Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2 and 3 Thereto Relating to Exchange Rules Governing Certain Definitions, Systemic Processing of Certain Orders, and the Implementation Schedule of the NYSE HYBRID MARKETSM, 57590-57596 [06-8397]
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Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices
Register or within such longer period (i)
as the Commission may designate up to
ninety 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 self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change or
(B) Institute proceedings to determine
whether the proposed rule change
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:
jlentini on PROD1PC65 with NOTICES
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–NSCC–2006–09 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–NSCC–2006–09. 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, 100 F Street, NE., Washington,
DC 20549. Copies of such filing also will
be available for inspection and copying
at the principal office of NSCC and on
NSCC’s Web site at https://
www.nscc.com/legal. All comments
received will be posted without change;
the Commission does not edit personal
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identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSCC–
2006–09 and should be submitted on or
before October 16, 2006.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.13
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6–15985 Filed 9–28–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54520; File No. SR–NYSE–
2006–65]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change and
Amendment Nos. 1, 2 and 3 Thereto
Relating to Exchange Rules Governing
Certain Definitions, Systemic
Processing of Certain Orders, and the
Implementation Schedule of the NYSE
HYBRID MARKETSM
September 27, 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 August
23, 2006 the New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘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.
On September 11, 2006, September 15,
2006, and September 26, 2006 the
Exchange filed Amendment Nos. 1,3 2,4
and 3 5 respectively, to the proposed
rule change. The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 (‘‘Amendment No. 1’’)
replaced the original filing in its entirety.
4 Partial Amendment No. 2 (‘‘Amendment No. 2’’)
added proposed rule language to NYSE Rule 1000
governing the maximum order size of automatic
executions.
5 Partial Amendment No. 3 (‘‘Amendment No. 3’’)
removed proposed changes to NYSE Rule 13 related
to At the Opening or At the Opening Only Orders
and Regulation NMS-compliant Immediate or
Cancel Orders.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NYSE proposes to amend Exchange
Rules to clarify certain definitions and
systemic processes in the NYSE
HYBRID MARKETSM (‘‘Hybrid
Market’’). The proposed amendment
further serves to differentiate between
certain definitions in NYSE Rule 13 and
terms in NYSE Rule 1000 (Direct +). It
also adds in the rule text a chart
containing the Exchange’s calculated
liquidity replenishment points
(‘‘LRPs’’). In addition, this filing updates
the Hybrid Market implementation
schedule.6
The text of the proposed rule change,
as amended, is available on NYSE’s Web
site at (https://www.nyse.com), at the
principal office of NYSE, 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 comments it received on the
proposed rule change, as amended. 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 submitting this
proposed rule change to amend certain
rules governing the Hybrid Market in
order to clarify definitions and the
operation of certain systemic processes.
The Commission approved the Hybrid
Market on March 22, 2006.7 The
approved rules did not become effective
immediately; rather they are being
implemented in a series of phases over
a period of time.
Implementation of Phase 1 of the
Hybrid Market, which focused primarily
on the ability of Floor brokers to
electronically represent their customers’
interest (‘‘e-Quote’’) was substantially
completed on April 5, 2006.
The installation of software necessary
to implement Phase 2 of the Hybrid
6 See Securities Exchange Act Release No. 53539
(March 22, 2006), 71 FR 16353 (March 31, 2006),
(SR–NYSE–2004–05) (‘‘Hybrid Order’’).
7 Id.
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Market, which focuses primarily on the
ability of specialists to algorithmically
quote and trade, has been installed
Floor-wide. Specialist firms are in the
process of readying their algorithmic
systems so that they can begin operating
the systems as permitted in Phase 2.
In addition, on May 12, 2006, the
Exchange implemented a Hybrid Market
Pilot (‘‘Pilot’’) that increased the
availability of automatic executions in
the securities participating in the Pilot
by: (i) Raising the maximum size of an
auto ex order to one million shares
(with the ability to increase the
maximum size to three million shares);
(ii) eliminating the prohibition against
entry of orders for the account of the
same beneficial owner in less than 30second intervals; (iii) treating all market
orders in Pilot securities as auto ex
orders; and (iv) implementing the
approved change to NYSE Rules 13 and
1000 regarding auto execution of
marketable limit orders.8 Currently, the
Pilot applies to one security—Lucent
Technologies, Inc.
Similarly, starting June 21, 2006,
specialists were permitted to
algorithmically quote (‘‘s-Quote’’) in
their specialty securities, without the
receipt of order information as such
orders are entering Exchange systems.9
Starting August 15, 2006, specialists
were permitted to send algorithmicallygenerated trading messages to interact
with the Exchange quotation (‘‘hit bid/
take offer’’), also without receipt of
order information as such orders are
entering Exchange systems.10
Phase 3 of the Hybrid Market which
includes, among other things, Floor
broker discretionary orders, if approved
by the Commission,11 implementation
of sweeps, auto-routing of orders to
markets displaying better bids and
offers, and elimination of restrictions on
Direct+ availability, is scheduled to
begin in or about early October 2006.
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 propose
changes to certain aspects of the Hybrid
Market to produce a trading venue that
8 See Securities Exchange Act Release No. 53791
(May 11, 2006), 71 FR 28732 (May 17, 2006). This
Pilot expires on October 31, 2006.
9 See Securities Exchange Act Release No. 54024
(June 21, 2006), 71 FR 36849 (June 28, 2006). This
is effective until Phase 2 is fully implemented.
10 See Securities Exchange Act Release No. 54316
(August 15, 2006), 71 FR 48569 (August 21, 2006).
This is effective until Phase 2 is fully implemented.
11 Floor broker discretionary orders are the
subject of a separate filing. See Securities Exchange
Release No. 54150 (July 14, 2006), 71 FR 41496
(July 21, 2006) (Notice of SR–NYSE–2006–36).
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best addresses the various needs of our
customers and members. In addition, in
order to accomplish the implementation
of Phase 3 with the functionalities noted
above within a similar time frame as
that originally proposed, certain
amendments to the approved Hybrid
Market rules are necessary.
Amendments to the Definitions of
Orders Types—Exchange Rule 13 and
Conforming Changes to Related Rules
Auto Ex Order
Definition
The definition of an ‘‘auto ex’’ order
in NYSE Rule 13 originally
encompassed only orders that were
specifically entered for automatic
execution. In other words, an ‘‘auto ex’’
order was one specifically designated
for automatic execution and thereby
immediately initiates an automatic
execution upon entry. In the original
definition, an order that merely
participated in an automatic execution
was not an ‘‘auto ex’’ order simply by
virtue of such participation. As such,
the definition focused on the order’s
designation when entered, not how the
order was executed.
The Hybrid Market filings amended
this definition by listing various types of
orders that initiate or participate in
automatic executions. By so doing, the
concept that an ‘‘auto ex’’ order is one
that immediately initiates an automatic
execution upon entry was lost.
However, the amended rule didn’t
include all order types that are capable
of participating in an automatic
execution. For example, it omitted
auction limit orders which, while
primarily an order type that offers an
opportunity for price improvement
through manual handling, may
participate in or initiate automatic
executions.
In addition, Exchange systems retain
the concept that an ‘‘auto ex’’ order is
one that initiates an automatic
execution immediately upon entry,
systemically applying the designation in
those cases where the order omits it. For
example, a marketable limit order
entered on the Exchange will initiate an
automatic execution immediately upon
entry on the Exchange. Such order no
longer needs to be specifically
designated for automatic execution by
the person entering the order; Exchange
systems apply the appropriate
designation.
As a result, the definition of ‘‘auto ex’’
order as approved in the Hybrid Market
filings is not complete nor is it
consistent with Exchange systems. The
Exchange proposes to clarify that an
‘‘auto ex’’ order is an order that initiates
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57591
an automatic execution immediately
upon arrival. Accordingly, reference to
elected stop, stop limit orders, and
CAP–DI orders will be eliminated from
the rule as they do not initiate an
automatic execution upon their entry on
the Exchange. In addition, to assist
people who may look to this definition
in connection with the general topic of
automatic executions, the Exchange
proposes to add a section that clarifies
that ‘‘non-auto-ex’’ orders (i.e., elected
stop orders, percentage orders, etc.)
participate in or initiate automatic
executions in accordance with the rules
governing their operation.
Further, the Exchange proposes to
amend NYSE Rules 1000–1004 to
replace the term ‘‘auto ex’’ with the
words ‘‘automatically executing’’ to
reflect that these rules govern all
automatic executions, not just those
involving an auto ex order.
Market Orders
The definition of an ‘‘auto ex’’ order
in NYSE Rule 13, as amended by the
Hybrid Market filings, included a
‘‘market order designated for automatic
execution.’’ The Exchange proposes to
amend this definition to include all
market orders. In other words, a market
order no longer needs to be designated
for automatic execution to be treated as
an auto ex order. The Exchange believes
this change will benefit customers by
simplifying order entry requirements for
market orders, treating them in the same
fashion as marketable limit orders.
