Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Specialist Algorithmic Quoting Messages Permitted Pursuant to Exchange Rule 104, 36849-36850 [06-5754]

Download as PDF Federal Register / Vol. 71, No. 124 / Wednesday, June 28, 2006 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54024; File No. SR–NYSE– 2006–44] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Specialist Algorithmic Quoting Messages Permitted Pursuant to Exchange Rule 104 June 21, 2006. 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 June 20, 2006, the New York Stock Exchange LLC (‘‘NYSE’’) or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Item I and II below, which Items have been prepared by the Exchange. NYSE filed the proposed rule change pursuant to section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. jlentini on PROD1PC65 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NYSE proposes to amend Exchange Rule 104 (Dealings by Specialists) with respect to the specialists’ ability to establish systems employing algorithms to send messages via a connection to the Display Book system for the purpose of updating quotations systematically. The text of the proposed rule change is available on the Exchange’s Web site (http://www.nyse.com), at the Exchange’s Office of the Secretary, 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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any concerns it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 2 17 VerDate Aug<31>2005 16:52 Jun 27, 2006 Jkt 208001 Exchange has prepared summaries, set forth in Section 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 Under the NYSE HYBRID MARKETSM initiative 5, the Exchange proposed several changes to the manner in which specialists on the Exchange would be able to establish electronic connections to the Display Book 6 system (‘‘Display Book’’) to provide them with access to certain information and permit them to make a range of specified quoting and trading decisions based on that information. The Exchange proposed amendments to Exchange Rule 104 (Dealings by Specialists) to provide specialists with the ability to implement systems that use proprietary algorithms based on predetermined parameters to electronically participate in the Hybrid Market (‘‘Specialist Algorithm’’). The Specialist Algorithm is designed to communicate with the Display Book system via an Exchange-owned external application program interface (‘‘API’’). As approved in the Hybrid Market initiative, the Specialist Algorithm is permitted to send messages to the Display Book via the API to quote or trade on behalf of the specialist’s proprietary interest. The Specialist Algorithm will generate these quoting or trading messages in reaction to specific types of information it will have access to. This information includes specialist dealer position, existing quotes, publicly available information the specialist chooses to supply to the algorithm, incoming orders as they are entering Exchange systems, and information about orders on the display Book such as limit orders, percentage orders, stop orders, and auction limit and auction market orders. This latter information stream is known as ‘‘state of the book’’ information. Since the approval of the Hybrid Market, the Exchange has continued to discuss Hybrid Market features with its members and advisory committees. Based on these discussions, the Exchange has decided to make changes to certain aspects of the Hybrid Market, to produce a trading venue that best 5 See Securities Exchange Act Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006). 6 The Display Book system is an order management and execution facility. It receives and displays orders to the specialist, contains the orders received by the specialist (the ‘‘Book’’), and provides a mechanism to execute and report transactions to the Consolidated Tape. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 36849 addresses the various needs of its members and customers. As part of the implementation of Phase II of the Hybrid Market, the Exchange is proposing that it have the ability to permit specialists to send quoting messages via the API in all securities without the specialists having access to information about incoming orders as they are entering Exchange systems. This is similar to the manner in which specialists are allowed to send quoting messages in exchange traded funds (‘‘ETFs’’) and Trust Issued Receipts today,7 before the effectiveness of the full Hybrid amendments, except that the specialist systems would have access to state of the book information. Exchange Rule 104 currently allows specialists to send quoting messages via the API in ETFs and Trust Issued Receipts. These specialists’ algorithms do not have access to the state of the book information stream. The provision discussed in this filing will be superseded with the Exchange rule 104 amendments noted above when Phase II of the Hybrid Market is fully implemented. The Exchange believes that use of the API to quote in this fashion will enable specialists and the Exchange to obtain valuable real time experience with respect to the use of specialist proprietary algorithms. