Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Automating the Execution of Elected Stop Orders and CAP-DI Orders and Converted CAP-DI Orders, 53701-53704 [E5-4920]
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Federal Register / Vol. 70, No. 174 / Friday, September 9, 2005 / Notices
This program would only be available
to broker-dealers registered under the
Act, and would cover all TotalView
usage fees with respect to both internal
usage and re-distribution to customers
with whom the firm has a brokerage
relationship.6 Non-broker-dealer
vendors and application service
providers would not be eligible for the
enterprise license, as such firms,
according to Nasdaq, typically pass
through the cost of market data user fees
to their customers. This would enable
firms to incorporate TotalView data into
the software applications they make
available to their institutional and retail
customers, without providing them the
opportunity to re-distribute TotalView
data in competition with pure vendors.
The enterprise license would cover
fees for TotalView data received directly
from Nasdaq as well as data received
from third-party vendors (e.g.,
Bloomberg, Reuters). Upon signing up
for the program, the relevant firm would
be entitled to inform any third-party
market data vendor it utilizes (through
a Nasdaq-provided form) that, going
forward, any TotalView data usage by
the broker-dealer may be reported to
Nasdaq on a non-billable basis.
III. Summary of Comments
The Commission received one
comment letter on the proposed rule
change. The commenter expressed its
support for enterprise license fees and
also for the fact that the product,
TotalView, ‘‘does not come with data
integration strings attached.’’ However,
the commenter stated its concerns that
NQDS data would be linked with the
TotalView data and that the cost of Brut
data integrated in the TotalView
entitlement is too high.7 In response,
Nasdaq stated that the link between
NQDS data and TotalView data was
added to ensure compliance with the fee
schedule established by the Operating
Committee of the UTP Plan, which plan
has been approved by the Commission.
Nasdaq further noted that the cost of
Brut data integrated in the TotalView
entitlement has already been approved
by the Commission.8
IV. Discussion
The Commission has carefully
reviewed the proposed rule change, the
SIA Letter and the Nasdaq Response
Letter and finds that the proposed rule
change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
6 Distributors who utilize the enterprise license
would still be liable for the applicable distributor
fees.
7 See SIA Letter.
8 See Nasdaq Response Letter.
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a national securities association,9 the
requirements of Section 15A of the
Act,10 in general, and Section 15A(b)(5)
of the Act,11 in particular, which
requires that the NASD’s rules provide
for an equitable allocation of reasonable
charges among members for the use of
any facility or system which the NASD
operates or controls.
The Commission believes that the
program whereby a broker-dealer
distributor could obtain an enterprise
license for the distribution of the
TotalView market data entitlement for a
fixed cost of either $25,000 per month
for non-professional subscribers or of
$100,000 per month for broker-dealer
distributors that serve both nonprofessional and professional
subscribers satisfies the statutory
standards outlined above and will
provide increased flexibility to market
data vendors, which may result in
increased access to market data.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,12 that the
proposed rule change (SR–NASD–2005–
051), as amended, be, and it hereby is,
approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.13
Jonathan G. Katz,
Secretary.
[FR Doc. E5–4927 Filed 9–8–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52362; File No. SR–NYSE–
2005–57]
Self-Regulatory Organizations; New
York Stock Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change Automating
the Execution of Elected Stop Orders
and CAP–DI Orders and Converted
CAP–DI Orders
August 30, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on August
10, 2005, the New York Stock Exchange,
9 In approving the proposed rule change, the
Commission has considered its impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
10 15 U.S.C. 78o–3.
11 15 U.S.C. 78o–3(b)(5).
12 15 U.S.C. 78s(b)(2).
13 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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53701
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 Exchange.
The proposed rule change has been filed
by the Exchange as effecting a change in
an existing order-entry or trading system
pursuant to Section 19(b)(3)(A)(iii) of
the Act,3 and Rule 19b–4(f)(5) 4
thereunder, 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 systematize
certain functions that are currently
performed manually regarding the
execution of elected stop orders and
CAP–DI (convert and paritydestabilizing, immediate or cancel)
orders and converted CAP–DI orders.
The Exchange represents that the rules
regarding the election and execution of
CAP–DI and stop orders and conversion
and execution of CAP–DI orders remain
the same.
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
Exchange 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 filing this proposed
amendment to systematize certain
functions that are currently performed
manually regarding the execution of
elected stop orders and CAP–DI orders
and converted CAP–DI orders.
The rules regarding the election and
execution of CAP–DI and stop orders
and the conversion and execution of
CAP–DI orders remain the same.
3 15
4 17
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U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(5).
