Joint Industry Plan; Order Approving NMS Linkage Plan Filed by the American Stock Exchange LLC, Boston Stock Exchange, Inc., Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., The NASDAQ Stock Market LLC, National Stock Exchange, New York Stock Exchange LLC, NYSE Arca, Inc., and Philadelphia Stock Exchange, Inc., 59148-59157 [06-8543]
Download as PDF
<![CDATA[
59148
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
set forth in Section 11A of the Act.5 A
copy of the Plan, as approved, is
attached as Exhibit A.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54551; File No. 4–524]
Joint Industry Plan; Order Approving
NMS Linkage Plan Filed by the
American Stock Exchange LLC,
Boston Stock Exchange, Inc., Chicago
Board Options Exchange,
Incorporated, Chicago Stock
Exchange, Inc., The NASDAQ Stock
Market LLC, National Stock Exchange,
New York Stock Exchange LLC, NYSE
Arca, Inc., and Philadelphia Stock
Exchange, Inc.
September 29, 2006.
cprice-sewell on PROD1PC66 with NOTICES
I. Introduction
On July 17, 2006, pursuant to Rule
608 of the Securities Exchange Act of
1934 (‘‘Act’’),1 the American Stock
Exchange LLC (‘‘Amex’’), the Boston
Stock Exchange, Inc. (‘‘BSE’’), the
Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’), the Chicago
Stock Exchange, Inc. (‘‘CHX’’), The
NASDAQ Stock Market LLC (‘‘Nasdaq’’),
the National Stock Exchange (‘‘NSX’’),
the New York Stock Exchange LLC
(‘‘NYSE’’), and NYSE Arca, Inc. (‘‘NYSE
Arca’’) (‘‘Linkage Participants’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) an
executed copy of the ‘‘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’’ or ‘‘Plan’’), a national
market system plan to create and
operate an intermarket communications
linkage pursuant to Section 11A(a)(3)(B)
of the Act.2 The Linkage Plan was
initially executed by the eight selfregulatory organizations (‘‘SROs’’) listed
above. The Philadelphia Stock
Exchange, Inc. (‘‘Phlx’’) subsequently
executed the Linkage Plan on August 1,
2006.3 The Commission published the
Linkage Plan for comment in the
Federal Register on August 4, 2006.4 No
comments were received on the Plan.
This Order approves the Linkage Plan,
thus authorizing the Plan Participants to
act jointly in planning, developing,
operating and regulating the NMS
Linkage System (‘‘Linkage’’ or
‘‘System’’) that will electronically link
the Participant Markets to one another,
as described in the Linkage Plan, so as
to further the objectives of Congress as
1 17
CFR 242.608.
U.S.C. 78k–1(a)(3)(B).
3 A Linkage Plan, dated August 1, 2006, reflecting
Phlx’s inclusion as a Linkage Participant, was
received by the Commission on August 9, 2006.
4 See Securities Exchange Act Release No. 54239
(July 28, 2006), 71 FR 44328.
2 15
VerDate Aug<31>2005
17:45 Oct 05, 2006
Jkt 211001
II. Background
Currently, the connectivity between
markets is provided pursuant to the
Intermarket Trading System (‘‘ITS’’)
Plan, a National Market System plan,
which was designed to facilitate
intermarket trading in exchange-listed
equity securities based on current
quotation information emanating from
the linked markets.6 Physical access is
provided by ITS connectivity, and the
terms of access are governed by the ITS
Plan. Participants in the ITS Plan have
agreed not to charge for access to their
markets through the ITS. The ITS Plan
provides grievance procedures for
instances when a market’s quote is
traded through and sets forth
procedures to follow in the event of a
locked or crossed market.
When the Commission adopted
Regulation NMS over a year ago,7 it
stated its belief that fair and efficient
access to markets can be achieved
without a collective intermarket linkage
facility such as ITS, if baseline
intermarket access rules are established.
The Commission adopted Rule 610
(Access Rule) that requires nondiscriminatory direct or indirect access
and enables the use of private linkages
offered by a variety of connectivity
providers. The Commission also
adopted Rule 611 (The Order Protection
Rule) that establishes intermarket
protection against trade-throughs for all
NMS stocks. The required date for full
operation of Regulation NMS-compliant
trading systems of all automated trading
centers that intend to qualify their
quotations for trade-through protection
under Rule 611 is February 5, 2007
(‘‘Trading Phase Date’’).8
Following the adoption of Regulation
NMS and considering the limitations of
the ITS Plan, and anticipating its
termination, the ITS Participants (other
than the NASD) agreed to the Linkage
Plan, which, together with the ITS Plan,
would govern the operation of the
System until the termination of the ITS
Plan, which is expected to take place on
5 15
U.S.C. 78k–1.
Securities Exchange Act Release No. 14661
(Apr. 14, 1978), 43 FR 17419 (Apr. 24, 1978)
(temporarily approving the ITS Plan). See also
Securities Exchange Act Release No. 19456 (Jan. 27,
1983), 48 FR 4938 (Feb. 3, 1983) (permanently
approving the ITS Plan).
7 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
8 See Securities Exchange Act Release No. 53829
(May 18, 2006), 71 FR 30038 (May 24, 2006)
(extending Rule 610 and Rule 611 compliance
dates).
6 See
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
the Trading Phase Date.9 After the
Trading Phase Date and until the SROs
otherwise arrange to meet their access
responsibilities, the operation of the
System would be governed by the
Linkage Plan.10 The Linkage Plan is
intended to serve as an interim solution
until all Participants are able to make
other arrangements to meet their access
responsibilities.11
Until the Trading Phase Date, the
Linkage Plan would run concurrently
with the ITS Plan. Therefore, until the
Trading Phase Date, when the ITS Plan
is expected to terminate, all Linkage
Plan Participants remain subject to the
ITS Plan. To permit the Linkage Plan
Participants to commence trading
pursuant to the Linkage Plan, the ITS
Plan Participants have requested that
the Commission issue an exemption
from certain provisions of the ITS Plan
that would interfere with the operation
of the Linkage Plan.12
III. Description of the Linkage Plan
A. Operation of the Linkage Plan
The System includes the data
processing hardware, software and
communications network that
electronically link the Participant
Markets to one another. The System
accommodates only regular-way trading.