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act 8 in general, and furthers the objectives of section 6(b)(5) of the Act 9 in particular, in that it is 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 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. 7 Exchange Rule 104 was amended for this purpose in 2004. See Securities Exchange Act Release No. 50412 (September 20, 2004), 69 FR 57741 (September 27, 2004). 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). E:\FR\FM\28JNN1.SGM 28JNN1 36850 Federal Register / Vol. 71, No. 124 / Wednesday, June 28, 2006 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchanges 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 does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) by its terms, become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, it has become effective pursuant to section 19(b)(3)(A) of the Act 10 and Rule 19b–4(f)(6) thereunder.11 A proposed rule change filed under Rule 19b–4(f)(6) normally may not become operative prior to 30 days after the date of filing. However, Rule 19b– 4(f)(6)(iii) 12 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay and designate the proposed rule change immediately operative upon filing. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because it would allow specialists to quote more efficiently. Accordingly, the Commission designates the proposal to be effective and operative upon filing with the Commission.13 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 witht he Act. Comments may be submitted by any of the following methods: Number SR–NYSE–2006–44 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–54026; File No. SR–PCX– 2005–115] • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2006–44. 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 (http://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 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 available publicly. All submissions should refer to File Number SR–NYSE–2006–44 and should be submitted on or before July 19, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.14 J. Lynn Taylor, Assistant Secretary. [FR Doc. 06–5754 Filed 6–27–06; 8:45 am] BILLING CODE 8010–01–M jlentini on PROD1PC65 with NOTICES 10 15 11 17 VerDate Aug<31>2005 16:52 Jun 27, 2006 Jkt 208001 14 17 PO 00000 CFR 200.30–3(a)(12). Frm 00098 Fmt 4703 June 21, 2006. 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 October 11, 2005, the Pacific Exchange, Inc. (n/ k/a NYSE Arca, Inc.) (the ‘‘Exchange’’), through its wholly owned subsidiary PCX Equities, Inc. (n/k/a/ NYSE Arca Equities, Inc.) (‘‘NYSE Arca Equities’’ or the ‘‘Corporation’’), 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 the Exchange.3 The Exchange filed Amendment No. 1 to the proposed rule change on November 21, 2005.4 The Exchange filed Amendment No. 2 to the proposed rule change on May 5, 2006.5 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is partially approving the proposal, as amended, on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange, through its wholly owned subsidiary NYSE Arca Equities, proposes to trade shares (‘‘Shares’’) of the following twelve funds of the ProShares Trust (f/k/a xtraShares Trust) (the ‘‘Trust’’): Ultra 500 Fund, Ultra 100 Fund, Ultra 30 Fund, Ultra Mid-Cap 400 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 On March 6, 2006, the Pacific Exchange, Inc. (‘‘PXC’’), filed with the Commission a proposed rule change, which was effective upon filing, to change the name of the Exchange, as well as several other related entities, to reflect Archipelago’s recent acquisition of PCX and the merger of the NYSE with Archipelago. See File No. SR–PCX–2006–24. All references herein have been changed to reflect these transactions. Telephone Conference between Lisa Dallmer, Direct, NYSE Arca Equities, Inc., and Florence E. Harmon, Senior Special Counsel, Division of Market Regulation (‘‘Division’’), Commission, on June 21, 2006. 4 Amendment No. 1 replaced and superseded the original filing in its entirety. 5 Amendment No. 2 replaced and superseded Amendment No. 1 in its entirety. 2 17 Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 12 17 CFR 240.19b–4(f)(6)(iii). 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). Self-Regulatory Organizations; Pacific Exchange, Inc. (n/k/a NYSE Arca, Inc.); Notice of Filing of a Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating and Order Granting Partial Accelerated Approval To Trading Shares of the Funds of the ProShares Trust Pursuant to Unlisted Trading Privileges Sfmt 4703 E:\FR\FM\28JNN1.SGM 28JNN1