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Federal Register / Vol. 70, No. 174 / Friday, September 9, 2005 / Notices
The Display Book (‘‘Display Book’’
or ‘‘Book’’) is the Exchange system that
will handle the functions described
below. The Display Book is an order
management and execution facility that
receives and displays orders to the
specialist and provides a mechanism to
execute and report transactions and
publish the results to the Consolidated
Tape. In addition, the Display Book is
connected to a variety of other Exchange
systems for the purposes of comparison,
surveillance, and reporting information
to customers and other market data and
national market systems (i.e., the
Intermarket Trading System,
Consolidated Tape Association,
Consolidated Quotation System, etc.).
Background
Exchange Rules 13 and 123A.30
describe percentage orders, including
CAP–DI orders, and the manner in
which they are elected or converted and
executed.
A percentage order 5 is a limited price
order placed on the Display Book to buy
or sell fifty percent of the volume of
specified stock within a specified limit
price after the order’s entry. A
percentage order becomes a ‘‘live’’ order
capable of execution in one of two ways:
(i) All or part of the percentage order is
‘‘elected’’ as a limit order when an
Exchange trade occurs in the specified
security at the percentage order’s limit
price or better; or (ii) all or part of a CAP
order is ‘‘converted’’ into a limit order
by the specialist, to make a bid or offer
or to participate directly in a trade.
A ‘‘D’’ notation on a CAP order
instructs the specialist that the order
may be converted to participate in
destabilizing transactions or to bid/offer
in a destabilizing manner. The specialist
may also convert the order to participate
in stabilizing transactions or to bid/offer
in a stabilizing manner.
An ‘‘I’’ notation on a CAP order
stands for ‘‘immediate execution or
cancel’’ and instructs the specialist to
cancel an elected portion of the
percentage order that is not executed
immediately at the price of the electing
transaction or better. Any elected
portion that is not immediately
executed reverts to its status as a
percentage order, subject to subsequent
election or conversion.
The CAP–DI order guides the
specialist to represent the order to
5 For background on percentage orders and
amendments to Rule 123A.30, See Securities
Exchange Act Release Nos. 40722 (Nov. 30, 1998),
63 FR 67966 (SR–NYSE–97–09) (Dec. 9, 1998);
39009 (Sept. 3, 1997), 62 FR 47715 (September 10,
1997) (SR–NYSE–96–16); 24505 (May 22, 1987), 52
FR 20484 (June 1, 1987) (SR–NYSE–85–1); and
47614 (April 2, 2003), 68 FR 17140 (April 8, 2003)
(SR–NYSE–2002–55).
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ensure that the elected or converted
portion goes along with the market, by
not initiating a significant price change
or lagging behind the market. CAP–DI
orders are subject to a number of
restrictions intended to minimize the
specialist’s discretion in handling such
orders.6 Elected and converted CAP–DI
orders that are not executed revert to
CAP–DI status.
Exchange Rule 13 defines two types of
stop orders: stop limit orders and stop
orders. A stop limit order to buy
becomes a limit order executable at the
limit price, or at a better price if
obtainable, when a transaction in the
security occurs at or above the stop
price after the order is represented in
the Trading Crowd. A stop limit order
to sell becomes a limit order executable
at the limit price or at a better price, if
obtainable, when a transaction in the
security occurs at or below the stop
price after the order is represented in
the Trading Crowd. Once elected, stop
limit orders remain as limit orders on
the Book if not executed immediately.
A stop order to buy becomes a market
order when a transaction in the security
occurs at or above the stop price after
the order is represented in the market.
A stop order to sell becomes a market
order when a transaction in the security
occurs at or below the stop price after
the order is represented in the market.
Once elected, stop market orders are
executed.
Executions of elected or converted
CAP–DI orders do not result in further
elections of CAP–DI orders on the same
side of the market. Executions of elected
stop orders can elect CAP–DI orders at
the same or better price. Executions of
elected stop orders can also elect stop
orders at other prices.
Automatic executions and auction
market transactions systemically elect
CAP–DI and stop orders. The size of the
electing trade elects the same amount
from each CAP–DI and stop order
electable by that trade. For example, if
500 shares trade and two marketable
CAP–DI orders and one marketable stop
limit order are electable, 500 shares of
each order are elected. However, today,
once systemically elected, CAP–DI and
stop orders must be manually executed
and reported by the specialist.
Similarly, specialists must manually
execute and report converted CAP–DI
orders. The specialist determines the
number of shares converted on a CAP–
DI order to quote or trade based on
instructions from the entering broker.
6 Securities Exchange Act Release No. 24505 (May
22, 1987), 52 FR 20484 (June 1, 1987) (SR–NYSE–
85–1) (approving amendment to NYSE Rule
123A.30 permitting conversion of percentage orders
on destabilizing ticks under certain restrictions).