All System trades must be compared,
cleared and settled through
Commission-registered clearing
corporations. The System is designed to
accommodate trading in any Eligible
Security, as defined in Section VII of the
Consolidated Tape Association (‘‘CTA’’)
Plan. Section VII of the CTA Plan
provides generally that Eligible
Securities include equity securities
9 Because the Linkage Plan does not contain
trade-through and locked/crossed market
prohibitions, it is necessary to preserve the
operation of the ITS Plan for the period before the
Trading Phase Date. It is the Commission’s
understanding that the ITS Plan Participants intend
to file with the Commission a request for the
termination of the ITS Plan. See letter from ITS Plan
Participants to Nancy Morris, Secretary,
Commission, dated September 18, 2006 (the
‘‘Letter’’).
10 As provided in Sections 11 and 13 of the
Linkage Plan, the Linkage Plan is to become
operative on October 1, 2006 and will terminate on
June 30, 2007. Linkage Plan Participants that wish
to extend the term could agree to do so, subject to
Commission approval.
11 The National Association of Securities Dealers,
Inc. (‘‘NASD’’) is not planning to join the Linkage
Plan and until the Trading Phase Date will continue
to maintain its connectivity under the ITS Plan.
12 With the exception of SRO rules pertaining to
locked and crossed markets, the ITS Plan
Participants have requested relief from the
requirement to enforce compliance with those SRO
rules, which correspond to the requested ITS Plan
exemptions. See the Letter. The Linkage Plan
Participants will continue to be subject to Section
8(d)(i) of the ITS Plan (Trade-Throughs; Locked
Markets) and corresponding SRO rules.
E:\FR\FM\06OCN1.SGM
06OCN1
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
registered on the NYSE, the Amex or
another national securities exchange
whose original listing requirements
substantially meet those of NYSE or
Amex except for securities that are
listed on the Nasdaq Stock Market. The
particular securities that may be traded
through the System at any time are
selected by the Supervisory Committee.
The Supervisory Committee may add or
delete System securities as it deems
appropriate and may delay the
commencement of trading in any
Eligible Security if capacity or other
operational considerations require a
delay.
The Securities Industry Automation
Corporation (‘‘SIAC’’) serves as the
System’s facilities manager and has
responsibility for the operation and
maintenance of the System. SIAC
performs its function as facilities
manager in accordance with Plan
provisions and subject to the
administrative oversight of the
Supervisory Committee.13
The System accepts only immediateor-cancel limit orders. Orders must be
sent to a Participant Market through the
auspices of a member of that
Participant, known as a Sponsoring
Member.14 The minimum information
that must be specified in an order
includes the Sponsoring Member; the
‘‘give-up’’ in the originating Participant
Market; the security; the side (buy or
sell); the amount to be bought or sold
(which must be for one unit of trading
(i.e., 100 shares) or any multiple
thereof); and the price.15 The price must
be equal to the bid or offer then being
furnished by the destination Participant
Market. An order must specify a ‘‘time
in force’’ of 5, 15 or 120 seconds, after
which the order will expire if
unexecuted.
After Trading Phase Date, all routed
limit orders will be presumed by the
executing market to be intermarket
sweep orders sent in accordance with
Rule 611(b) of Regulation NMS.16 The
trading rules applicable in destination
Participant Markets will apply to orders
received in the market and the
execution of those orders in the
market.17
13 Section
5(d) of the Linkage Plan.
the event that the Participants are unable to
implement Sponsoring Member billing on October
1, 2006, the Participants have agreed to accept
direct exchange-to-exchange billing and have filed
proposed rule changes to this effect. See, e.g.,
Securities Exchange Act Release No. 54480 (Sept.
21, 2006), 71 FR 57596 (Sept. 29, 2006).
15 Section 6(a)(ii) of the Linkage Plan.
16 Section 6(a)(v) of the Linkage Plan.
17 Section 6(b) of the Linkage Plan.
cprice-sewell on PROD1PC66 with NOTICES
14 In
VerDate Aug<31>2005
14:52 Oct 05, 2006
Jkt 211001
B. Terms and Conditions of Access
Section 3(c) of the Plan provides that
any national securities exchange or
national securities association may
become a Plan Participant by agreeing,
in an amendment to the Plan adopted in
accordance with its provisions, to
comply, and to enforce compliance,
with the Plan as provided in Section
3(b) of the Plan. An applicant for Plan
participation is required to pay SIAC an
amount estimated by SIAC to cover
development costs to be incurred to
accommodate the new Participant. In
addition, before the applicant becomes
a Plan Participant, the applicant must
pay SIAC actual development costs in
excess of estimated development costs,
or SIAC will reimburse the applicant
estimated development costs that were
paid and are in excess of actual
development costs. A new Participant
shares in development costs incurred
after it becomes a Participant in
accordance with Section 10(a)(iii)(A).18
C. Fees and Charges
The Linkage Plan imposes no fees or
charges in connection with orders
executed through the Linkage. A
Sponsoring Member is subject to
applicable transaction charges imposed
by the executing market.19 Each
Participant is free to determine whether
or not to impose, and the amount of, a
fee or charge on its members in
connection with use of its facilities to
access the System. Any such fee or
charge must not be of such size, or so
structured, as to discourage use of the
System.20
D. Dispute Resolution
The Linkage Plan does not include
specific provisions regarding resolution
of disputes between or among
Participants. Section 4(d) of the Plan
provides that no action or inaction by
the Supervisory Committee shall
prejudice any Participant’s right to
present its views to the Commission or
any other person with respect to any
matter relating to the System or to seek
to enforce its views in any other forum
it deems appropriate. In addition,
Section 6(b) provides that the trading
rules of the destination market apply to
orders received in that market, as well
as to executions of orders in that market.
Each Participant determines the extent
to which its trading rules apply to
members in its market with respect to
18 Section
10(a)(iii)(C) of the Linkage Plan.
Sponsoring Member is responsible for
paying applicable transaction fees of the destination
market.
20 Section 10(b) of the Linkage Plan. Any fees
charged by Participants must be filed with the
Commission pursuant to Section 19(b) of the Act.
19 The
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
59149
the members’ issuance of orders from
the market and executions that occur in
the market.