Conforming changes to NYSE Rules
104(c)(vii), 104(e)(i), 123(e)(7), 123F(b),
132B(a)(9), and 132B(b)(9) are also
proposed.
Buy Minus—Sell Plus Orders
The reference in the definition of an
‘‘auto ex’’ order to a ‘‘sell ‘plus’—‘buy’
‘minus’ ’’ order has been rephrased to
‘‘buy minus—sell plus’’ to track the way
that order type is referred to in other
places in Exchange rules.
Maximum Size
The maximum size of automatic
executions, which had been included in
NYSE Rule 13’s definition of an ‘‘auto
ex’’ order, was eliminated in the Hybrid
Market filings.12 However, there is a
maximum order size that Exchange
systems can handle, currently 3,000,000
shares. Additionally, the Exchange
proposes to gradually increase the size
of automatic executions, rather than
start with a maximum size of 3 million
shares. Accordingly, the Exchange
proposes to add a rule that reflects this.
The Exchange proposes to phase-in the
12 See
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Hybrid Order, supra note 6.
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maximum order size eligibility for
automatic executions, beginning with a
maximum size of 1,000,000 shares.
Given the change to the definition of
an ‘‘auto ex’’ order, discussed above,
NYSE Rule 13’s ‘‘auto ex’’ definition no
longer appears to be the appropriate
location for this provision. Accordingly,
the Exchange proposes to move it to the
Direct+ rules, as the first provision
under NYSE Rule 1000.13
Auction Market Orders
As a result of the change in the way
market orders will be handled,
discussed above, the Exchange proposes
to add a definition for ‘‘Auction Market
Order’’ to NYSE Rule 13. Conforming
changes to NYSE Rules 104(c)(vii),
104(e)(i), 123(e)(7), 123F(b), 132B(a)(9)
and 132B(b)(9) are also proposed.
that Exchange systems will accept NYSE
IOC orders for participation in the reopening trade after a trading halt.
Specifically, NYSE IOC orders received
during a trading halt will be
systemically maintained in their order
of receipt for execution upon the reopening of the halted security. If a
NYSE IOC order is not executed as part
of the re-opening trade, the order will be
cancelled. This is similar to the way in
which IOC orders are handled currently
on the Exchange.
Stop Orders and Stop Limit Orders
Several changes are proposed to the
definition and operation of stop orders,
and references to stop limit orders is
proposed to be deleted from Exchange
rules, including NYSE Rule 13. These
changes are discussed in detail below.
Modifications to Systemic Processing
In the Hybrid Market Filings, the
Exchange created two types of IOC
orders which are defined in NYSE Rule
13. The first type is an IOC order that
complies with the SEC’s Regulation
NMS (‘‘Reg. NMS’’).14 A Reg. NMS IOC
order would not be routed during an
Exchange sweep, if any, to satisfy better
priced protected bids or offers 15
displayed by other market centers;
rather, a Reg. NMS IOC order would be
cancelled and the Exchange sweep
would end.
The second type of IOC order is a
‘‘NYSE IOC’’ order. Unlike a Reg. NMS
IOC order, a NYSE IOC order permits
portions to be routed during a sweep, if
any, to other markets to satisfy better
priced protected bids or offers and
cancels only when once it is no longer
able to receive an execution.
In this filing, the Exchange proposes
to amend NYSE Rule 13 to reflect that
IOC orders discussed in NYSE Rule 13
paragraph (a) are now identified as
Regulation NMS-compliant Immediate
or Cancel orders.
The Exchange also seeks to amend the
definition of a NYSE IOC order to clarify
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Immediate or Cancel (‘‘IOC’’) Orders
Stop Orders and Stop Limit Orders
13 NYSE Rule 13’s definition of ‘‘auto ex’’ order
currently has a provision regarding the maximum
size of an ‘‘auto ex’’ order applicable only to the
Lucent Pilot. See Securities Exchange Act Release
No. 53791, supra note 8. This part of the rule is
designated with a ‘‘P.’’ This rule is virtually
identical to the proposed rule regarding maximum
size, discussed above. However, given the limited
applicability of the Lucent Pilot rule and the fact
that it has been in place since mid-May, the
Exchange does not propose changing its
designation.
14 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005) (File
No. S7–10–04) (17 CFR parts 200, 201, 230, 240,
242, 249 and 270).
15 A protected bid and offer is one that meets the
definition set forth in Section 242.600(b)(57) of
Regulation NMS, 17 CFR 242.600(b)(57).
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The Exchange is proposing to amend
its rules relating to the processing of
Stop (‘‘STP’’) orders and Stop Limit
(‘‘STL’’) orders. These order types
require that the stock in question trade
at a specified price (‘‘the electing price’’)
before the order becomes capable of
execution. Once a transaction is
executed on the Exchange at the electing
price, the STP or STL order becomes a
market order or a limit order,
respectively. The proposed amendment
seeks to modify the way in which STP
orders are handled and processed. It
further seeks to eliminate STL orders,
which represent a very small percentage
of the orders entered on the Exchange.
Elimination of Stop Limit Orders
Under the proposed amendments, the
Exchange would eliminate STL orders
as an acceptable order type, given their
infrequent use. Currently STL orders
represent a very small percentage of
total order flow on the Exchange. For
example, on trade dates between March
20, 2006 and March 28, 2006, STL
orders represented approximately
.028% of the total number of orders
entered on the Exchange. Given the
relatively small customer demand for
this order type, the Exchange proposes
to eliminate it in its entirety. Exchange
systems would be programmed to reject
all STL orders. Existing GTC STL orders
would be purged after notice to the
entering firm.
Accordingly, the definition of a STL
is proposed to be deleted from NYSE
Rule 13 and conforming changes
eliminating references to STLs are
proposed with respect to other
definitions within NYSE Rule 13 and
NYSE Rules 76, 118(2), 123(e)(7), 124(f),
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132B(a)(9) and (b)(9), 750.91 and .92,
476A, and 1004.
New Processing of Stop Orders
Today, STP orders are entered
primarily through SuperDOT 16 and
are routed directly to the Display Book
(‘‘Book’’),17 where they reside awaiting
election. The specialist assigned to each
security has the ability to view the
prices at which STP orders would be
elected and the sizes of such orders. As
a result of the specialist’s ability to view
information that is not available to other
market participants, NYSE Rule
123A.40 requires that, in certain
circumstances described below, the
specialist guarantees the price that
elected STP orders receive.
The Exchange proposes to migrate the
processing of STP orders away from the
Book so that STP orders will no longer
be visible to the specialist or available
to the specialist’s system employing
algorithms. Rather, STP orders will be
maintained in a ‘‘blind file’’ in order of
the time received. The rule has been
amended to remove references to STP
orders being routed to the Book because,
under the proposed STP order
processing, Exchange Systems will
handle STP orders so that the STP order
is not visible to the part of the Book the
specialist ‘‘sees.’’ When a transaction on
the Exchange results in the election of
a STP order that had been received prior
to such transaction, the elected STP
order will be sent as a market order to
the Book and the specialist’s system
employing algorithms and will be
handled in the same way as any other
market order. This change removes the
specialist’s ability to view the electing
price and size of STP orders. As a result,
the specialist will no longer have any
unique information regarding STP
orders.
In order to maintain the integrity of
the blind file, NYSE Rule 115A is being
added and NYSE Rule 116.50 amended
to prohibit specialists, trading
assistants, and anyone on their behalf
from using the opening and closing
process, proposed below, in a manner
designed to inappropriately discover
information about unelected STP
16 SuperDot is an electronic order-routing
system used by NYSE member firms to send market
and limit orders to the NYSE.
17 The Book is an order management and
execution facility. It receives and displays orders to
specialists and provides a mechanism to execute
and report transactions and publish results to the
Consolidated Tape. In addition, the Book is
connected to a variety of other NYSE systems for
purposes of comparison, surveillance, and reporting
information to customers and market data and
National Market Systems, such as the Intermarket
Trading System, Consolidated Tape and
Consolidated Quote.
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orders.18 Accordingly, while it is
appropriate and expected that
specialists and trading assistants will
effect multiple searches to determine
appropriate opening and closing prices,
to the extent that such prices have been
identified, further searches outside the
identified prices for the purpose of
identifying the election prices and sizes
of STP orders would be inappropriate.
Opening and closing procedures on
the Exchange will be modified to
accommodate the fact that the
specialists will no longer be able to
determine and account for STP order
volume that would be elected by the
opening or closing execution. Currently,
the specialist calculates the opening
price based in part on the STP order
volume that will be elected by the
opening trade. The opening trade
executed by the specialist is reflected in
the first print. The STP order volume
elected by the opening execution trades
at the same price as the open, and is
reflected in the second print. Similarly,
on the close, the specialist calculates the
closing price based in part on the STP
order volume that will be elected and
the volume of buy and sell market-onclose/limit-on-close (MOC/LOC) 19
orders that will be executed as a result
of the closing price.
In order for the specialist to continue
to effectively price the opening and the
close, the specialist must have an
accurate understanding of the total
volume of shares available for purchase
and sale at the opening price and at the
closing price.