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Moreover, Exchange Rule 123A.30
provides that the specialist can trade on
parity with elected or converted CAP–
DI orders as long as the specialist does
not trade for its own account in an
amount in excess of that which each
CAP–DI order would receive. Based on
the example above, the specialist would
have been able to trade 500 shares for
his or her own account.
Exchange Rule 123A.40 provides, in
part, that a specialist may be a party to
the election of a stop order only: (i)
when his or her bid or offer has the
effect of bettering the market, when he
guarantees that the stop order will be
executed at the same price as the
electing sale, and with Floor Official
approval if the transaction is more than
0.10 point away from the prior
transaction; or (ii) when the specialist
purchases or sells stock for his or her
own account solely for the purpose of
facilitating completion of a member’s
order at a single-price, where the depth
of the current bid or offer is not
sufficient to do so. When the specialist
is acting in this manner, he or she shall
not be required to guarantee that the
stop order will be executed at the same
price as the electing sale.
The changes proposed below, which
will systematize the execution and
reporting of elected CAP–DI and stop
orders and converted CAP–DI orders,
will result in enhanced audit trail
information, and reduce specialists’ data
entry workload and the associated
chances for error. Existing Exchange
rules governing the election and
execution of CAP–DI and stop orders
and the conversion and execution of
converted CAP–DI orders remain
unchanged, and the rules regarding
execution of these orders will be
incorporated into the Display Book to
ensure appropriate executions.
Systemic Execution of Elected CAP–DI
and Stop Orders
Currently, when a trade occurs, the
system notifies the specialist what, if
any, CAP–DI and stop orders have been
elected by such trade. The specialist
must then determine if there is any
liquidity against which the elected
orders (or portions thereof) can trade. If
so, the specialist will manually execute
and report a trade involving the elected
CAP–DI and/or stop volume. The
Exchange proposes to systematize this
process, by having the Book
automatically execute elected CAP–DI
and stop volume to the extent possible.
The Book will also automatically report
such execution, including the relevant
information regarding participants to
the execution. Elected CAP–DI volume
unable to trade will automatically revert
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to CAP–DI status and elected stop limit
volume unable to trade will become a
limit order on the Book. Elected stop
market volume will be executed in the
same manner as any market order.
Additionally, where the specialist was a
party to the election of stop orders, the
elected stop orders will be systemically
executed at the election price against
the specialist.
Examples—CAP order is systemically
elected based on the size of the last sale
and then systemically executed up to
the available contra size, at the last sale
price:
1. The quote is 20.05 bid, offered at
20.07, 9,000 × 9,000. A CAP–DI order
arrives to buy 10,000 shares at 20.15. A
limit order arrives to buy 2,500 shares
at 20.07 and is executed at the offer
price, 20.07. As a result of the 2,500share execution of the limit order, 2,500
shares of the CAP–DI order are elected
and systemically executed at the last
sale price, 20.07. 7,500 shares remain on
the CAP–DI order and the market is
autoquoted 20.05 bid, offered at 20.07,
9,000 × 4,000.
2. The quote is 20.05 bid, offered at
20.07, 1,000 × 1,000. A CAP–DI order
arrives to buy 10,000 shares at 20.15. A
limit order arrives to sell 1,500 shares at
20.05 and is executed at the bid price,
20.05. As a result of the 1,000-share
execution, 1,000 shares of the CAP–DI
order are elected. However, only 500
shares of the 1,000 shares elected are
able to trade, as only 500 shares of
contra-side interest (the stock offered)
remains. The CAP–DI order systemically
buys the 500 shares and the remaining
500 shares elected revert to unelected
status. 9,500 shares remain on the CAP–
DI order and the market is autoquoted
20.04 bid (the next best bid on the
Book), offered at 20.07, 2,000 (the size
associated with the bid) × 1,000.
3. The quote is 20.05 bid, offered at
20.07, 1,000 × 1,000. A stop order
arrives to buy 1,000 shares at 20.05. A
limit order arrives to sell 1,500 shares at
20.05 and is executed at the bid price,
20.05. As a result of the 1,000-share
execution, 1,000 shares of the stop order
are elected. However, only 500 shares of
the 1,000 shares elected are able to
trade, as only 500 shares of contra-side
interest (the stock offered) remains. The
stop order systemically buys the 500
shares and the remaining 500 shares
elected revert to a market order and will
trade at the next best price, 20.07. The
market is autoquoted 20.04 bid (the next
best bid on the Book), offered at 20.07,
2,000 (the size associated with the bid)
× 500 (after 500 shares of the stop order
are executed as a market order at 20.07).