IV. Discussion
In Section 11A of the Act,21 Congress
directed the Commission to facilitate the
development of a national market
system consistent with the objectives of
the Act. In particular, Section
11A(a)(3)(B) of the Act 22 authorizes the
Commission ‘‘by rule or order, to
authorize or require SROs to act jointly
with respect to matters as to which they
share authority under this title in
planning, developing, operating, or
regulating a national market system (or
a subsystem thereof) or one or more
facilities’’. Rule 608 under the Act
establishes the procedures for filing,
amending, and approving national
market system plans.23 Pursuant to
paragraph (b)(2) of Rule 608, the
Commission’s approval of a national
market system plan is conditioned upon
a finding that the proposed plan ‘‘is
necessary or appropriate in the public
interest, for the protection of investors
and the maintenance of fair and orderly
markets, to remove impediments to, and
perfect the mechanisms of, a national
market system, or otherwise in
furtherance of the purposes of the
Act’’.24
After carefully considering the
proposed Linkage Plan, the Commission
has determined to approve, pursuant to
Section 11A(a)(3)(B) of the Act,25 and
Rule 608 thereunder,26 the Linkage
Plan, thus authorizing the Plan
Participants to act jointly to implement
the Plan’s intermarket linkage.27
In 1975, Congress determined that the
‘‘linking of all markets’’ for NMS stocks
through communications and data
processing facilities would ‘‘foster
efficiency; enhance competition;
increase the information available to
brokers, dealers, and investors; facilitate
the offsetting of investors’ orders; and
contribute to the best execution of
investors’ orders’’.28 All SROs that trade
exchange-listed stocks currently are
linked through ITS, an intermarket
linkage facility. ITS provides a means of
access to exchanges and Nasdaq by
permitting each market to send a
21 15
U.S.C. 78k–1.
U.S.C. 78k–1(a)(3)(B).
23 17 CFR 242.608.
24 17 CFR 242.608(b)(2).
25 15 U.S.C. 78k–1(a)(3)(B).
26 17 CFR 242.608.
27 Although Phlx initially did not sign the Plan,
it subsequently executed the Linkage Plan on
August 1, 2006. A Linkage Plan, dated August 1,
2006, reflecting Phlx’s inclusion as a Linkage
Participant, was received by the Commission on
August 9, 2006.
28 Section 11A(a)(1)(D) of the Act.
22 15
E:\FR\FM\06OCN1.SGM
06OCN1
59150
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
cprice-sewell on PROD1PC66 with NOTICES
‘‘commitment to trade’’ through the
system, with receiving markets
generally having up to 30 seconds to
respond. ITS also provides access to
quotations of participants without fees
and establishes uniform rules to govern
quoting practices. Although ITS
promotes access among participants that
is uniform and free, it also is often slow
and limited. Moreover, it is governed by
a unanimous vote requirement that has
at times impeded innovation in the
system or its set of rules. In contrast,
there is no collective intermarket
linkage system for Nasdaq stocks.
Instead, access is achieved primarily
through private linkages among
individual trading centers. This
approach has demonstrated its benefits
among electronic markets; it is flexible
and can readily incorporate
technological advances as they occur.
Rule 610 adopted by the Commission
in Regulation NMS 29 reflects the
Commission’s determination that fair
and efficient access to markets can be
achieved without an intermarket linkage
facility such as ITS, if baseline
intermarket access rules are established.
The proposed Linkage Plan would
govern the operation of the System
together with the ITS Plan until the
termination of the ITS Plan expected to
take place on the Trading Phase Date.30
After the Trading Phase Date and until
the SROs otherwise arrange to meet
their access responsibilities, the
operation of the System would be
governed by the Linkage Plan.31 The
Linkage Plan is intended to serve as an
interim solution until all Participants
otherwise arrange to meet their access
responsibilities.32
To permit the Linkage Plan
Participants to commence trading
pursuant to the Linkage Plan, the ITS
Plan Participants have requested that
the Commission issue an exemption
from certain provisions of the ITS Plan
that would interfere with the operation
of the Linkage Plan.33 In a separate
29 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
30 The Linkage Plan does not contain tradethrough and locked/crossed market prohibitions,
therefore it is necessary to preserve the operation
of the ITS Plan for the period before the Trading
Phase Date. It is the Commission’s understanding
that the ITS Plan Participants intend to file with the
Commission a request for the termination of the ITS
Plan. See the Letter.
31 As provided in Sections 11 and 13 of the
Linkage Plan, the Linkage Plan is to become
operative on October 1, 2006 and will terminate on
June 30, 2007. Linkage Plan Participants that
wished to extend the term could agree to do so,
subject to Commission approval.
32 NASD is not planning to join the Linkage Plan
and until the Trading Phase Date will maintain its
connectivity under the ITS Plan.
33 With the exception of SRO rules pertaining to
locked and crossed markets, the ITS Plan
Participants have requested relief from the
requirement to enforce compliance with those SRO
VerDate Aug<31>2005
17:45 Oct 05, 2006
Jkt 211001
action, the Commission today has
granted an exemption from certain
provisions of the ITS Plan that could
interfere with the operation of the
Linkage Plan, but until the Trading
Phase Date, the Linkage Plan
Participants will continue to be subject
to certain provisions of the ITS Plan and
corresponding SRO rules governing
Trade-Throughs and Locked Markets, as
well as to some other provisions of the
ITS Plan.34
In approving the Linkage Plan, the
Commission finds that the Linkage Plan
is consistent with the Act in that it
enhances intermarket competition by
providing a means of intermarket access
for Eligible securities, pending the full
implementation of Regulation NMS and,
therefore, would promote investor
protection and the maintenance of fair
and orderly markets.
V. Conclusion
It is hereby ordered, pursuant to
Section 11A(a)(3)(B) of the Act,35 and
Rule 608 thereunder,36 that the Linkage
Plan submitted by the Linkage Plan
Participants is approved and the
Linkage Plan Participants (and any other
self-regulatory organization which
agrees to be a Plan Participant) are
authorized to act jointly in planning,
developing, operating or regulating the
Linkage Plan as a means of facilitating
a national market system.37
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.
Nancy M. Morris,
Secretary.
Exhibit A
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
Agreement made as of June 12, 2006,
among American Stock Exchange LLC,
Boston Stock Exchange, Inc., Chicago
Board Options Exchange, Inc., Chicago
Stock Exchange, Inc., Nasdaq Stock
Market LLC, National Stock Exchange,
New York Stock Exchange LLC, and
NYSE 1Arca, Inc.
rules, which correspond to the requested ITS Plan
exemptions. See the Letter.
34 See letter from Erik R. Sirri, Director, Division
of Market Regulation, Commission, dated
September 29, to Robert Hill, Chairman, ITS
Operating Committee.
35 15 U.S.C. 78k–1(a)(3)(B).
36 17 CFR 242.608.
37 17 CFR 200.30–2(a)(27).
1 The Philadelphia Stock Exchange, Inc. (‘‘Phlx’’)
subsequently executed the Linkage Plan on August
1, 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.
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
Whereas, the undersigned national
securities exchanges are parties to the
plan submitted to the Securities and
Exchange Commission (the ‘‘SEC’’) 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 (the
‘‘Act’’).