On the open, this will be
accomplished by the specialist or
trading assistant indicating to the
system the price at which the specialist
contemplates opening the stock. The
system will then calculate the volume of
shares available for execution on the
open at that price, including STP order
volume that would be elected by an
execution at that price. There will be no
indication what, if any, portion of the
total volume accounts for STP orders.
As a result there will only be one
18 The proposed opening and closing processes
for STP order handling are not available intraday;
therefore, during the trading day, it is not possible
for these processes to be employed in a manner
designed to inappropriately discover information
about unelected STP orders.
19 A MOC order is a market order, which is to be
executed in its entirety at the closing price, on the
Exchange, of the stock named in the order, and if
not so executed, is to be treated as cancelled. A LOC
order is a limit order, which may or may not receive
execution on the close depending on the closing
price and depth of contra side interest. The term ‘‘at
the close order’’ also includes a limit order that is
entered for execution at the closing price, on the
Exchange, of the stock named in the order, pursuant
to such procedures as the Exchange may from time
to time establish.
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opening print, and it will include STP
orders that are elected by the opening
trade.
Similarly, prior to the close, the
specialist or trading assistant will
indicate to the system the price at which
the specialist is contemplating closing
the stock. In turn, the system will
calculate the volume of shares
executable on the close at that price,
including STP order volume that would
be elected by an execution at that price.
Once again, there will be no indication
what, if any, portion of the total volume
accounts for STP orders. The unelected
STP orders will only be included in the
total volume of shares available to trade
on the close five minutes prior to the
close.
The definition of a STP order in NYSE
Rule 13 will be amended to reflect these
changes and similar conforming changes
will be made to NYSE Rules 116.40 and
123C(3)(A).
Elimination of Specialist’s Guarantee
NYSE Rule 123A.40 requires the
specialist to guarantee that elected STP
orders receive the same price as the
electing sale under certain conditions:
Specifically, if the specialist was party
to the election of such STP order and
his or her bid (offer) had the effect of
bettering the market or was part of an
electing transaction that was more than
0.10 cents away from the prior
transaction price. This rule addressed
the fact that specialists have the ability
to view the electing prices and sizes of
all STP orders present on his or her
Book, information that is not generally
available to the rest of the market.
Requiring the specialist to guarantee the
price at which these orders are executed
in the circumstances prescribed by
NYSE Rule 123A.40 removes any
incentive on the part of the specialist to
effect proprietary trades that would
cause the election of the STP orders
inappropriately.
Under the Exchange proposal, the
specialists will no longer have access to
the electing price and size information
for STP orders. Thus, the reason for the
price guarantee required by current
NYSE Rule 123A.40 will no longer exist
and the Exchange proposes its
elimination. Conforming changes to
NYSE Rules 104.10(5)(ii), 115(iii), and
476A are similarly proposed.
Elimination of Floor Official Approval
NYSE Rule 13.30(v) currently requires
a specialist to obtain Floor Official
approval prior to the execution of a
transaction under the circumstances
outlined in sections (i), (ii), (iii) and (iv)
of the rule, if the bid or offer that would
elect the STP order was more than 0.10
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57593
point away from the last sale and was
being made for the specialist dealer
account. Similar to the price guarantee
required by NYSE Rule 123A.40, this
rule addresses the fact that specialists
have information about STP orders that
is not generally available to the rest of
the market; that is, specialists have the
ability to view the electing prices and
sizes of all STP orders present on the
Book. Requiring the specialist to obtain
Floor Official approval prior to the
execution of the transaction removes
any incentive on the part of the
specialist to effect proprietary trades
that would cause the election of the STP
orders inappropriately.
However, as stated above, under the
Exchange proposal, specialists will no
longer have access to the electing price
and size information for STP orders.
Accordingly, their proprietary trading
decisions would not be made with
knowledge that it would elect STP
orders. Therefore, the reason for the
Floor Official approval required by
current NYSE Rule 13.30(v) will no
longer exist, and the Exchange proposes
its elimination.
Floor Broker STP Order Processing
Under the proposed amendments, a
Floor broker will still be permitted to
receive and execute STP orders. A Floor
broker in receipt of a STP order may
transmit the STP order to SuperDOT
and that order will be processed and
executed as outlined above.
Additionally, a Floor broker may choose
to manually represent the STP order in
the Crowd. However, the Floor broker
would be responsible for monitoring for
the election of the STP order (i.e., there
would be no systemic support for STP
orders handled by a Floor broker in the
Crowd). As explained above, once the
STP order is elected, it becomes a
market order, and the Floor broker
would be required to appropriately
execute such market order. Given the
increased pace of order executions, a
Floor broker who represents a STP order
in the Crowd is at risk of missing the
market upon election of such manuallyhandled STP order.20 Moreover, STP
orders represented by Floor brokers in
the Crowd may not be included in a
Floor Broker Agency Interest File (‘‘eQuote’’). NYSE Rule 70.20 is proposed
to be amended to reflect this.
Redefinition of Sweep
NYSE Rule 1000(d) describes the
manner in which automatically
20 A member or member organization is deemed
to have ‘‘missed the market’’ when it has accepted
an order for execution and by reason of neglect or
otherwise fails to execute an executable order in the
prevailing market.
E:\FR\FM\29SEN1.SGM
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Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices
executing orders will trade. Section (iii)
of that rule provides that the residual of
an automatically executing order will
‘‘sweep,’’ trading with orders on the
Book and any broker agency interest
files (also referred to as
‘‘e-Quotes’’) and specialist interest (also
referred to as ‘‘s-Quotes’’) capable of
execution in accordance with Exchange
rules, at a single price, such price being
the best price at which such orders and
files can trade with the residual to the
extent possible (‘‘clean-up price’’).
The Exchange proposes to amend
NYSE Rule 1000(d)(iii) to provide that
during a sweep, the residual shall trade
with all interest at each price capable of
trading, before moving to the next price
point. Accordingly, instead of a twoprice execution (at the Exchange best
bid or offer and the sweep clean-up
price), a sweeping order may trade at
multiple prices. The sweep will be
automatic and uninterrupted and will
only stop when the sweeping order is
filled, its limit price, if any, is reached,
a LRP is reached, or, in the case of a
Reg. NMS IOC order, trading at a
particular price on the Exchange would
require cancellation because the order
cannot be routed to another market
center. At each execution price during
the sweep, Floor broker e-Quotes and
limit orders on the Book trade on parity.
Elected CAP–DI orders will have an
opportunity to trade prior to the sweep
moving to the next price. Specialist sQuotes yield to limit orders on the Book
at each execution price and thereafter
trade on parity with e-Quotes.
The Exchange is proposing this
change in response to customers who,
while lauding the Exchange’s initial
Price per share
<$5
ADV:
< 500,000 shares
500,000–
3,999,999 .........
jlentini on PROD1PC65 with NOTICES
≥ 4,000,000
shares ..............
$5–9.99
20:43 Sep 28, 2006
$10–24.99
$25–49.99
$50–99.99
execution prices if there is volume
available on the Book or from CAP–DI
orders on the same side of the market
as the sweeping order.
In addition, the Exchange is
proposing a technical change to delete
a repetitious sentence in NYSE Rule
1000(d)(v) and move the remaining rule
text into NYSE Rule 1000(d)(iv).
Redefinition of Liquidity Replenishment
Points (LRPs)
NYSE Rule 1000(a)(iv) provides that
automatic execution is not available
when a LRP has been reached, and the
order triggering the LRP has been
executed to the extent possible at the
LRP price. LRPs may be triggered by a
sweep (i.e., the sweep LRP) or automatic
executions that result in rapid price
movement over a short period (i.e., the
momentum LRP).
Given the changes to the sweep
functionality described above, and in
recognition that LRPs as originally
defined are complex and not easily
understood, the Exchange is proposing
to modify NYSE Rule 1000(a)(iv) to
provide a single, simpler LRP. LRPs will
be calculated by adding and subtracting
a value to the security’s last sale price.
The LRP values are based on an
examination of trading data and vary
based on the security’s NYSE average
daily volume (‘‘ADV’’), price, and
volatility. A range of values for each
ADV and price category are available to
provide the Exchange with sufficient
flexibility to ensure that the goal of a
LRP is met, without unduly impacting
the availability of automatic executions
in such security. The proposed LRP
ranges are as follows:
$100–
149.99
$150–
199.99
$200–
249.99
$250–
1000.00
0.05
0.10
0.05
0.10
0.10
0.25
0.15
0.35
0.35
0.75
0.60
1.25
1.00
2.00
1,00
2.00
1.00
2.00
0.05
0.10
0.05
0.10
0.10
0.20
0.10
0.25
0.25
0.50
0.50
1.00
1.00
2.00
1.00
2.00
1.00
2.00
0.05
0.10
0.05
0.10
0.10
0.20
0.10
0.25
0.25
0.50
0.50
1.00
1.00
2.00
1.00
2.00
1.00
2.00
Initially, the lower values in each of
the ranges will be used to calculate the
LRPs. For example, for securities with
an ADV of 500,000–3,999,999 shares,
the LRP values will be as follows: 0.05
for securities priced through $9.99; 0.10
for securities priced from $10.00
through 49.99; 0.25, for securities priced
from $50.00 through $99.99; 0.50 for
securities priced from $100.00 through
149.99; and 1.00 for securities priced
VerDate Aug<31>2005
sweep functionality, which rewards
liquidity providers—orders on the Book
and in interest files—with price
improvement, candidly asserted that
they would manage their orders so as
not to cause a sweep. Rather, they
would send in orders in a manner so
that they obtained the benefit of trading
at each price available on the Exchange.