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Systemic Handling of CAP–DI Order
Converted to a Bid or Offer
Exchange Rule 123A.30 permits
specialists to, among other things,
convert a CAP–DI order on a stabilizing
or destabilizing tick to make a bid or
offer in accordance with the parameters
set forth in the rule. After conversion to
a bid or offer, the CAP–DI order is able
to participate in automatic executions in
accordance with and to the extent
provided by Exchange Rules 1000—
1005.
Today, Exchange Rule 1001(a)(iii)
provides, with respect to each automatic
execution that includes specialist or
Crowd orders, that the specialist is
responsible for assigning the
appropriate number of shares to each
contra-side participant in accordance
with Exchange Rule 72. This is because
the Display Book does not have the
contra-side information for these
participants until it is manually entered
by the specialist. This also applies to
converted CAP–DI orders. The
conversion is currently done manually
by the specialist and the system does
not incorporate any of the order
information until it is entered by the
specialist upon an execution.
The Exchange proposes to
systemically capture converted CAP–DI
order information to enable the systemic
reporting of automatic executions
involving converted CAP–DI volume.
The system will do this by creating a
limit order on the Book (‘‘a child order’’)
which will be systemically linked for
identification purposes to the original
CAP–DI order (‘‘the parent order’’). The
child order will be systemically
decremented as executions occur with
it.7 As noted above, none of the rules
governing the specialist’s ability to
convert CAP–DI orders or the way in
which they trade are proposed to be
amended.
Automation of Parity Between Specialist
and Elected CAP–DI Orders
As noted above, Exchange Rule
123A.30 8 provides that a Floor broker
may permit a specialist to trade on
parity with CAP–DI orders. The rule
7 Telephone call between Kelly Riley, Assistant
Director, Division of Market Regulation, SEC and
Jeffrey Rosenstrock, Principal Rule Counsel, NYSE
on August 29, 2005.
8 Rule 123A.30 is proposed to be amended in the
hybrid market filing to provide that when a
specialist algorithmically price improves an order,
any CAP–DI orders that have been entered and that
are capable of trading at that price will be
automatically converted and will trade along with
the specialist in accordance with Exchange rules
governing executions of converted CAP–DI orders.
See Securities Exchange Act Release No. 51906
(June 22, 2005), 70 FR 37463 (June 29, 2005)
(Amendment No. 5 to SR–NYSE–2004–05).
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53703
currently provides that if a specialist is
on parity with one or more CAP–DI
orders, at no time may the specialist
participate for its own account in an
amount in excess of what each CAP–DI
order would receive, except that the
specialist may participate for its own
account to an extent greater than any
particular CAP–DI order where the size
specified on such order has been
satisfied. A specialist on parity with a
CAP–DI order remains subject to the
limitations in Exchange Rule 104.10 as
to transactions for his or her own
account effected on destabilizing ticks.
For example, assume the market in
XYZ stock is 20.10 bid, offered at 20.13,
50,000 × 40,000, with the offer
consisting of three CAP–DI sell orders of
10,000 shares each that the specialist
had converted to trade at 20.13 and
added 10,000 shares of interest for his
or her own account. If a buyer for 36,000
shares enters the Crowd to trade with
the offer, the specialist must split
executions equally among them (9,000
for each of the three CAP–DI orders and
the specialist receives 9,000 shares since
he or she is on parity).
Now, assume the market in XYZ stock
is 20.10 bid, offered at 20.13, 50,000 ×
42,000,9 with the offer consisting of
three CAP–DI sell orders of 10,000
shares each that the specialist had
converted to trade at 20.13 and added
12,000 shares of interest for his or her
own account. If a buyer for 42,000
shares enters the Crowd to trade with
the offer, the specialist must split
executions equally among them (10,000
for each of the three CAP–DI orders in
order to fully satisfy them), and the
specialist receives 12,000 shares since
he or she is on parity and there are
2,000 additional shares left over after
satisfying the three CAP orders (10,000
shares each) and the specialist account
for 10,000 shares.
The Exchange proposes to automate
the specialist’s participation in these
situations, so that the system assigns the
proper number of shares to the
specialist when trading along with
elected CAP–DI orders.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,10 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,11 in particular, in that it is
designed to promote just and equitable
principles of trade, to foster cooperation
9 Telephone call between Kelly Riley, Assistant
Director, Division of Market Regulation, SEC and
Jeffrey Rosenstrock, Principal Rule Counsel, NYSE
on August 30, 2005.
