonds that are
made two points or more away from the last sale, or more than 30 days
after the last sale, may be made only with the approval of a Floor
Official. As a practical matter, the Floor Official may require that
the bonds be bid up or offered down before approving such
transactions.\4\
---------------------------------------------------------------------------
\4\ If, for example, an order is entered into ABS to buy 10 XYZ
bonds at 93 when the last sale for XYZ occurred at 90, the Floor
Official could determine that XYZ bond should be ``bid up'' at a
decided price increment away from the limit order for a decided
period of time, typically one ``point'' for one minute. The NYSE
bond supervisor would then enter the bidding-up starting price,
price increment, time increment, and final price into ABS, upon
which a message appears on all ABS screens alerting subscribing
firms that bidding up in XYZ has commenced. An ABS user could
execute against that ``bid'' by entering an order to sell at 91 into
the system. If, after one minute, the ``bid'' at 91 generated no
interest among ABS users, the order would be bid at 92 for one
minute. If that ``bid'' generated no interest, then the order would,
after one minute, be bid at 93 or be matched (traded) at 93,
depending on whether there was a contra-side order to sell at 93 in
the ABS at that point in time. Telephone conversation between Fred
Siesel, Consultant, NYSE, and Tim Fox, Attorney, Commission on April
18, 2005.
---------------------------------------------------------------------------
The Exchange proposes to eliminate the current NYSE Rule 86(g). The
requirement in Exchange Rule 86(g) for Floor Officials to approve
orders entered at an increment of two points or greater from the last
transaction has long been made unnecessary by the fact that ABS is an
order-driven system in which subscribing firms may enter only priced
orders, and a firm entering an order in ABS at a variation of two
points or greater is already required to immediately confirm the price
of such order prior to the order's acceptance into ABS. The entering
firm would no longer need to confirm an order entered into ABS more
than 30 days from the last trade of the bond issue, if the price of the
entered order were less than two points from the previous trade price.
[[Page 22737]]
The requirements that orders entered into ABS be priced and that the
user entering the order must reconfirm the price of an order entered at
a variation of two points or greater from the last sale have been
programmed into ABS since its inception.
The Exchange believes that, because firms entering orders into ABS
control and are responsible for the orders they enter into ABS, the
requirements of current NYSE Rule 86(g) are unnecessary. They are a
legacy from the time when NYSE bond trading was floor-based, rather
than screen-based. These requirements slow down trading in ABS and may
result in a loss of liquidity. For example, during the period when an
order is ``bid up'' or ``offered down'' under the existing rule, a
resting offer/bid in the system might be cancelled, thus causing the
order being bid up/offered down to miss the opportunity to interact
with the resting order. The time involved in the Floor Official's
review of the situation, and the time for the Floor Official to
determine whether to bid up/offer down can act to the detriment of the
order. Once an order is entered into ABS, the process is electronic and
still provides a price confirmation component to help ensure that
orders are priced correctly.
Before ABS was developed, the NYSE's bond floor involved two
trading ``arenas.'' One was the ``free crowd,'' where bond floor
brokers primarily traded convertible bonds and a handful of active non-
convertible bonds. The other arena involved ``cabinet'' trading. In the
free crowd, brokers left their mnemonic broker identifications with
indications of buying or selling interest next to the bond symbol on
one of a number of boards containing multiple bond symbols. The
indications were entered in pencil and the boards were erasable and
cleaned after the close of trading. If a broker had an interest on the
contra side of an existing indication, the broker would announce that
interest to the broker on the opposite side. The brokers would agree on
price, subject to the undisclosed limits of their orders. Also, with
the broker's announcement of interest in a particular bond, other
brokers would often join the crowd and trade according to the floor
trading rules of precedence and parity.
Cabinet trading involved cards of orders to buy and sell bonds
which were organized, by bond, in racks. The order cards were organized
in sequence according to price and time priority under former NYSE Rule
85. When orders matched, bond floor clerks took the matching orders to
bond floor brokers to write the trade tickets. Firms not having brokers
regularly on the bond floor were represented by one of the bond floor
brokers; however, any equity floor broker could execute bond orders on
the bond floor. All completed bond trades were reported on the
dedicated bond ticker.
ABS initially replaced manual cabinet trading, providing immediate
matching and reporting of non-free-crowd bond trades and quotations
with size. Free crowd trade prices, without quotations, were also
reported through ABS. In the mid-1980s, the few non-convertible bonds
that traded in the free crowd were moved to ABS. In 1998, the
convertible bonds commenced trading in ABS on a price-and-time priority
basis.
The two-point/30-day provision was eliminated for convertible bonds
when, in 1998, the physical bond floor was closed and trading in
convertible bonds was transferred to ABS.\5\ The Exchange asserts that,
since that time, there have not been any problems with respect to the
trading of convertible bonds, nor has there been a situation requiring
the reinstatement of the requirement of Floor Official approval if a
transaction would occur at two points or more away or more than 30 days
away from the last sale.\6\ In addition, since the complete closing of
the bond floor, the only officials available to make bond rulings are
equity Floor Officials who, in addition to being less familiar with
bond trading, may be diverted from their responsibilities to the
Exchange's equity market.
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\5\ Prior to moving convertible bonds to ABS, convertible bond
quotes were non-firm price indications only, with no size. In ABS,
convertible bond quotes are firm, with size, and are ``live.''
\6\ Pursuant to NYSE Rule 86(g), a Floor Governor may, if
prevailing market conditions warrant, impose similar requirements on
convertible bonds.
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In sum, since ABS accepts only limited price orders, and since the
entering firm must reconfirm the price of the order being entered if
that order is at a price that is two points or more away from the last
sale price, the bidding up/offering down requirement of the current
NYSE Rule 86(g) is unnecessary.
The Exchange also is proposing to codify in NYSE Rule 86(g) two
features that have been programmed into ABS since its inception: (1)
The acceptance of priced orders only; and (2) price confirmation, by
the entering firm, of orders entered at a price two or more points
inferior to the last sale price.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under section 6(b)(5) of the Act \7\ 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.
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\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The NYSE does not believe that the proposed rule change, as
amended, would 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
Written comments were neither solicited nor received.
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 the NYSE consents, the Commission will:
A. By order approve such proposed rule change, as amended; or
B. Institute proceedings to determine whether the proposed rule
change, as amended, 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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2004-42 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-NYSE-2004-42. This
file number should be included on the
[[Page 22738]]
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
(https://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 Section Room. Copies of such filing also will be available
for inspection and copying at the principal office 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 publicly available. All
submissions should refer to File Number SR-NYSE-2004-42 and should be
submitted on or before May 23, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland
Deputy Secretary.
[FR Doc. E5-2083 Filed 4-29-05; 8:45 am]
BILLING CODE 8010-01-P