Accordingly, the Exchange is
proposing to amend NYSE Rules
70.20(d)(i) and (ii), 123A.30(a), and
1000(d)(iii) to reflect the redefined
sweep functionality.
Further, NYSE Rule 123A.30(a) has
been reworded in order to clarify how
and when CAP–DI orders participate in
sweeps. Specifically, when an
automatically executing order is
sweeping the Book on the same side of
CAP–DI orders, the orders will be
elected at each execution price that is
part of the sweep. To the extent that the
order sweeping the book has additional
volume, the elected same-side CAP–DI
orders will not participate in a
transaction at the executing price;
rather, Exchange Systems will
automatically and systemically unelect
the CAP–DI orders in accordance with
its terms. If, at the last execution price
that is part of the sweep, the sweeping
order is filled or unable to continue
executing, and there is volume
remaining on the Book or from contraside elected CAP–DI orders, then the
same-side CAP–DI orders may
participate in the final transaction.
CAP–DI orders on the contra-side of
an automatically executing order
sweeping the Book are also elected at
each execution price that is part of the
sweep and participate at each of the
Jkt 208001
$150.00 or more. As the Exchange gains
more experience in how these securities
trade in the Hybrid Market, the higher
value in a particular price category may
be used instead. The values used to
calculate LRPs and LRPs themselves
will be disseminated by the Exchange.
The value used to calculate the LRP’s
range will not change. LRPs for a
security will not be calculated until
there is a trade on the Exchange;
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
accordingly, if the security opens on a
quote and there are no trades on the
NYSE, LRPs will not be set.
LRP’s are volatility controls and, as
such, are meant to be triggered
infrequently, when there has been a
large price movement (based on a
security’s typical trading characteristics)
over a short period of time. If the price
of the security stays within the LRP
range, the LRP will not be triggered. If
E:\FR\FM\29SEN1.SGM
29SEN1
Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices
the price moves to the LRP in a short
period of time, automatic executions
will pause for one manual trade, and
will then resume, with a newly
calculated LRP range.
LRPs will be calculated automatically
throughout the day, as follows:
• At specified time intervals (e.g.,
every few minutes throughout the day),
as the Exchange shall determine from
time to time;
• After a manual trade by the
specialist; and
• When automatic executions resume
after an LRP has been reached.21
Initially, LRPs will be calculated
every thirty seconds during the trading
day.
Further, the Exchange proposes to
amend the time in which automatic
executions and autoquote resume after
an LRP is triggered, when the NYSE
market is not locked or crossed.
Currently, NYSE Rule 60(e)(ii)(C)
provides that after an LRP is triggered,
autoquote will resume as soon as
possible or in no more than five
seconds, provided the NYSE market is
not locked or crossed. The Exchange
proposes to amend this rule to provide
that autoquote will resume in five to ten
seconds. Initially, the ten second period
will be used; as the Exchange gains
experience in the effect of LRPs on the
market in Hybrid, the time will be
reduced to five seconds.
In addition to NYSE Rules 1000(a)(iv)
and 60(e)(ii)(C), the following rules have
also been amended to reflect the
changes discussed above: NYSE Rules
60(e)(iii) and (iv), 72(j)(i) and (ii), and
1000(c).
Miscellaneous
jlentini on PROD1PC65 with NOTICES
NYSE Rule 60(e)
Currently, NYSE Rule 60(e)(iv)(c)
provides, among other things, that when
autoquote is suspended pursuant to a
gap quote (NYSE Rule 60(e)(i)(A)), it
will nevertheless continue to update the
quote as specified therein. The
Exchange is proposing to delete the
reference to NYSE Rule 60(e)(i)(A) to
correct this provision, as autoquote does
not continue to update the quote when
it has been gapped in accordance with
Exchange procedures. Rather, in gap
quote situations, autoquote is
suspended on both sides of the market
and resumes with a manual transaction
or the publication of a non-gapped
quote.
21 Automatic executions resume after an LRP has
been reached: (i) Automatically in 5 seconds where
the NYSE is not locked or crossed; (ii) by a manual
trade; or (iii) by manually resuming autoquote.
VerDate Aug<31>2005
20:43 Sep 28, 2006
Jkt 208001
NYSE Rule 72
NYSE Rule 72 has been amended to
remove the discussion of the priority
and parity of residual interest at the
momentum liquidity replenishment
point to conform to the redefinition of
LRPs as previously discussed herein.
NYSE Rule 76
NYSE Rule 76 has been amended to
provide that the crossing requirement
does not apply to automatic executions.
This rule was designed originally to
provide an opportunity for price
improvement to buy and sell orders
represented by the same member. Under
the current rule, the member is required
to clearly announce his or her offer at
a price higher by the minimum variation
than his or her bid before crossing such
orders, to enable the Crowd to trade
with the order at such bid or offer price,
thereby providing price improvement to
the order. NYSE Rule 76 does not apply
to bonds traded in ABS,22 the
Exchange’s automated execution facility
for bond trading, as there is no verbal
Crowd participation with respect to
bond trading. Similarly, automatic
executions via Direct + do not allow
for verbal Crowd participation. The rule
will continue to apply to auction market
transactions.
‘‘High-Priced Securities’’—NYSE Rules
1000(a)(vi) and 60(e)(iv)(b)(i)
The Exchange is proposing to redefine
‘‘high-priced’’ securities from those
trading above $300.00 to those trading
above $1,000.00. Exchange rules
provide that automatic executions will
be unavailable in securities trading at
$300.00 or more. However, a $300.00
threshold encompasses securities with
sufficient trading volume where
automatic executions would be
appropriate, such as Chicago Mercantile
Exchange (‘‘CME’’).
Implementation Schedule
As noted above, the implementation
of the Hybrid Market is underway. The
next phase—Phase 3— is scheduled to
be implemented in or about early
October 2006. Approval of this filing
and the changes discussed herein is
necessary for the implementation of
Phase 3. Phase 3 will include the
features previously approved by the
Hybrid Market implementation
schedule 23 and the following additional
changes:
• Elimination of Direct+ suspension
when a better bid or offer is displayed
by another market center
22 ABS
23 See
PO 00000
is being renamed ‘‘NYSE BondsSM’’
Hybrid Order, supra note 6.
Frm 00136
Fmt 4703
Sfmt 4703
57595
• Implementation of sweeps (as
redefined herein);
• Implementation of LRP (as
redefined herein);
• Implementation of new stop order
processing (as discussed herein);
• Exchange Rule 1002 (‘‘Availability
of Automatic Execution Feature’’) will
be available for all stocks through the
close upon implementation of Phase 3
of the Hybrid Market.
2. Statutory Basis
The Exchange believes that the
proposed rule change, as amended, is
consistent with Section 6(b) of the Act 24
in general, and furthers the objectives of
Section 6(b)(5) 25 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. The Exchange believes
the proposed rule change, as amended,
is also designed to support the
principles of Section 11A(a)(1) of the
Act,26 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, as amended,
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, as amended.27
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
24 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
26 15 U.S.C. 78k–1(a)(1).
27 The Commission notes that it has received one
comment letter. See letter from George Rutherford
daed September 10, 2006.
25 15
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Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices
(ii) as to which the Exchange consents,
the Commission will:
A. By order approve the proposed rule
change, as amended, or
B. Institute proceedings to determine
whether the proposed rule change
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 Exchange Act. Comments may be
submitted by any of the following
methods:
jlentini on PROD1PC65 with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2006–65 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–2006–65. 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
Room. Copies of such filing will also be
available for inspection and copying at
the principal office of the NYSE. 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–2006–65 and should be
submitted on or before October 20,
2006.
VerDate Aug<31>2005
20:43 Sep 28, 2006
Jkt 208001
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.28
Nancy M. Morris,
Secretary.
[FR Doc. 06–8397 Filed 9–27–06; 12:12 pm]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54480; File No. SR–NYSE–
2006–72]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Order Granting Accelerated
Approval to Proposed Rule Change, as
Amended, Relating to Exchange to
Exchange Billing Under the Linkage
Plan
September 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 August
25, 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
Items I and II below, which Items have
been prepared by the Exchange. On
September 7, 2006, the Exchange 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, and is 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 proposes to permit the
Exchange to bill directly, and to accept
direct billing from, other participants in
the proposed ‘‘Plan for the Purpose of
Creating and Operating an Intermarket
Communications Linkage Pursuant to
Section 11A(a)(3)(B) of the Securities
Exchange Act of 1934’’ (‘‘Linkage Plan’’)
that are unable to implement
Sponsoring Member billing, as
described herein, on October 1, 2006.