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 70, No. 174 / Friday, September 9, 2005 / Notices
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transaction in securities,
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. The Exchange
asserts that the proposed rule change
also is designed to support the
principles of Section 11A(a)(1) of the
Act 12 in that it seeks to assure
economically efficient execution of
securities transactions, make it
practicable for brokers to execute
investors’ orders in the best market, and
provide an opportunity for investors’
orders to be executed without the
participation of a dealer.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will 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
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change effects a change in an existing
order entry or trading system that (i)
does not significantly affect the
protection of investors or the public
interest; (ii) does not impose any
significant burden on competition; and
(iii) does not have the effect of limiting
access to or availability of the system, it
has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act,13 and
Rule 19b–4(f)(5) 14 thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.15
12 15
U.S.C. 78k–1(a)(1).
U.S.C. 78s(b)(3)(A)(iii).
14 17 CFR 240.19b–4(f)(5).
15 See Section 19(b)(3)(C) of the Act, 15 U.S.C.
78s(b)(3)(C).
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
15:19 Sep 08, 2005
Jkt 205001
• 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–2005–57 on the
subject line.
Paper Comments
Frm 00088
Fmt 4703
[Release No. 34–52361; File No. SR–PCX–
2005–58]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Order Approving
Proposed Rule Change and
Amendments Nos. 1 and 2 Thereto
Relating to Market Order Auction
August 30, 2005.
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NYSE–2005–57. This file
number should be included on the
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. 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 available publicly. All
submissions should refer to File
Number SR–NYSE–2005–57 and should
be submitted on or before September 30,
2005.
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COMMISSION
Electronic Comments
13 15
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For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.16
Jonathan G. Katz,
Secretary.
[FR Doc. E5–4920 Filed 9–8–05; 8:45 am]
Sfmt 4703
On April 22, 2005, the Pacific
Exchange, Inc. (‘‘PCX’’), through its
wholly owned subsidiary PCX Equities,
Inc. (‘‘PCXE’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend its rules governing the Market
Order Auction of the Archipelago
Exchange (‘‘ArcaEx’’), the equities
trading facility of PCXE. On June 27,
2005, the Exchange amended the
proposed rule change and on July 8,
2005, the Exchange further amended the
proposed rule change. The proposed
rule change, as amended, was published
for notice and comment in the Federal
Register on July 29, 2005.3 The
Commission received no comment
letters on the proposal.
The proposed rule change would
clarify the Indicative Match Price
definition as defined in PCXE Rule
1.1(r) which determines the price at
which orders eligible for execution in
the ArcaEx auctions are executed. The
proposed rule change would also
modify the Market Order Auction rules
as described in PCXE Rule 7.35 and
implement price collars based on a
similar standard currently in place for
ArcaEx’s Closing Auction.
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.4 In particular, the
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 52103
(July 21, 2005), 70 FR 43924.
4 In approving this proposed rule change, the
Commission has considered the proposed rule’s
1 15
E:\FR\FM\09SEN1.SGM
09SEN1
Agencies
[Federal Register Volume 70, Number 174 (Friday, September 9, 2005)]
[Notices]
[Pages 53701-53704]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4920]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52362; File No. SR-NYSE-2005-57]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Automating the Execution of Elected Stop Orders and CAP-DI Orders and
Converted CAP-DI Orders
August 30, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on August 10, 2005, 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 Exchange. The
proposed rule change has been filed by the Exchange as effecting a
change in an existing order-entry or trading system pursuant to Section
19(b)(3)(A)(iii) of the Act,\3\ and Rule 19b-4(f)(5) \4\ thereunder,
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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(5).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to systematize certain functions that are
currently performed manually regarding the execution of elected stop
orders and CAP-DI (convert and parity-destabilizing, immediate or
cancel) orders and converted CAP-DI orders. The Exchange represents
that the rules regarding the election and execution of CAP-DI and stop
orders and conversion and execution of CAP-DI orders remain the same.
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 Exchange 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 filing this proposed amendment to systematize
certain functions that are currently performed manually regarding the
execution of elected stop orders and CAP-DI orders and converted CAP-DI
orders.
The rules regarding the election and execution of CAP-DI and stop
orders and the conversion and execution of CAP-DI orders remain the
same.
[[Page 53702]]
The Display Book[supreg] (``Display Book'' or ``Book'') is the
Exchange system that will handle the functions described below. The
Display Book is an order management and execution facility that
receives and displays orders to the specialist and provides a mechanism
to execute and report transactions and publish the results to the
Consolidated Tape. In addition, the Display Book is connected to a
variety of other Exchange systems for the purposes of comparison,
surveillance, and reporting information to customers and other market
data and national market systems (i.e., the Intermarket Trading System,
Consolidated Tape Association, Consolidated Quotation System, etc.).