Now, Therefore, in consideration of
the premises and the mutual covenants
and agreements contained herein, the
parties agree to submit this Agreement
called the NMS Linkage Plan to the SEC
for approval pursuant to section
11A(a)(3)(B) of the Act and Rule 608
thereunder.
1. Definitions.
(1) ‘‘Application’’ means any use of
the System to facilitate trades between
Participant Markets that is described in
the NMS Linkage Plan.
(2) ‘‘CTA Plan’’ means the plan filed
with the SEC pursuant to SEC Rule 17a–
15 (subsequently amended and
redesignated as Rule 11Aa3–1, and
subsequently amended and redesignated
as Rule 601), approved by the SEC and
declared effective as of May 17, 1974, as
from time to time amended.
(3) ‘‘CTA Plan Processor’’ means the
organization serving as recipient and
processor of last sale prices under the
CTA Plan.
(4) ‘‘Eligible Security’’ has the
meaning assigned to that term in the
CTA Plan.
(5) ‘‘NMS Linkage Plan’’ or ‘‘Linkage
Plan’’ means this plan as from time to
time amended in accordance with the
provisions hereof.
(6) ‘‘NMS Linkage System’’
(‘‘Linkage’’ or ‘‘Linkage System’’) means
the system described in section 5.
(7) ‘‘Network A Eligible Security’’ has
the meaning assigned to that term in the
CTA Plan.
(8) ‘‘Network B Eligible Security’’ has
the meaning assigned to that term in the
CTA Plan.
(9) ‘‘Participant’’ means a party to the
Linkage Plan with respect to which such
plan has become effective pursuant to
section 13.
(10) ‘‘Participant(’s) Market’’ means a
facility for the trading of System
securities operated by a Participant.
(11) ‘‘System’’ means the data
processing hardware, software and
communications network that links
electronically the Participant Markets to
one another. The System includes (a)
computers that perform such functions
as message validation, processing,
logging and switching and (b) from a
functional standpoint, (i) high speed
communications lines that link such
computers with the Participant Markets
(either directly or through Participant
E:\FR\FM\06OCN1.SGM
06OCN1
cprice-sewell on PROD1PC66 with NOTICES
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
Switches), and (ii) Linkage System
stations.
(12) ‘‘System security (stock)’’ means
a security (stock) selected for trading
through the Applications in accordance
with section 5(b)(ii).
(13) ‘‘System trade’’ means any trade
made through any Application.
2. Purpose of Linkage Plan. The
purpose of the Linkage Plan is to enable
the Participants to act jointly in
planning, developing, operating and
regulating the system as described in the
Linkage Plan so as to further the
objectives of Congress as set forth in
section 11A(a) of the Act and to
facilitate compliance by the Participants
and their respective members with SEC
Rules 610 and 611.
3. Parties.
(a) List of Parties. The parties to the
Linkage Plan are as follows: American
Stock Exchange LLC (‘‘AMEX’’),
registered as a national securities
exchange under the Act and having its
principal place of business at 86 Trinity
Place, New York, New York 10006.
Boston Stock Exchange, Inc. (‘‘BSE’’),
registered as a national securities
exchange under the Act and having its
principal place of business at 100
Franklin Street, Boston, Massachusetts
02110. Chicago Board Options
Exchange, Inc. (‘‘CBOE’’), registered as a
national securities exchange under the
Act and having its principal place of
business at 400 South LaSalle Street,
Chicago, Illinois 60605.
Chicago Stock Exchange, Inc.
(‘‘CHX’’), registered as a national
securities exchange under the Act and
having its principal place of business at
One Financial Place, 440 South LaSalle
Street, Chicago, Illinois 60605.
Nasdaq Stock Market LLC (‘‘Nasdaq’’),
registered as a national securities
exchange under the Act and having its
principal place of business at 1 Liberty
Plaza, 165 Broadway, New York, NY
10006.
National Stock Exchange (‘‘NSX’’),
registered as a national securities
exchange under the Act and having its
principal place of business at 440 South
LaSalle Street, Suite 2600, Chicago,
Illinois 60605.
New York Stock Exchange LLC
(‘‘NYSE’’), registered as a national
securities exchange under the Act and
having its principal place of business at
11 Wall Street, New York, New York
10005. NYSE Arca, Inc. (‘‘Arca’’),
registered as a national securities
exchange under the Act and having its
principal place of business at 100 S.
Wacker Drive, Chicago, IL 60606.
Philadelphia Stock Exchange, Inc.
(‘‘Phlx’’), registered as a national
securities exchange under the Act and
VerDate Aug<31>2005
17:28 Oct 05, 2006
Jkt 211001
having its principal place of business at
1900 Market Street, Philadelphia,
Pennsylvania 19103.
(b) Compliance Undertaking. By
subscribing to and submitting the
Linkage Plan for filing with the SEC,
each undersigned party agrees to
comply to the best of its ability and,
absent reasonable justification or
excuse, to enforce compliance by its
members in their use of the Linkage
through its facilities with the provisions
of the Linkage Plan.
(c) New Participants. The Participants
agree that any other national securities
exchange or national securities
association may subscribe to the
Linkage Plan and become a Participant
by agreeing, in an amendment to the
Linkage Plan adopted in accordance
with its provisions, to comply and to
enforce compliance with the provisions
of the Linkage Plan as provided in
section 3(b).
4. Administration of Linkage Plan.
(a) Supervisory Committee:
Composition, Voting. Each Participant
shall select from its staff one individual
to represent such Participant as a
member of the Supervisory Committee
under the Linkage Plan. Except as may
be specifically otherwise provided
herein, action taken pursuant to the vote
of a majority of the members of the
Supervisory Committee present at a
meeting of the committee at which a
majority of the full committee is present
shall be deemed to be the action of the
Supervisory Committee.
(b) Supervisory Committee: Authority.
The Supervisory Committee shall not be
a policy-making or a rule-making body,
but shall, either directly or by delegating
its functions to individuals,
subcommittees established by it from
time to time or others, (i) oversee
development of the System in
accordance with the specifications
therefore agreed upon by each
Participant, (ii) monitor the operation of
the System and (iii) advise the
Participants with respect to any
deficiencies, problems or
recommendations as the Supervisory
Committee may deem appropriate in its
administration of the Linkage Plan. In
this connection, the Supervisory
Committee shall have authority to
develop procedures and make
administrative decisions necessary to
facilitate the operation of the System in
accordance with the provisions of the
Linkage Plan.