Agencies

[Federal Register Volume 71, Number 124 (Wednesday, June 28, 2006)]
[Notices]
[Pages 36849-36850]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-5754]



[[Page 36849]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54024; File No. SR-NYSE-2006-44]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Specialist Algorithmic Quoting Messages Permitted Pursuant 
to Exchange Rule 104

June 21, 2006.
    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 June 20, 2006, the New York Stock Exchange LLC (``NYSE'') or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Item I and II 
below, which Items have been prepared by the Exchange. NYSE filed the 
proposed rule change pursuant to section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule change 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE proposes to amend Exchange Rule 104 (Dealings by Specialists) 
with respect to the specialists' ability to establish systems employing 
algorithms to send messages via a connection to the Display 
Book[supreg] system for the purpose of updating quotations 
systematically. The text of the proposed rule change is available on 
the Exchange's Web site (http://www.nyse.com), at the Exchange's Office 
of the Secretary, 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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any concerns 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 
Section 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
    Under the NYSE HYBRID MARKET\SM\ initiative \5\, the Exchange 
proposed several changes to the manner in which specialists on the 
Exchange would be able to establish electronic connections to the 
Display Book[supreg] \6\ system (``Display Book'') to provide them with 
access to certain information and permit them to make a range of 
specified quoting and trading decisions based on that information. The 
Exchange proposed amendments to Exchange Rule 104 (Dealings by 
Specialists) to provide specialists with the ability to implement 
systems that use proprietary algorithms based on predetermined 
parameters to electronically participate in the Hybrid Market 
(``Specialist Algorithm''). The Specialist Algorithm is designed to 
communicate with the Display Book system via an Exchange-owned external 
application program interface (``API'').
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353 (March 31, 2006).
    \6\ The Display Book system is an order management and execution 
facility. It receives and displays orders to the specialist, 
contains the orders received by the specialist (the ``Book''), and 
provides a mechanism to execute and report transactions to the 
Consolidated Tape.
---------------------------------------------------------------------------

    As approved in the Hybrid Market initiative, the Specialist 
Algorithm is permitted to send messages to the Display Book via the API 
to quote or trade on behalf of the specialist's proprietary interest. 
The Specialist Algorithm will generate these quoting or trading 
messages in reaction to specific types of information it will have 
access to. This information includes specialist dealer position, 
existing quotes, publicly available information the specialist chooses 
to supply to the algorithm, incoming orders as they are entering 
Exchange systems, and information about orders on the display Book such 
as limit orders, percentage orders, stop orders, and auction limit and 
auction market orders. This latter information stream is known as 
``state of the book'' information.
    Since the approval of the Hybrid Market, the Exchange has continued 
to discuss Hybrid Market features with its members and advisory 
committees. Based on these discussions, the Exchange has decided to 
make changes to certain aspects of the Hybrid Market, to produce a 
trading venue that best addresses the various needs of its members and 
customers.
    As part of the implementation of Phase II of the Hybrid Market, the 
Exchange is proposing that it have the ability to permit specialists to 
send quoting messages via the API in all securities without the 
specialists having access to information about incoming orders as they 
are entering Exchange systems. This is similar to the manner in which 
specialists are allowed to send quoting messages in exchange traded 
funds (``ETFs'') and Trust Issued Receipts today,\7\ before the 
effectiveness of the full Hybrid amendments, except that the specialist 
systems would have access to state of the book information.
---------------------------------------------------------------------------

    \7\ Exchange Rule 104 was amended for this purpose in 2004. See 
Securities Exchange Act Release No. 50412 (September 20, 2004), 69 
FR 57741 (September 27, 2004).
---------------------------------------------------------------------------

    Exchange Rule 104 currently allows specialists to send quoting 
messages via the API in ETFs and Trust Issued Receipts. These 
specialists' algorithms do not have access to the state of the book 
information stream. The provision discussed in this filing will be 
superseded with the Exchange rule 104 amendments noted above when Phase 
II of the Hybrid Market is fully implemented.
    The Exchange believes that use of the API to quote in this fashion 
will enable specialists and the Exchange to obtain valuable real time 
experience with respect to the use of specialist proprietary 
algorithms.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \9\ in particular, in that it 
is 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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.

[[Page 36850]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchanges 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 does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
by its terms, become operative for 30 days from the date on which it 
was filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to section 19(b)(3)(A) of the Act \10\ 
and Rule 19b-4(f)(6) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \12\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay and designate the proposed 
rule change immediately operative upon filing. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest because it would allow 
specialists to quote more efficiently. Accordingly, the Commission 
designates the proposal to be effective and operative upon filing with 
the Commission.\13\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

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 witht he Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2006-44 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2006-44. 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 (http://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 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 available publicly. All submissions should refer to 
File Number SR-NYSE-2006-44 and should be submitted on or before July 
19, 2006.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-5754 Filed 6-27-06; 8:45 am]
BILLING CODE 8010-01-M