Background
Exchange Rules 13 and 123A.30 describe percentage orders, including
CAP-DI orders, and the manner in which they are elected or converted
and executed.
A percentage order \5\ is a limited price order placed on the
Display Book to buy or sell fifty percent of the volume of specified
stock within a specified limit price after the order's entry. A
percentage order becomes a ``live'' order capable of execution in one
of two ways: (i) All or part of the percentage order is ``elected'' as
a limit order when an Exchange trade occurs in the specified security
at the percentage order's limit price or better; or (ii) all or part of
a CAP order is ``converted'' into a limit order by the specialist, to
make a bid or offer or to participate directly in a trade.
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\5\ For background on percentage orders and amendments to Rule
123A.30, See Securities Exchange Act Release Nos. 40722 (Nov. 30,
1998), 63 FR 67966 (SR-NYSE-97-09) (Dec. 9, 1998); 39009 (Sept. 3,
1997), 62 FR 47715 (September 10, 1997) (SR-NYSE-96-16); 24505 (May
22, 1987), 52 FR 20484 (June 1, 1987) (SR-NYSE-85-1); and 47614
(April 2, 2003), 68 FR 17140 (April 8, 2003) (SR-NYSE-2002-55).
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A ``D'' notation on a CAP order instructs the specialist that the
order may be converted to participate in destabilizing transactions or
to bid/offer in a destabilizing manner. The specialist may also convert
the order to participate in stabilizing transactions or to bid/offer in
a stabilizing manner.
An ``I'' notation on a CAP order stands for ``immediate execution
or cancel'' and instructs the specialist to cancel an elected portion
of the percentage order that is not executed immediately at the price
of the electing transaction or better. Any elected portion that is not
immediately executed reverts to its status as a percentage order,
subject to subsequent election or conversion.
The CAP-DI order guides the specialist to represent the order to
ensure that the elected or converted portion goes along with the
market, by not initiating a significant price change or lagging behind
the market. CAP-DI orders are subject to a number of restrictions
intended to minimize the specialist's discretion in handling such
orders.\6\ Elected and converted CAP-DI orders that are not executed
revert to CAP-DI status.
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\6\ Securities Exchange Act Release No. 24505 (May 22, 1987), 52
FR 20484 (June 1, 1987) (SR-NYSE-85-1) (approving amendment to NYSE
Rule 123A.30 permitting conversion of percentage orders on
destabilizing ticks under certain restrictions).
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Exchange Rule 13 defines two types of stop orders: stop limit
orders and stop orders. A stop limit order to buy becomes a limit order
executable at the limit price, or at a better price if obtainable, when
a transaction in the security occurs at or above the stop price after
the order is represented in the Trading Crowd. A stop limit order to
sell becomes a limit order executable at the limit price or at a better
price, if obtainable, when a transaction in the security occurs at or
below the stop price after the order is represented in the Trading
Crowd. Once elected, stop limit orders remain as limit orders on the
Book if not executed immediately.
A stop order to buy becomes a market order when a transaction in
the security occurs at or above the stop price after the order is
represented in the market. A stop order to sell becomes a market order
when a transaction in the security occurs at or below the stop price
after the order is represented in the market. Once elected, stop market
orders are executed.
Executions of elected or converted CAP-DI orders do not result in
further elections of CAP-DI orders on the same side of the market.
Executions of elected stop orders can elect CAP-DI orders at the same
or better price. Executions of elected stop orders can also elect stop
orders at other prices.
Automatic executions and auction market transactions systemically
elect CAP-DI and stop orders. The size of the electing trade elects the
same amount from each CAP-DI and stop order electable by that trade.
For example, if 500 shares trade and two marketable CAP-DI orders and
one marketable stop limit order are electable, 500 shares of each order
are elected. However, today, once systemically elected, CAP-DI and stop
orders must be manually executed and reported by the specialist.
Similarly, specialists must manually execute and report converted CAP-
DI orders. The specialist determines the number of shares converted on
a CAP-DI order to quote or trade based on instructions from the
entering broker.
Moreover, Exchange Rule 123A.30 provides that the specialist can
trade on parity with elected or converted CAP-DI orders as long as the
specialist does not trade for its own account in an amount in excess of
that which each CAP-DI order would receive. Based on the example above,
the specialist would have been able to trade 500 shares for his or her
own account.
Exchange Rule 123A.40 provides, in part, that a specialist may be a
party to the election of a stop order only: (i) when his or her bid or
offer has the effect of bettering the market, when he guarantees that
the stop order will be executed at the same price as the electing sale,
and with Floor Official approval if the transaction is more than 0.10
point away from the prior transaction; or (ii) when the specialist
purchases or sells stock for his or her own account solely for the
purpose of facilitating completion of a member's order at a single-
price, where the depth of the current bid or offer is not sufficient to
do so. When the specialist is acting in this manner, he or she shall
not be required to guarantee that the stop order will be executed at
the same price as the electing sale.