(c) Amendments to Linkage Plan. Any
proposed change in, addition to, or
deletion from the Linkage Plan may be
effected only by means of a written
amendment to the Linkage Plan which
sets forth the change, addition or
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
59151
deletion, is executed on behalf of each
Participant and is approved by the SEC
or otherwise becomes effective pursuant
to section 11A of the Act and Rule
608(b).
(d) Participant’s Rights. No action or
inaction by the Supervisory Committee
shall prejudice any Participant’s right to
present its views to the SEC or any other
person with respect to any matter
relating to the System or to seek to
enforce its views in any other forum it
deems appropriate.
5. The System.
(a) System Monitoring.
(i) Linkage Supervisory Stations. Each
Participant will maintain a Linkage
supervisory station where supervisors
appointed by such Participant will be
able to coordinate trade adjustments.
(ii) Linkage Control Center. The
System also includes the Linkage
control center (‘‘LCC’’), which monitors
and controls communications within
the System, including the processing of
error conditions. The LCC staff is able
to display and, when authorized by any
Participant, to modify the security and
market records of that Participant’s
Market as such records relate to the
System. The LCC staff is also able to
indicate whether or not any Participant
Market is open for System trades. In
addition, the LCC may be used as ‘‘backup’’ for the Linkage supervisory systemwide broadcasts. Finally, the LCC staff
is able to enter adjustments of any trade
pursuant to the procedures specified in
section 6(a)(iv) and to perform data base
control after trading hours.
(b) General Operation.
(i) Registered Clearing Corporations.
The System accommodates only regularway trading, and all System trades must
be compared, cleared and settled
through clearing corporations registered
with the SEC that maintain facilities
through which such transactions may be
compared and settled and that agree to
supply each Participant with data
reasonably requested in order to permit
such Participant to enforce compliance
by its members with its rules, the
provisions of the Act, the rules and
regulations thereunder, and the Linkage
Plan.
(ii) Selection of System Securities.
The System is designed to accommodate
trading in any Eligible Security. The
particular securities that may be traded
through the System at any time
(‘‘System securities’’) shall be selected
by the Supervisory Committee. The
Supervisory Committee may add or
delete System securities as it deems
appropriate and may delay the
commencement of trading in any
Eligible Security if capacity or other
E:\FR\FM\06OCN1.SGM
06OCN1
59152
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
cprice-sewell on PROD1PC66 with NOTICES
operational considerations shall require
such delay.
(c) Administrative Messages.
Administrative messages, as
distinguished from orders, responses
thereto and trade adjustment inputs
(including names later information),
may also be sent through the System.
There are two categories of
administrative messages that can be sent
by Participant members: Single
destination and security broadcast.
Another category of administrative
message, a ‘‘system-wide broadcast’’,
may be sent through the System only
from the Linkage control center.
(d) Facilities Manager. The Securities
Industry Automation Corporation
(‘‘SIAC’’) serves as the System’s
facilities manager and has responsibility
for the operation and maintenance of
the System. SIAC performs its function
as facilities manager in accordance with
the provisions of the Linkage Plan and
subject to the administrative oversight
of the Supervisory Committee.
6. Linkage System.
(a) Technical Matters.
(i) The System shall accept immediate
or cancel (‘‘IOC’’) orders, provided
however, that, upon the request of a
Participant or Participants, and in
accordance with Section 10(a)(iii)(A)
relating to New Development Costs
Sharing, the System shall accommodate
additional order types to be utilized by
such Participant or Participants. Orders
must be sent to a Participant market
through the auspices of a member of
that Participant, known as a Sponsoring
Member. Each market will maintain
within SIAC a database of default
Sponsoring Members (not to exceed 10)
for after hours processing and billing for
orders sent to a market where the
originating firm is not a member of the
destination market.
(ii) Order Information. An order shall,
at a minimum, specify the following:
(A) The member of the destination
market (either clearing member or
Sponsoring Member); 2
(B) Original clearing member or
omnibus clearing account of the
2 The member of the destination market will be
identified by a unique clearing number. If the
clearing number provided by the originating
Participant Market does not identify a member of
the destination market, SIAC will identify the
default Sponsoring Member of the originating
market at the destination market for the security in
question and that Sponsoring Member’s
identification information will be included on the
order to the destination market on all reports sent
to the destination market, including any report for
billing purposes. The member identified on the
order will be responsible for any fees in the
destination market. SIAC will provide to
Participants a key to match the clearing number to
the member’s name.
VerDate Aug<31>2005
14:52 Oct 05, 2006
Jkt 211001
originating Participant Market,
commonly referred to as the Give-Up,
(C) The receiving Participant Market,
(D) The security that is the subject of
the order,
(E) Designation of the order as an
order to buy or to sell,
(F) The amount of the security to be
bought or sold, which amount shall be
for one unit of trading or any multiple
thereof,
(G) A price equal to the offer or bid
price then being furnished by the
destination Participant Market, which
price shall represent the price at or
below which the security is to be bought
or the price at or above which the
security is to be sold, respectively,
(H) To facilitate application of the
short sale rule in effect in the
destination Participant Market, a
designation of the order as ‘‘short’’ or
‘‘short exempt’’ whenever it is a order
to sell short, and
(I) Time in force as 5, 15 or 120
seconds.3
(iii) Order Validation, Routing. At the
time of transmission, each order
undergoes validation procedures. If the
order passes the validation procedures,
the System assigns a unique order
identifier number (a ‘‘OID’’) to the order,
time stamps it and logs it on a mass
storage device (the ‘‘daily log’’). The
System also sends a transmission
acceptance message to the Participant
Market that originated the order. The
order is then routed to the destination
Participant Market. If the order is
accepted, in whole or in part, in the
destination Participant Market, the
execution is reported back through the
System to the originating and receiving
Participant Markets.
The System rejects the transmission of
a response that fails the validation
check and sends an appropriate error
message to the Participant Market that
originated the response. The validation
3 A Participant Market may prevent the execution,
through its facilities, of an otherwise marketable
System order, prior to the 5, 15 or 120 second time
in force parameter assigned to that order, if the time
in force parameter would result in the issuance of
an expiration notice to the sending market before
execution of such order could be reported to SIAC.