This proposal does not require
changes to the Exchange’s rule text.
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(l).
2 17 CFR 240. 19b–4.
3 See Amendment No. 1 which replaced the
original filing in its entirety.
1 15
PO 00000
Frm 00137
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, 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 III below. The NYSE has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.4
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On July 17, 2006, the American Stock
Exchange LLC, the Boston Stock
Exchange, Inc., the Chicago Board
Options Exchange, Incorporated, the
Chicago Stock Exchange, Inc., The
NASDAQ Stock Market LLC, the
National Stock Exchange, the New York
Stock Exchange LLC, and the NYSE
Arca, Inc., executed and filed with the
Commission the Linkage Plan. The
Philadelphia Stock Exchange, Inc.
(‘‘Phlx’’) subsequently executed the
Linkage Plan on August 1, 2006.5 The
Linkage Plan was filed with the
Commission pursuant to Rule 608 of
Regulation NMS under the Act.6 The
purpose of the proposed Linkage Plan is
to enable the Linkage Plan participants
to act jointly in planning, developing,
operating and regulating the NMS
Linkage System (‘‘Linkage’’) that will
electronically link the Linkage Plan
Participant Markets to one another, as
described in the Linkage Plan. The
Linkage Plan participants have
requested that the Commission approve
the Linkage Plan by October 1, 2006.
The Plan would run concurrently with
the ITS Plan from October 1, 2006 until
February 5, 2007.7 The Linkage Plan by
its terms ends on June 30, 2007;
4 The staff has made minor changes to the
Exchange’s summaries pursuant to the telephone
conversation between Karen Lorentz, Managing
Director, Competitive Analysis, NYSE, and Nataliya
Cowen, Special Counsel, Division of Market
Regulation, Commission, on September 15, 2006.
5 See Securities Exchange Act Release No. 54239
(July 28, 2006); 71 FR 44328 (August 4, 2006). A
Linkage Plan, dated August 1, 2006, reflecting
Phlx’s inclusion as a Linkage Plan participant, was
sent to the Commission on August 8, 2006.
6 17 CFR 242.608.
7 The Linkage Plan participants have requested
that the Commission grant appropriate exemptions
from the ITS Plan to accommodate this result. See
letter to Nancy Morris, Secretary, Commission, from
Robert Hill, Chairman, ITS Operating Committee,
dated September 18, 2006.
E:\FR\FM\29SEN1.SGM
29SEN1
]]>Agencies
[Federal Register Volume 71, Number 189 (Friday, September 29, 2006)]
[Notices]
[Pages 57590-57596]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8397]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54520; File No. SR-NYSE-2006-65]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2 and 3
Thereto Relating to Exchange Rules Governing Certain Definitions,
Systemic Processing of Certain Orders, and the Implementation Schedule
of the NYSE HYBRID MARKETSM
September 27, 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 August 23, 2006 the New York Stock Exchange LLC (``NYSE'' or the
``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. On
September 11, 2006, September 15, 2006, and September 26, 2006 the
Exchange filed Amendment Nos. 1,\3\ 2,\4\ and 3 \5\ respectively, to
the proposed rule change. 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\ Amendment No. 1 (``Amendment No. 1'') replaced the original
filing in its entirety.
\4\ Partial Amendment No. 2 (``Amendment No. 2'') added proposed
rule language to NYSE Rule 1000 governing the maximum order size of
automatic executions.
\5\ Partial Amendment No. 3 (``Amendment No. 3'') removed
proposed changes to NYSE Rule 13 related to At the Opening or At the
Opening Only Orders and Regulation NMS-compliant Immediate or Cancel
Orders.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NYSE proposes to amend Exchange Rules to clarify certain
definitions and systemic processes in the NYSE HYBRID
MARKETSM (``Hybrid Market''). The proposed amendment further
serves to differentiate between certain definitions in NYSE Rule 13 and
terms in NYSE Rule 1000 (Direct +[supreg]). It also adds in the rule
text a chart containing the Exchange's calculated liquidity
replenishment points (``LRPs''). In addition, this filing updates the
Hybrid Market implementation schedule.\6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 53539 (March 22,
2006), 71 FR 16353 (March 31, 2006), (SR-NYSE-2004-05) (``Hybrid
Order'').
---------------------------------------------------------------------------
The text of the proposed rule change, as amended, is available on
NYSE's Web site at (https://www.nyse.com), at the principal office of
NYSE, 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 comments it received on the proposed rule change, as
amended. 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 submitting this proposed rule change to amend
certain rules governing the Hybrid Market in order to clarify
definitions and the operation of certain systemic processes.
The Commission approved the Hybrid Market on March 22, 2006.\7\ The
approved rules did not become effective immediately; rather they are
being implemented in a series of phases over a period of time.
---------------------------------------------------------------------------
\7\ Id.
---------------------------------------------------------------------------
Implementation of Phase 1 of the Hybrid Market, which focused
primarily on the ability of Floor brokers to electronically represent
their customers' interest (``e-Quote'') was substantially completed on
April 5, 2006.
The installation of software necessary to implement Phase 2 of the
Hybrid
[[Page 57591]]
Market, which focuses primarily on the ability of specialists to
algorithmically quote and trade, has been installed Floor-wide.
Specialist firms are in the process of readying their algorithmic
systems so that they can begin operating the systems as permitted in
Phase 2.
In addition, on May 12, 2006, the Exchange implemented a Hybrid
Market Pilot (``Pilot'') that increased the availability of automatic
executions in the securities participating in the Pilot by: (i) Raising
the maximum size of an auto ex order to one million shares (with the
ability to increase the maximum size to three million shares); (ii)
eliminating the prohibition against entry of orders for the account of
the same beneficial owner in less than 30-second intervals; (iii)
treating all market orders in Pilot securities as auto ex orders; and
(iv) implementing the approved change to NYSE Rules 13 and 1000
regarding auto execution of marketable limit orders.\8\ Currently, the
Pilot applies to one security--Lucent Technologies, Inc.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 53791 (May 11,
2006), 71 FR 28732 (May 17, 2006). This Pilot expires on October 31,
2006.
---------------------------------------------------------------------------
Similarly, starting June 21, 2006, specialists were permitted to
algorithmically quote (``s-Quote'') in their specialty securities,
without the receipt of order information as such orders are entering
Exchange systems.\9\ Starting August 15, 2006, specialists were
permitted to send algorithmically-generated trading messages to
interact with the Exchange quotation (``hit bid/take offer''), also
without receipt of order information as such orders are entering
Exchange systems.\10\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 54024 (June 21,
2006), 71 FR 36849 (June 28, 2006). This is effective until Phase 2
is fully implemented.
\10\ See Securities Exchange Act Release No. 54316 (August 15,
2006), 71 FR 48569 (August 21, 2006). This is effective until Phase
2 is fully implemented.
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Phase 3 of the Hybrid Market which includes, among other things,
Floor broker discretionary orders, if approved by the Commission,\11\
implementation of sweeps, auto-routing of orders to markets displaying
better bids and offers, and elimination of restrictions on
Direct+[supreg] availability, is scheduled to begin in or about early
October 2006.
---------------------------------------------------------------------------
\11\ Floor broker discretionary orders are the subject of a
separate filing. See Securities Exchange Release No. 54150 (July 14,
2006), 71 FR 41496 (July 21, 2006) (Notice of SR-NYSE-2006-36).
---------------------------------------------------------------------------
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
propose changes to certain aspects of the Hybrid Market to produce a
trading venue that best addresses the various needs of our customers
and members. In addition, in order to accomplish the implementation of
Phase 3 with the functionalities noted above within a similar time
frame as that originally proposed, certain amendments to the approved
Hybrid Market rules are necessary.
Amendments to the Definitions of Orders Types--Exchange Rule 13 and
Conforming Changes to Related Rules
Auto Ex Order
Definition
The definition of an ``auto ex'' order in NYSE Rule 13 originally
encompassed only orders that were specifically entered for automatic
execution. In other words, an ``auto ex'' order was one specifically
designated for automatic execution and thereby immediately initiates an
automatic execution upon entry. In the original definition, an order
that merely participated in an automatic execution was not an ``auto
ex'' order simply by virtue of such participation. As such, the
definition focused on the order's designation when entered, not how the
order was executed.
The Hybrid Market filings amended this definition by listing
various types of orders that initiate or participate in automatic
executions. By so doing, the concept that an ``auto ex'' order is one
that immediately initiates an automatic execution upon entry was lost.
However, the amended rule didn't include all order types that are
capable of participating in an automatic execution. For example, it
omitted auction limit orders which, while primarily an order type that
offers an opportunity for price improvement through manual handling,
may participate in or initiate automatic executions.