The changes proposed below, which will systematize the execution
and reporting of elected CAP-DI and stop orders and converted CAP-DI
orders, will result in enhanced audit trail information, and reduce
specialists' data entry workload and the associated chances for error.
Existing Exchange rules governing the election and execution of CAP-DI
and stop orders and the conversion and execution of converted CAP-DI
orders remain unchanged, and the rules regarding execution of these
orders will be incorporated into the Display Book to ensure appropriate
executions.
Systemic Execution of Elected CAP-DI and Stop Orders
Currently, when a trade occurs, the system notifies the specialist
what, if any, CAP-DI and stop orders have been elected by such trade.
The specialist must then determine if there is any liquidity against
which the elected orders (or portions thereof) can trade. If so, the
specialist will manually execute and report a trade involving the
elected CAP-DI and/or stop volume. The Exchange proposes to systematize
this process, by having the Book automatically execute elected CAP-DI
and stop volume to the extent possible. The Book will also
automatically report such execution, including the relevant information
regarding participants to the execution. Elected CAP-DI volume unable
to trade will automatically revert
[[Page 53703]]
to CAP-DI status and elected stop limit volume unable to trade will
become a limit order on the Book. Elected stop market volume will be
executed in the same manner as any market order. Additionally, where
the specialist was a party to the election of stop orders, the elected
stop orders will be systemically executed at the election price against
the specialist.
Examples--CAP order is systemically elected based on the size of
the last sale and then systemically executed up to the available contra
size, at the last sale price:
1. The quote is 20.05 bid, offered at 20.07, 9,000 x 9,000. A CAP-
DI order arrives to buy 10,000 shares at 20.15. A limit order arrives
to buy 2,500 shares at 20.07 and is executed at the offer price, 20.07.
As a result of the 2,500-share execution of the limit order, 2,500
shares of the CAP-DI order are elected and systemically executed at the
last sale price, 20.07. 7,500 shares remain on the CAP-DI order and the
market is autoquoted 20.05 bid, offered at 20.07, 9,000 x 4,000.
2. The quote is 20.05 bid, offered at 20.07, 1,000 x 1,000. A CAP-
DI order arrives to buy 10,000 shares at 20.15. A limit order arrives
to sell 1,500 shares at 20.05 and is executed at the bid price, 20.05.
As a result of the 1,000-share execution, 1,000 shares of the CAP-DI
order are elected. However, only 500 shares of the 1,000 shares elected
are able to trade, as only 500 shares of contra-side interest (the
stock offered) remains. The CAP-DI order systemically buys the 500
shares and the remaining 500 shares elected revert to unelected status.
9,500 shares remain on the CAP-DI order and the market is autoquoted
20.04 bid (the next best bid on the Book), offered at 20.07, 2,000 (the
size associated with the bid) x 1,000.
3. The quote is 20.05 bid, offered at 20.07, 1,000 x 1,000. A stop
order arrives to buy 1,000 shares at 20.05. A limit order arrives to
sell 1,500 shares at 20.05 and is executed at the bid price, 20.05. As
a result of the 1,000-share execution, 1,000 shares of the stop order
are elected. However, only 500 shares of the 1,000 shares elected are
able to trade, as only 500 shares of contra-side interest (the stock
offered) remains. The stop order systemically buys the 500 shares and
the remaining 500 shares elected revert to a market order and will
trade at the next best price, 20.07. The market is autoquoted 20.04 bid
(the next best bid on the Book), offered at 20.07, 2,000 (the size
associated with the bid) x 500 (after 500 shares of the stop order are
executed as a market order at 20.07).
Systemic Handling of CAP-DI Order Converted to a Bid or Offer
Exchange Rule 123A.30 permits specialists to, among other things,
convert a CAP-DI order on a stabilizing or destabilizing tick to make a
bid or offer in accordance with the parameters set forth in the rule.
After conversion to a bid or offer, the CAP-DI order is able to
participate in automatic executions in accordance with and to the
extent provided by Exchange Rules 1000--1005.
Today, Exchange Rule 1001(a)(iii) provides, with respect to each
automatic execution that includes specialist or Crowd orders, that the
specialist is responsible for assigning the appropriate number of
shares to each contra-side participant in accordance with Exchange Rule
72. This is because the Display Book does not have the contra-side
information for these participants until it is manually entered by the
specialist. This also applies to converted CAP-DI orders. The
conversion is currently done manually by the specialist and the system
does not incorporate any of the order information until it is entered
by the specialist upon an execution.