Any such procedure must be effective pursuant to
a filing with the SEC. No order with a time in force
parameter of 5 or 15 seconds shall be sent to AMEX,
CBOE, CHX, or PHLX prior to the earlier of (i) the
date on which all automated trading centers
intending to qualify their quotations for tradethrough protection under Rule 611 of Regulation
NMS must have achieved full operation of
Regulation NMS-compliant trading systems or (ii)
the date on which AMEX, CBOE, CHX, or PHLX,
as the case may be, has notified the Supervisory
Committee in writing that it is capable of accepting
and executing such orders. If an order with either
of these time in force parameters is sent to AMEX,
CBOE, CHX, or PHLX prior to such time, it will not
be executed due to system limitations.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
of a response causes the System to
retrieve the related order from the daily
log and update it with appropriate
response information. This log forms the
basis from which the after-hours reports
described in section 7(a) are produced.
Validation also causes the System to
send a transmission acceptance message
to the Participant Market that originated
the response. The System then sends the
response to the Participant Market that
originated the order. When an order is
only partially executed, the unexecuted
shares are not filled, and the System
generates a cancellation for the
unexecuted quantity and appends the
cancellation to the execution report that
it sends to the Participant Market that
originated the order.
(iv) Trade Adjustments. In accordance
with section 5(a)(ii), supervisors
monitoring the Participant Markets may
request the LCC to enter adjustments to
trades (i.e., to price, share size, buy or
sell side, to cancel a trade or to insert
a trade ‘‘as-of’’ a prior day). The
following sets forth the procedures to
facilitate trade adjustments and to
authorize the LCC to make such
adjustments. All requests among
Participants and to the LCC for trade
adjustments shall be in the form of
administrative messages sent through
the System. For the purposes of this
section 6(a)(vi), administrative messages
sent or received among Participant
Markets, or sent to the LCC, shall be
deemed to have been issued by
supervisors of Participant Markets
authorized by such Participant Markets
to issue such administrative messages.
A) Adjustments on Trade Day. The
LCC shall make an adjustment to a trade
entered into that same day based upon
an administrative message request made
from a supervisor of the Participant
Market that received and executed the
order (‘‘executing market supervisor’’).
Such request shall not be made to the
LCC unless an executing market
supervisor has received from a
supervisor in the Participant Market that
issued the order (‘‘issuing market
supervisor’’), in the form of an
administrative message sent through the
System, agreement as to the terms of,
and authorization to make, the
adjustment. The administrative message
request to the LCC by the executing
market supervisor shall specify the
terms of, and authorization to the LCC
to make, the adjustment.
In the event that, notwithstanding the
provisions of the prior paragraph, an
executing market supervisor requests
the LCC to make a trade adjustment
without having received an
administrative message from an issuing
market supervisor, and the LCC has
E:\FR\FM\06OCN1.SGM
06OCN1
cprice-sewell on PROD1PC66 with NOTICES
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
made such requested adjustment, then
the LCC shall, at the request and
direction of an issuing market
supervisor, made prior to the settlement
for such trade, readjust such trade to its
terms as they existed prior to such
adjustment.
(B) Adjustments for Prior Trade Day.
Except as provided in the preceding
paragraph, the LCC shall make an
adjustment to a trade entered into on a
prior day only upon administrative
message requests made from both
executing and issuing market
supervisors, each message specifying
the same terms of, and authorization to
the LCC to make, the adjustment.
(C) The provisions of paragraphs (A)
and (B) of this section 6(a)(iv) shall not
restrict the ability of any Participant
Market to unilaterally request the LCC
to end adjustments to trades or to cancel
or adjust any System trade executed in
its market pursuant to its rules
pertaining to clearly erroneous
transactions or obvious errors, and
system malfunctions. The sending
market may invoke any appellate or
review process provided by such rules
on behalf of the Sponsoring Member. In
the event of any cancellation or
adjustment, the executing market shall
notify the LCC and all affected
Participants by administrative message
specifying the terms of the cancellation
or adjustment and authorizing the LCC
to make the adjustments or cancel the
trades.
(D) LCC Confirmation. The LCC shall,
after making a trade adjustment, send an
administrative message to both the
executing and sending market
supervisors confirming that the
adjustment has been made and
specifying the terms of the adjustment.
(v) Intermarket Sweep Orders. All
routed limit orders shall be presumed
by the executing market to be orders
sent pursuant to the intermarket sweep
order exception in SEC Rule 611(b).
(vi) Other. Each Participant shall also
determine how orders received in the
market for which it has responsibility
are to be handled therein and agrees that
any procedures it may adopt in this
regard shall be consistent with the
provisions of the Linkage Plan and the
efficient operation of the System.
Participants are required to execute
orders at a minimum at the size of their
displayed quotes. Each Participant shall
insure that no communication shall be
entered into the System from its market
except (A) on behalf of a member of
such Participant who is permitted by
the Linkage Plan and such Participant’s
rules to use the System with respect to
the security or securities that are the
subject of the communication or (B) by
VerDate Aug<31>2005
14:52 Oct 05, 2006
Jkt 211001
employees of such Participant in
performance of such Participant’s
obligations under the Linkage Plan.
(b) Participant Trading Rules. The
trading rules applicable in destination
Participant Markets shall apply to
orders received in such market and
executions of orders therein. Each
Participant shall determine the extent to
which its trading rules shall apply to
members within its market insofar as
such members’ issuance of orders from
such market and resulting executions
are concerned.
7. Comparison and Settlement.
Comparison of a side of a System trade
furnished by a Participant shall be the
responsibility of such Participant.
(a) After Hours Functions. The
functions of the System after the close
of trading in all Participant Markets
shall consist of the following:
(i) The System’s daily log of messages
will be put on tape for retention;
(ii) The System will generate four
reports:
(A) An order/response report that will
match orders to trade with the
appropriate responses,
(B) An order/cancellation report that
will list all orders to trade that were
canceled,
(C) A trade adjustment report that will
list all adjustments made to previously
executed System trades, and
(D) A traffic summary report that will
indicate the number of orders to trade,
the number of responses and the
number of administrative messages
entered from each Participant Market
during the trading day; and
(iii) The System will generate the
clearing tape referred to in section 7(b).
(b) Clearing Tape. At the end of each
trading day, the System generates a
clearing tape as part of after-hours
processing. This tape is in OID
sequence, includes all of the day’s
System trades, and shows:
(i) The OID,
(ii) The originating Participant and
clearing member(s), or the clearing
corporation(s) through which such
clearing member(s) shall settle the trade,
(iii) The destination Participant and
destination clearing member(s), or the
clearing corporation(s) through which
such clearing member(s) shall settle the
trade,
(iv) The type of trade action (buy or
sell),
(v) The security symbol,
(vi) The executed quantity and price,
and
(vii) The date and time of trade.