In addition, Exchange systems retain the concept that an ``auto
ex'' order is one that initiates an automatic execution immediately
upon entry, systemically applying the designation in those cases where
the order omits it. For example, a marketable limit order entered on
the Exchange will initiate an automatic execution immediately upon
entry on the Exchange. Such order no longer needs to be specifically
designated for automatic execution by the person entering the order;
Exchange systems apply the appropriate designation.
As a result, the definition of ``auto ex'' order as approved in the
Hybrid Market filings is not complete nor is it consistent with
Exchange systems. The Exchange proposes to clarify that an ``auto ex''
order is an order that initiates an automatic execution immediately
upon arrival. Accordingly, reference to elected stop, stop limit
orders, and CAP-DI orders will be eliminated from the rule as they do
not initiate an automatic execution upon their entry on the Exchange.
In addition, to assist people who may look to this definition in
connection with the general topic of automatic executions, the Exchange
proposes to add a section that clarifies that ``non-auto-ex'' orders
(i.e., elected stop orders, percentage orders, etc.) participate in or
initiate automatic executions in accordance with the rules governing
their operation.
Further, the Exchange proposes to amend NYSE Rules 1000-1004 to
replace the term ``auto ex'' with the words ``automatically executing''
to reflect that these rules govern all automatic executions, not just
those involving an auto ex order.
Market Orders
The definition of an ``auto ex'' order in NYSE Rule 13, as amended
by the Hybrid Market filings, included a ``market order designated for
automatic execution.'' The Exchange proposes to amend this definition
to include all market orders. In other words, a market order no longer
needs to be designated for automatic execution to be treated as an auto
ex order. The Exchange believes this change will benefit customers by
simplifying order entry requirements for market orders, treating them
in the same fashion as marketable limit orders. Conforming changes to
NYSE Rules 104(c)(vii), 104(e)(i), 123(e)(7), 123F(b), 132B(a)(9), and
132B(b)(9) are also proposed.
Buy Minus--Sell Plus Orders
The reference in the definition of an ``auto ex'' order to a ``sell
`plus'--`buy' `minus' '' order has been rephrased to ``buy minus--sell
plus'' to track the way that order type is referred to in other places
in Exchange rules.
Maximum Size
The maximum size of automatic executions, which had been included
in NYSE Rule 13's definition of an ``auto ex'' order, was eliminated in
the Hybrid Market filings.\12\ However, there is a maximum order size
that Exchange systems can handle, currently 3,000,000 shares.
Additionally, the Exchange proposes to gradually increase the size of
automatic executions, rather than start with a maximum size of 3
million shares. Accordingly, the Exchange proposes to add a rule that
reflects this. The Exchange proposes to phase-in the
[[Page 57592]]
maximum order size eligibility for automatic executions, beginning with
a maximum size of 1,000,000 shares.
---------------------------------------------------------------------------
\12\ See Hybrid Order, supra note 6.
---------------------------------------------------------------------------
Given the change to the definition of an ``auto ex'' order,
discussed above, NYSE Rule 13's ``auto ex'' definition no longer
appears to be the appropriate location for this provision. Accordingly,
the Exchange proposes to move it to the Direct+ rules, as the first
provision under NYSE Rule 1000.\13\
---------------------------------------------------------------------------
\13\ NYSE Rule 13's definition of ``auto ex'' order currently
has a provision regarding the maximum size of an ``auto ex'' order
applicable only to the Lucent Pilot. See Securities Exchange Act
Release No. 53791, supra note 8. This part of the rule is designated
with a ``P.'' This rule is virtually identical to the proposed rule
regarding maximum size, discussed above. However, given the limited
applicability of the Lucent Pilot rule and the fact that it has been
in place since mid-May, the Exchange does not propose changing its
designation..
---------------------------------------------------------------------------
Auction Market Orders
As a result of the change in the way market orders will be handled,
discussed above, the Exchange proposes to add a definition for
``Auction Market Order'' to NYSE Rule 13. Conforming changes to NYSE
Rules 104(c)(vii), 104(e)(i), 123(e)(7), 123F(b), 132B(a)(9) and
132B(b)(9) are also proposed.
Immediate or Cancel (``IOC'') Orders
In the Hybrid Market Filings, the Exchange created two types of IOC
orders which are defined in NYSE Rule 13. The first type is an IOC
order that complies with the SEC's Regulation NMS (``Reg. NMS'').\14\ A
Reg. NMS IOC order would not be routed during an Exchange sweep, if
any, to satisfy better priced protected bids or offers \15\ displayed
by other market centers; rather, a Reg. NMS IOC order would be
cancelled and the Exchange sweep would end.
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04) (17 CFR parts
200, 201, 230, 240, 242, 249 and 270).
\15\ A protected bid and offer is one that meets the definition
set forth in Section 242.600(b)(57) of Regulation NMS, 17 CFR
242.600(b)(57).
---------------------------------------------------------------------------
The second type of IOC order is a ``NYSE IOC'' order. Unlike a Reg.
NMS IOC order, a NYSE IOC order permits portions to be routed during a
sweep, if any, to other markets to satisfy better priced protected bids
or offers and cancels only when once it is no longer able to receive an
execution.
In this filing, the Exchange proposes to amend NYSE Rule 13 to
reflect that IOC orders discussed in NYSE Rule 13 paragraph (a) are now
identified as Regulation NMS-compliant Immediate or Cancel orders.
The Exchange also seeks to amend the definition of a NYSE IOC order
to clarify that Exchange systems will accept NYSE IOC orders for
participation in the re-opening trade after a trading halt.
Specifically, NYSE IOC orders received during a trading halt will be
systemically maintained in their order of receipt for execution upon
the re-opening of the halted security. If a NYSE IOC order is not
executed as part of the re-opening trade, the order will be cancelled.
This is similar to the way in which IOC orders are handled currently on
the Exchange.
Stop Orders and Stop Limit Orders
Several changes are proposed to the definition and operation of
stop orders, and references to stop limit orders is proposed to be
deleted from Exchange rules, including NYSE Rule 13. These changes are
discussed in detail below.
Modifications to Systemic Processing
Stop Orders and Stop Limit Orders
The Exchange is proposing to amend its rules relating to the
processing of Stop (``STP'') orders and Stop Limit (``STL'') orders.
These order types require that the stock in question trade at a
specified price (``the electing price'') before the order becomes
capable of execution. Once a transaction is executed on the Exchange at
the electing price, the STP or STL order becomes a market order or a
limit order, respectively. The proposed amendment seeks to modify the
way in which STP orders are handled and processed. It further seeks to
eliminate STL orders, which represent a very small percentage of the
orders entered on the Exchange.
Elimination of Stop Limit Orders
Under the proposed amendments, the Exchange would eliminate STL
orders as an acceptable order type, given their infrequent use.
Currently STL orders represent a very small percentage of total order
flow on the Exchange. For example, on trade dates between March 20,
2006 and March 28, 2006, STL orders represented approximately .028% of
the total number of orders entered on the Exchange. Given the
relatively small customer demand for this order type, the Exchange
proposes to eliminate it in its entirety. Exchange systems would be
programmed to reject all STL orders. Existing GTC STL orders would be
purged after notice to the entering firm.
Accordingly, the definition of a STL is proposed to be deleted from
NYSE Rule 13 and conforming changes eliminating references to STLs are
proposed with respect to other definitions within NYSE Rule 13 and NYSE
Rules 76, 118(2), 123(e)(7), 124(f), 132B(a)(9) and (b)(9), 750.91 and
.92, 476A, and 1004.
New Processing of Stop Orders
Today, STP orders are entered primarily through SuperDOT[supreg]
\16\ and are routed directly to the Display Book (``Book''),\17\ where
they reside awaiting election. The specialist assigned to each security
has the ability to view the prices at which STP orders would be elected
and the sizes of such orders. As a result of the specialist's ability
to view information that is not available to other market participants,
NYSE Rule 123A.40 requires that, in certain circumstances described
below, the specialist guarantees the price that elected STP orders
receive.
---------------------------------------------------------------------------
\16\ SuperDot[supreg] is an electronic order-routing system used
by NYSE member firms to send market and limit orders to the NYSE.
\17\ The Book is an order management and execution facility. It
receives and displays orders to specialists and provides a mechanism
to execute and report transactions and publish results to the
Consolidated Tape. In addition, the Book is connected to a variety
of other NYSE systems for purposes of comparison, surveillance, and
reporting information to customers and market data and National
Market Systems, such as the Intermarket Trading System, Consolidated
Tape and Consolidated Quote.
---------------------------------------------------------------------------
The Exchange proposes to migrate the processing of STP orders away
from the Book so that STP orders will no longer be visible to the
specialist or available to the specialist's system employing
algorithms. Rather, STP orders will be maintained in a ``blind file''
in order of the time received. The rule has been amended to remove
references to STP orders being routed to the Book because, under the
proposed STP order processing, Exchange Systems will handle STP orders
so that the STP order is not visible to the part of the Book the
specialist ``sees.'' When a transaction on the Exchange results in the
election of a STP order that had been received prior to such
transaction, the elected STP order will be sent as a market order to
the Book and the specialist's system employing algorithms and will be
handled in the same way as any other market order. This change removes
the specialist's ability to view the electing price and size of STP
orders. As a result, the specialist will no longer have any unique
information regarding STP orders.