The Exchange proposes to systemically capture converted CAP-DI
order information to enable the systemic reporting of automatic
executions involving converted CAP-DI volume. The system will do this
by creating a limit order on the Book (``a child order'') which will be
systemically linked for identification purposes to the original CAP-DI
order (``the parent order''). The child order will be systemically
decremented as executions occur with it.\7\ As noted above, none of the
rules governing the specialist's ability to convert CAP-DI orders or
the way in which they trade are proposed to be amended.
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\7\ Telephone call between Kelly Riley, Assistant Director,
Division of Market Regulation, SEC and Jeffrey Rosenstrock,
Principal Rule Counsel, NYSE on August 29, 2005.
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Automation of Parity Between Specialist and Elected CAP-DI Orders
As noted above, Exchange Rule 123A.30 \8\ provides that a Floor
broker may permit a specialist to trade on parity with CAP-DI orders.
The rule currently provides that if a specialist is on parity with one
or more CAP-DI orders, at no time may the specialist participate for
its own account in an amount in excess of what each CAP-DI order would
receive, except that the specialist may participate for its own account
to an extent greater than any particular CAP-DI order where the size
specified on such order has been satisfied. A specialist on parity with
a CAP-DI order remains subject to the limitations in Exchange Rule
104.10 as to transactions for his or her own account effected on
destabilizing ticks.
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\8\ Rule 123A.30 is proposed to be amended in the hybrid market
filing to provide that when a specialist algorithmically price
improves an order, any CAP-DI orders that have been entered and that
are capable of trading at that price will be automatically converted
and will trade along with the specialist in accordance with Exchange
rules governing executions of converted CAP-DI orders. See
Securities Exchange Act Release No. 51906 (June 22, 2005), 70 FR
37463 (June 29, 2005) (Amendment No. 5 to SR-NYSE-2004-05).
---------------------------------------------------------------------------
For example, assume the market in XYZ stock is 20.10 bid, offered
at 20.13, 50,000 x 40,000, with the offer consisting of three CAP-DI
sell orders of 10,000 shares each that the specialist had converted to
trade at 20.13 and added 10,000 shares of interest for his or her own
account. If a buyer for 36,000 shares enters the Crowd to trade with
the offer, the specialist must split executions equally among them
(9,000 for each of the three CAP-DI orders and the specialist receives
9,000 shares since he or she is on parity).
Now, assume the market in XYZ stock is 20.10 bid, offered at 20.13,
50,000 x 42,000,\9\ with the offer consisting of three CAP-DI sell
orders of 10,000 shares each that the specialist had converted to trade
at 20.13 and added 12,000 shares of interest for his or her own
account. If a buyer for 42,000 shares enters the Crowd to trade with
the offer, the specialist must split executions equally among them
(10,000 for each of the three CAP-DI orders in order to fully satisfy
them), and the specialist receives 12,000 shares since he or she is on
parity and there are 2,000 additional shares left over after satisfying
the three CAP orders (10,000 shares each) and the specialist account
for 10,000 shares.
---------------------------------------------------------------------------
\9\ Telephone call between Kelly Riley, Assistant Director,
Division of Market Regulation, SEC and Jeffrey Rosenstrock,
Principal Rule Counsel, NYSE on August 30, 2005.
---------------------------------------------------------------------------
The Exchange proposes to automate the specialist's participation in
these situations, so that the system assigns the proper number of
shares to the specialist when trading along with elected CAP-DI orders.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\10\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\11\ in particular, in that it
is designed to promote just and equitable principles of trade, to
foster cooperation
[[Page 53704]]
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transaction in securities, 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. The Exchange
asserts that the proposed rule change also is designed to support the
principles of Section 11A(a)(1) of the Act \12\ in that it seeks to
assure economically efficient execution of securities transactions,
make it practicable for brokers to execute investors' orders in the
best market, and provide an opportunity for investors' orders to be
executed without the participation of a dealer.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change effects a change in an
existing order entry or trading system that (i) does not significantly
affect the protection of investors or the public interest; (ii) does
not impose any significant burden on competition; and (iii) does not
have the effect of limiting access to or availability of the system, it
has become effective pursuant to Section 19(b)(3)(A)(iii) of the
Act,\13\ and Rule 19b-4(f)(5) \14\ thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(5).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.\15\
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\15\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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-2005-57 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NYSE-2005-57. This
file number should be included on the 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. 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 available publicly. All submissions should refer to
File Number SR-NYSE-2005-57 and should be submitted on or before
September 30, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-4920 Filed 9-8-05; 8:45 am]
BILLING CODE 8010-01-P