Adjustments to any System trade
made by agreement between both sides
of the trade are included in the tape and
shown as a separate ‘‘trade adjustment
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
59153
record’’. If a trade has been adjusted, the
original trade record is followed by
trade adjustment record(s). The trade
adjustment record(s) carry the same OID
as the original trade record. There are
two types of trade adjustments, System
trade cancellations and System trade
changes. For System trade cancellations,
the adjustment record negates the
original trade record. For example, a
cancellation of a trade to buy is reflected
on the adjustment record as a ‘‘negative
buy’’. For System trade changes, there
are two adjustment records. The first
adjustment record negates the original
trade record. The second adjustment
record logs the trade data as adjusted
for, e.g., a change in action, security,
quantity and/or price. The adjustment
records are generated from the trade
adjustment file that is created during
trading hours and from inputs from the
Linkage control center pursuant to
requests from the Participants’
supervisors.
(c) Comparison of System Trades. The
contra side of each System trade
ultimately is the clearing interface
account used to identify the clearing
corporation through which the
comparison of such side is completed.
If both sides of a System trade are to
settle through the same clearing
corporation, the clearing corporation
may, at its option, either book each side
against the clearing member responsible
for that side or offset each side against
an internal omnibus account (in which
case the omnibus account will net to
zero).
While sorting and format changes may
be required, the various clearing
corporations are able to use the System
clearing tape as the basic input to their
trade comparison operations. The
clearing member(s) responsible for an
Exchange-supplied side of a System
trade shall follow routine comparison
procedures. In instances where an
uncompared transaction cannot be
resolved through routine procedures,
the Exchange-supplied side(s) of the
trade discrepancy will be handled in
accordance with the rules of the
Participant(s) and clearing
corporation(s) involved.
Once comparison has been
completed, clearance and settlement can
proceed in a routine manner. System
trades are processed with all other
transactions through established
clearing interfaces.
(d) Participant Settlement
Obligations. The rules of each
Participant shall be designed to assure
that if a System trade reported on the
clearing tape (as adjusted) at the close
of any trading day, as such trade relates
to such Participant, cannot be compared
E:\FR\FM\06OCN1.SGM
06OCN1
59154
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
notwithstanding the use of routine
comparison procedures, such
Participant shall on the scheduled
settlement date honor such uncompared
trade; provided, however, that, if such a
System trade as it relates to such
Participant is rejected or excluded from
the settlement operation conducted by
the clearing corporation to which it was
reported for settlement either because of
the insolvency of the member(s) for
whose account(s) it was to be settled or
for any other reason (other than failure
to compare), such Participant shall not
be obligated to honor such trade and
such trade shall be returned to such
member(s).
In the event that a System trade as it
relates to any Participant is rejected or
excluded from the settlement operation
conducted by the clearing corporation to
which it was reported for settlement for
any reason other than failure to
compare, neither the Participant from
whose market the side of the trade that
is rejected or excluded was supplied,
the Participant from whose market the
contra side of such trade was supplied
nor any clearing corporation to which
either side of the trade was submitted
shall be obligated to honor the trade.
Instead, the member(s) constituting the
contra side of the rejected or excluded
trade (the ‘‘contra party’’) shall, without
unnecessary delay after receipt of notice
of such rejection or exclusion, close out
such trade in the best available market,
except insofar as the rules of the
clearing corporation to which the contra
side was submitted or of the Participant
from whose market the contra side was
supplied are applicable and provide an
alternative method for closing. The rules
of each Participant shall state the
foregoing closing obligations of the
contra party.
8. Pre-Opening Price Information.
The NYSE and AMEX will
disseminate, through the System, preopening price information whenever a
member in that Participant market, in
arranging an opening transaction in his
or her market in a System security,
anticipates that the opening transaction
will be at a price that represents a
change from the ‘‘previous day’s
consolidated closing price’’ of more
than the ‘‘applicable price change’’.
The ‘‘previous day’s consolidated
closing price’’ is the last price at which
a transaction in the security was
reported by the CTA Plan Processor on
the last previous day on which
transactions in the security were
reported by the CTA Plan Processor.
The ‘‘applicable price changes’’ are:
Security
Consolidated closing price
Network A ...................................................................................
Under $15 ...................................................................................
$15 or over .................................................................................
Under $5 .....................................................................................
$5 or over ...................................................................................
Network B ...................................................................................
cprice-sewell on PROD1PC66 with NOTICES
Prior to the opening of trading in a
System security for which the NYSE or
AMEX has disseminated pre-opening
price information, orders in that
security shall be sent to that Participant
through the Participant’s order delivery
system and not the NMS Linkage.
9. Operating Hours. Regular trading
hours are from 9:30 a.m. to 4 p.m.
eastern time. The normal operating
hours of the System are 9 a.m. to 6:30
p.m. eastern time or such other period
as the Supervisory Committee, by
affirmative vote of all its members, may
specify. Any period outside the normal
operating hours of the System is herein
referred to as an ‘‘additional period’’.
The System shall be operable during
any additional period requested in
writing by any two or more Participants;
provided that such Participants have
agreed to pay all costs and expenses
attributable to the operation of the
4 If the previous day’s consolidated closing price
of a Network A Eligible Security exceeded $100 and
the security does not underlie an individual stock
option contract listed and currently trading on a
national securities exchange, the ‘‘applicable price
change’’ is one dollar.
5 If the previous day’s consolidated closing price
of a Network B Eligible Security exceeded $75 and
the security is not a Portfolio Depositary Receipt,
Index Fund Share, or Trust Issued Receipt, or does
not underlie an individual stock option contract
listed and currently trading on a national securities
exchange, the ‘‘applicable price change’’ is one
dollar.
VerDate Aug<31>2005
14:52 Oct 05, 2006
Jkt 211001
System during such additional period as
agreed to by those Participants.
10. Financial Matters.
(a) Costs. The Participants shall share
the ‘‘development costs’’ and
‘‘production costs’’, in accordance with
the provisions of this section 10(a).
(i) Costs Definitions
(A) ‘‘Computer software’’ includes all
programs or routines developed by or at
the direction of the System’s facilities
manager (including such development
in connection with the Intermarket
Trading System) to cause computers to
perform tasks required for any one or
more Applications and the
documentation required to describe and
maintain those programs. Computer
programs of all classes, for example,
operating systems, execution systems,
monitors, compilers and translators,
assembly routines, and utility programs
are included.
(B) ‘‘Development costs’’ mean all
costs incurred by the System’s facilities
manager in developing and improving
the computer software and installing
hardware as necessary to facilitate
System functionality (including any
testing conducted in connection with
the System).