In order to maintain the integrity of the blind file, NYSE Rule
115A is being added and NYSE Rule 116.50 amended to prohibit
specialists, trading assistants, and anyone on their behalf from using
the opening and closing process, proposed below, in a manner designed
to inappropriately discover information about unelected STP
[[Page 57593]]
orders.\18\ Accordingly, while it is appropriate and expected that
specialists and trading assistants will effect multiple searches to
determine appropriate opening and closing prices, to the extent that
such prices have been identified, further searches outside the
identified prices for the purpose of identifying the election prices
and sizes of STP orders would be inappropriate.
---------------------------------------------------------------------------
\18\ The proposed opening and closing processes for STP order
handling are not available intraday; therefore, during the trading
day, it is not possible for these processes to be employed in a
manner designed to inappropriately discover information about
unelected STP orders.
---------------------------------------------------------------------------
Opening and closing procedures on the Exchange will be modified to
accommodate the fact that the specialists will no longer be able to
determine and account for STP order volume that would be elected by the
opening or closing execution. Currently, the specialist calculates the
opening price based in part on the STP order volume that will be
elected by the opening trade. The opening trade executed by the
specialist is reflected in the first print. The STP order volume
elected by the opening execution trades at the same price as the open,
and is reflected in the second print. Similarly, on the close, the
specialist calculates the closing price based in part on the STP order
volume that will be elected and the volume of buy and sell market-on-
close/limit-on-close (MOC/LOC) \19\ orders that will be executed as a
result of the closing price.
---------------------------------------------------------------------------
\19\ A MOC order is a market order, which is to be executed in
its entirety at the closing price, on the Exchange, of the stock
named in the order, and if not so executed, is to be treated as
cancelled. A LOC order is a limit order, which may or may not
receive execution on the close depending on the closing price and
depth of contra side interest. The term ``at the close order'' also
includes a limit order that is entered for execution at the closing
price, on the Exchange, of the stock named in the order, pursuant to
such procedures as the Exchange may from time to time establish.
---------------------------------------------------------------------------
In order for the specialist to continue to effectively price the
opening and the close, the specialist must have an accurate
understanding of the total volume of shares available for purchase and
sale at the opening price and at the closing price.
On the open, this will be accomplished by the specialist or trading
assistant indicating to the system the price at which the specialist
contemplates opening the stock. The system will then calculate the
volume of shares available for execution on the open at that price,
including STP order volume that would be elected by an execution at
that price. There will be no indication what, if any, portion of the
total volume accounts for STP orders. As a result there will only be
one opening print, and it will include STP orders that are elected by
the opening trade.
Similarly, prior to the close, the specialist or trading assistant
will indicate to the system the price at which the specialist is
contemplating closing the stock. In turn, the system will calculate the
volume of shares executable on the close at that price, including STP
order volume that would be elected by an execution at that price. Once
again, there will be no indication what, if any, portion of the total
volume accounts for STP orders. The unelected STP orders will only be
included in the total volume of shares available to trade on the close
five minutes prior to the close.
The definition of a STP order in NYSE Rule 13 will be amended to
reflect these changes and similar conforming changes will be made to
NYSE Rules 116.40 and 123C(3)(A).
Elimination of Specialist's Guarantee
NYSE Rule 123A.40 requires the specialist to guarantee that elected
STP orders receive the same price as the electing sale under certain
conditions: Specifically, if the specialist was party to the election
of such STP order and his or her bid (offer) had the effect of
bettering the market or was part of an electing transaction that was
more than 0.10 cents away from the prior transaction price. This rule
addressed the fact that specialists have the ability to view the
electing prices and sizes of all STP orders present on his or her Book,
information that is not generally available to the rest of the market.
Requiring the specialist to guarantee the price at which these orders
are executed in the circumstances prescribed by NYSE Rule 123A.40
removes any incentive on the part of the specialist to effect
proprietary trades that would cause the election of the STP orders
inappropriately.
Under the Exchange proposal, the specialists will no longer have
access to the electing price and size information for STP orders. Thus,
the reason for the price guarantee required by current NYSE Rule
123A.40 will no longer exist and the Exchange proposes its elimination.
Conforming changes to NYSE Rules 104.10(5)(ii), 115(iii), and 476A are
similarly proposed.
Elimination of Floor Official Approval
NYSE Rule 13.30(v) currently requires a specialist to obtain Floor
Official approval prior to the execution of a transaction under the
circumstances outlined in sections (i), (ii), (iii) and (iv) of the
rule, if the bid or offer that would elect the STP order was more than
0.10 point away from the last sale and was being made for the
specialist dealer account. Similar to the price guarantee required by
NYSE Rule 123A.40, this rule addresses the fact that specialists have
information about STP orders that is not generally available to the
rest of the market; that is, specialists have the ability to view the
electing prices and sizes of all STP orders present on the Book.
Requiring the specialist to obtain Floor Official approval prior to the
execution of the transaction removes any incentive on the part of the
specialist to effect proprietary trades that would cause the election
of the STP orders inappropriately.
However, as stated above, under the Exchange proposal, specialists
will no longer have access to the electing price and size information
for STP orders. Accordingly, their proprietary trading decisions would
not be made with knowledge that it would elect STP orders. Therefore,
the reason for the Floor Official approval required by current NYSE
Rule 13.30(v) will no longer exist, and the Exchange proposes its
elimination.
Floor Broker STP Order Processing
Under the proposed amendments, a Floor broker will still be
permitted to receive and execute STP orders. A Floor broker in receipt
of a STP order may transmit the STP order to SuperDOT[supreg] and that
order will be processed and executed as outlined above. Additionally, a
Floor broker may choose to manually represent the STP order in the
Crowd. However, the Floor broker would be responsible for monitoring
for the election of the STP order (i.e., there would be no systemic
support for STP orders handled by a Floor broker in the Crowd). As
explained above, once the STP order is elected, it becomes a market
order, and the Floor broker would be required to appropriately execute
such market order. Given the increased pace of order executions, a
Floor broker who represents a STP order in the Crowd is at risk of
missing the market upon election of such manually-handled STP
order.\20\ Moreover, STP orders represented by Floor brokers in the
Crowd may not be included in a Floor Broker Agency Interest File (``e-
Quote''). NYSE Rule 70.20 is proposed to be amended to reflect this.
---------------------------------------------------------------------------
\20\ A member or member organization is deemed to have ``missed
the market'' when it has accepted an order for execution and by
reason of neglect or otherwise fails to execute an executable order
in the prevailing market.
---------------------------------------------------------------------------
Redefinition of Sweep
NYSE Rule 1000(d) describes the manner in which automatically
[[Page 57594]]
executing orders will trade. Section (iii) of that rule provides that
the residual of an automatically executing order will ``sweep,''
trading with orders on the Book and any broker agency interest files
(also referred to as ``e-Quotes'') and specialist interest (also
referred to as ``s-Quotes'') capable of execution in accordance with
Exchange rules, at a single price, such price being the best price at
which such orders and files can trade with the residual to the extent
possible (``clean-up price'').
The Exchange proposes to amend NYSE Rule 1000(d)(iii) to provide
that during a sweep, the residual shall trade with all interest at each
price capable of trading, before moving to the next price point.
Accordingly, instead of a two-price execution (at the Exchange best bid
or offer and the sweep clean-up price), a sweeping order may trade at
multiple prices. The sweep will be automatic and uninterrupted and will
only stop when the sweeping order is filled, its limit price, if any,
is reached, a LRP is reached, or, in the case of a Reg. NMS IOC order,
trading at a particular price on the Exchange would require
cancellation because the order cannot be routed to another market
center. At each execution price during the sweep, Floor broker e-Quotes
and limit orders on the Book trade on parity. Elected CAP-DI orders
will have an opportunity to trade prior to the sweep moving to the next
price. Specialist s-Quotes yield to limit orders on the Book at each
execution price and thereafter trade on parity with e-Quotes.
The Exchange is proposing this change in response to customers who,
while lauding the Exchange's initial sweep functionality, which rewards
liquidity providers--orders on the Book and in interest files--with
price improvement, candidly asserted that they would manage their
orders so as not to cause a sweep. Rather, they would send in orders in
a manner so that they obtained the benefit of trading at each price
available on the Exchange.
Accordingly, the Exchange is proposing to amend NYSE Rules
70.20(d)(i) and (ii), 123A.30(a), and 1000(d)(iii) to reflect the
redefined sweep functionality.
Further, NYSE Rule 123A.30(a) has been reworded in order to clarify
how and when CAP-DI orders participate in sweeps. Specifically, when an
automatically executing order is sweeping the Book on the same side of
CAP-DI orders, the orders will be elected at each execution price that
is part of the sweep. To the extent that the order sweeping the book
has additional volume, the elected same-side CAP-DI orders will not
participate in a transaction at the executing price; rather, Exchange
Systems will automatically and systemically unelect the CAP-DI orders
in accordance with its terms. If, at the last execution price that is
part of the sweep, the sweeping order is filled or unable to continue
executing, and there is volume remaining on the Book or from contra-
side elected CAP-DI orders, then the same-side CAP-DI orders may
participate in the final transaction.
CAP-DI orders on the contra-side of an automatically executing
order sweeping the Book are also elected at each execution price that
is part of the sweep and participate at each of the execution prices if
there is volume available on the Book or from CAP-DI orders on the same
side of the market as the sweeping order.
In addition, the Exchange is proposing a technical change to delete
a repetitious sentence in NYSE Rule 1000(d)(v) and move the remaining
rule text into NYSE Rule 1000(d)(iv).
Redefinition of Liquidity Replenishment Points (LRPs)
NYSE Rule 1000(a)(iv) provides that automatic execution is not
available when a LRP has been reached, and the order triggering the LRP
has been executed to the extent possible at the LRP price. LRPs may be
triggered by a sweep (i.e., the sweep LRP) or automatic executions that
result in rapid price movement over a short period (i.e., the momentum
LRP).
Given the changes to the sweep functionality described above, and
in recognition that LRPs as originally defined are complex and not
easily understood, the Exchange is proposing to modify NYSE Rule
1000(a)(iv) to provide a single, simpler LRP. LRPs will be calculated
by adding and subtracting a value to the security's last sale price.
The LRP values are based on an examination of trading data and vary
based on the security's NYSE average daily volume (``ADV''), price, and
volatility. A range of values for each ADV and price category are
available to provide the Exchange with sufficient flexibility to ensure
that the goal of a LRP is met, without unduly impacting the
availability of automatic executions in such security. The proposed LRP
ranges are as follows:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Price per share <$5 $5-9.99 $10-24.99 $25-49.99 $50-99.99 $100- $150- $200- $250-
-------------------------------------------------------------------------------------------------149.99------199.99------249.99------1000.00--
ADV:
< 500,000 shares............. 0.05 0.05 0.10 0.15 0.35 0.60 1.00 1,00 1.00
0.10 0.10 0.25 0.35 0.75 1.25 2.00 2.00 2.00
500,000-3,999,999............ 0.05 0.05 0.10 0.10 0.25 0.50 1.00 1.00 1.00
0.10 0.10 0.20 0.25 0.50 1.00 2.00 2.00 2.00
>= 4,000,000 shares.......... 0.05 0.05 0.10 0.10 0.25 0.50 1.00 1.00 1.00
0.10 0.10 0.20 0.25 0.50 1.00 2.00 2.00 2.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initially, the lower values in each of the ranges will be used to
calculate the LRPs. For example, for securities with an ADV of 500,000-
3,999,999 shares, the LRP values will be as follows: 0.05 for
securities priced through $9.99; 0.10 for securities priced from $10.00
through 49.99; 0.25, for securities priced from $50.00 through $99.99;
0.50 for securities priced from $100.00 through 149.99; and 1.00 for
securities priced $150.00 or more. As the Exchange gains more
experience in how these securities trade in the Hybrid Market, the
higher value in a particular price category may be used instead. The
values used to calculate LRPs and LRPs themselves will be disseminated
by the Exchange.
The value used to calculate the LRP's range will not change. LRPs
for a security will not be calculated until there is a trade on the
Exchange; accordingly, if the security opens on a quote and there are
no trades on the NYSE, LRPs will not be set.
LRP's are volatility controls and, as such, are meant to be
triggered infrequently, when there has been a large price movement
(based on a security's typical trading characteristics) over a short
period of time. If the price of the security stays within the LRP
range, the LRP will not be triggered. If
[[Page 57595]]
the price moves to the LRP in a short period of time, automatic
executions will pause for one manual trade, and will then resume, with
a newly calculated LRP range.
LRPs will be calculated automatically throughout the day, as
follows:
At specified time intervals (e.g., every few minutes
throughout the day), as the Exchange shall determine from time to time;
After a manual trade by the specialist; and
When automatic executions resume after an LRP has been
reached.\21\
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\21\ Automatic executions resume after an LRP has been reached:
(i) Automatically in 5 seconds where the NYSE is not locked or
crossed; (ii) by a manual trade; or (iii) by manually resuming
autoquote.
---------------------------------------------------------------------------
Initially, LRPs will be calculated every thirty seconds during the
trading day.
Further, the Exchange proposes to amend the time in which automatic
executions and autoquote resume after an LRP is triggered, when the
NYSE market is not locked or crossed. Currently, NYSE Rule 60(e)(ii)(C)
provides that after an LRP is triggered, autoquote will resume as soon
as possible or in no more than five seconds, provided the NYSE market
is not locked or crossed. The Exchange proposes to amend this rule to
provide that autoquote will resume in five to ten seconds. Initially,
the ten second period will be used; as the Exchange gains experience in
the effect of LRPs on the market in Hybrid, the time will be reduced to
five seconds.
In addition to NYSE Rules 1000(a)(iv) and 60(e)(ii)(C), the
following rules have also been amended to reflect the changes discussed
above: NYSE Rules 60(e)(iii) and (iv), 72(j)(i) and (ii), and 1000(c).
Miscellaneous
NYSE Rule 60(e)
Currently, NYSE Rule 60(e)(iv)(c) provides, among other things,
that when autoquote is suspended pursuant to a gap quote (NYSE Rule
60(e)(i)(A)), it will nevertheless continue to update the quote as
specified therein. The Exchange is proposing to delete the reference to
NYSE Rule 60(e)(i)(A) to correct this provision, as autoquote does not
continue to update the quote when it has been gapped in accordance with
Exchange procedures. Rather, in gap quote situations, autoquote is
suspended on both sides of the market and resumes with a manual
transaction or the publication of a non-gapped quote.
NYSE Rule 72
NYSE Rule 72 has been amended to remove the discussion of the
priority and parity of residual interest at the momentum liquidity
replenishment point to conform to the redefinition of LRPs as
previously discussed herein.
NYSE Rule 76
NYSE Rule 76 has been amended to provide that the crossing
requirement does not apply to automatic executions. This rule was
designed originally to provide an opportunity for price improvement to
buy and sell orders represented by the same member. Under the current
rule, the member is required to clearly announce his or her offer at a
price higher by the minimum variation than his or her bid before
crossing such orders, to enable the Crowd to trade with the order at
such bid or offer price, thereby providing price improvement to the
order. NYSE Rule 76 does not apply to bonds traded in ABS[supreg],\22\
the Exchange's automated execution facility for bond trading, as there
is no verbal Crowd participation with respect to bond trading.
Similarly, automatic executions via Direct +[supreg] do not allow for
verbal Crowd participation. The rule will continue to apply to auction
market transactions.
---------------------------------------------------------------------------
\22\ ABS[supreg] is being renamed ``NYSE Bonds\SM\''
---------------------------------------------------------------------------
``High-Priced Securities''--NYSE Rules 1000(a)(vi) and 60(e)(iv)(b)(i)
The Exchange is proposing to redefine ``high-priced'' securities
from those trading above $300.00 to those trading above $1,000.00.
Exchange rules provide that automatic executions will be unavailable in
securities trading at $300.00 or more. However, a $300.00 threshold
encompasses securities with sufficient trading volume where automatic
executions would be appropriate, such as Chicago Mercantile Exchange
(``CME'').
Implementation Schedule
As noted above, the implementation of the Hybrid Market is
underway. The next phase--Phase 3-- is scheduled to be implemented in
or about early October 2006. Approval of this filing and the changes
discussed herein is necessary for the implementation of Phase 3. Phase
3 will include the features previously approved by the Hybrid Market
implementation schedule \23\ and the following additional changes:
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\23\ See Hybrid Order, supra note 6.
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Elimination of Direct+ suspension when a better bid or
offer is displayed by another market center
Implementation of sweeps (as redefined herein);
Implementation of LRP (as redefined herein);
Implementation of new stop order processing (as discussed
herein);
Exchange Rule 1002 (``Availability of Automatic Execution
Feature'') will be available for all stocks through the close upon
implementation of Phase 3 of the Hybrid Market.
2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with Section 6(b) of the Act \24\ in general, and furthers
the objectives of Section 6(b)(5) \25\ 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. The Exchange believes the proposed rule change, as
amended, is also designed to support the principles of Section
11A(a)(1) of the Act,\26\ 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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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
\26\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, 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, as amended.\27\
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\27\ The Commission notes that it has received one comment
letter. See letter from George Rutherford daed September 10, 2006.
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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
[[Page 57596]]
(ii) as to which the Exchange consents, the Commission will:
A. By order approve the proposed rule change, as amended, or
B. Institute proceedings to determine whether the proposed rule
change 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 Exchange 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 e-mail to rule-comments@sec.gov. Please include File
Number SR-NYSE-2006-65 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-2006-65. 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 Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the NYSE. 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-2006-65 and should be submitted on or before
October 20, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. 06-8397 Filed 9-27-06; 12:12 pm]
BILLING CODE 8010-01-P