(C) ‘‘Installing hardware as necessary’’
includes, but is not limited to,
installation and maintenance of all
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
Applicable
price change
($) (more
than)
0.10
4 0.25
0.10
5 0.25
installations and computer facilities
required to support the System.
(D) ‘‘New Participant’’ means any
national securities exchange or national
securities association that becomes a
Participant in accordance with section
3(c) after SEC approval of this Linkage
Plan.
(E) ‘‘Production costs’’ mean all
operating expenses associated with the
operation of the System, including all
costs and expenses (including
appropriate overhead costs and all
applicable taxes however designated,
exclusive of net income taxes) of the
System’s facilities manager associated
with, relating to, or resulting from its
operation or maintenance of the System,
but excluding any cost or expense
associated with any Participant’s selfregulatory function. Production costs
also include the costs and expenses of
the facilities manager: (i) In maintaining
‘‘hot lines’’ that permit conversations
among broker-dealers and staff in
different Participant Markets and with
the Systems control center; and (ii)
associated with reports rendered by a
firm of independent accountants
pursuant to paragraph (a)(vi) of this
section 10.
(F) ‘‘Routed orders base’’ for any
calendar quarter means the total number
of orders sent through the System.
E:\FR\FM\06OCN1.SGM
06OCN1
cprice-sewell on PROD1PC66 with NOTICES
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
(G) ‘‘Share of the routed orders base’’
of any Participant as computed for any
calendar quarter means a fraction, the
numerator of which is the total number
of orders sent through the System by
that Participant during the calendar
quarter and the denominator of which is
the routed orders base for the calendar
quarter.
(H) ‘‘Share of the transactions base’’
for a calendar quarter means:
(1) For any Participant other than
AMEX or NYSE, a fraction, the
numerator of which is the total number
of transactions in Network A Eligible
Securities that the Participant reports to
the CTA Plan Processor during that
quarter and the denominator of which is
the quarter’s transactions base;
(2) For AMEX, a fraction, the
numerator of which is the number of
transactions in ‘‘Top Ten Network B
Eligible Securities’’ (as clause (2) of
section 10(a)(i)(I) defines that term) that
AMEX reports to the CTA Plan
Processor during that quarter and the
denominator of which is the quarter’s
transactions base; and
(3) For NYSE, the fraction derived by
subtracting from 1 (one) the sum of all
other Participants’ shares of the
transaction base for the quarter.
(I) ‘‘Transactions base’’ for any
calendar quarter means the sum of (1)
the number of transaction reports in
Network A Eligible Securities that the
CTA Plan Processor disseminates during
the quarter and (2) the number of
transaction reports in the ‘‘Top Ten
Network B Eligible Securities’’ that the
CTA Plan Processor disseminates during
the quarter. A quarter’s ‘‘Top Ten
Network B Eligible Securities’’ refers to
the ten Network B Eligible securities for
which the CTA Plan Processor
disseminates the greatest number of
transaction reports during that quarter.
(ii) Dispute Costs Excluded. The
development costs and production costs
shall not include any cost or expense
incurred by any Participant as a result
of or in connection with the defense of
any claim, suit or proceeding against the
Supervisory Committee or any one or
more of the Participants relating to the
Linkage Plan or the operation of the
System. All such costs and expenses
incurred by any Participant shall be
borne by such Participant without
contribution or reimbursement.
(iii) Development Costs.
(A) New Development Costs Sharing.
Development costs shall not be incurred
except as agreed to by all Participants.
Each Participant shall pay a fraction
equal to its share of the transactions
base for the calendar quarter preceding
the calendar quarter during which the
Participants agree to incur such cost.
VerDate Aug<31>2005
14:52 Oct 05, 2006
Jkt 211001
Any development costs that are
incurred for the benefit of less than all
Participants shall be shared by the
Participant or Participants that benefit
therefrom as they shall mutually agree.
(B) Development Costs Payment.
Development costs will be computed by
the System’s facilities manager as soon
as practicable following the close of the
calendar month or, if relatively small,
the calendar quarter during which they
were incurred. Each Participant’s share
shall be billed to, and payable by, such
Participant promptly thereafter.
(C) New Participant’s Share of
Development Costs. At the time any
national securities exchange or national
securities association applies to become
a new Participant, such applicant shall
be charged by, and shall pay to, the
System’s facilities manager an amount
estimated by the System’s facilities
manager to cover development costs to
be incurred to accommodate such
applicant’s status as a Participant. Prior
to the effective date of the SEC’s
approval of such Participant status, the
applicant shall pay to the System’s
facility manager actual development
costs in excess of estimated
development costs, if any, or the
System’s facility manager shall
reimburse to the applicant estimated
development costs that were paid and
that are in excess of actual development
costs. Each new Participant shall share
in development costs incurred after it
becomes a Participant in accordance
with section 10(a)(iii)(A).
(D) Title to Software. The entire right,
title and interest in and to all ‘‘computer
software’’ (as defined in section
10(a)(i)(A)) developed prior to July 1,
1978 shall be vested in the Participants
who share the cost of such computer
software as joint owners. The entire
right, title and interest in and to all
computer software developed after June
30, 1978 shall be vested in the
Participant who pays the cost thereof. If
more than one Participant shares in the
cost of computer software developed
after June 30, 1978, then the entire right,
title and interest in and to such
computer software, the cost of which is
so shared, shall be vested in the
Participants who share such cost as joint
owners. The System’s facilities manager
shall use computer software solely for
the purpose of performing tasks
required for the Applications as
provided in the Linkage Plan.
(iv) Production Costs
(A) Production Costs Sharing. The
production costs attributable to any
calendar quarter shall be shared by the
markets that were Participants during
any portion of the calendar quarter.
Each such Participant, except the NYSE,
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
59155
shall pay 50% of the fraction of such
production costs equal to its share of the
routed orders base as computed for the
calendar quarter. Notwithstanding the
foregoing, the aggregate dollar amount
of all of a Participant’s quarterly
payments shall not exceed its
‘‘Production Costs Sharing Cap’’. A
Participant’s ‘‘Production Costs Sharing
Cap’’ means total production costs for
calendar year 2005 multiplied by 50
percent of the Participant’s percentage
of the routed order base for the period
commencing January 1, 2005, and
ending July 31, 2005. The NYSE shall
pay those production costs that this
Paragraph does not require the other
Participants to pay.
(B) Production Costs Payment.
Production costs will be computed by
the System’s facilities manager as soon
as practicable following the close of
each calendar month. Each Participant’s
(or former Participant’s) estimated share
thereof shall be billed by the System’s
facilities manager and shall be payable
to the System’s facilities manager
promptly following receipt. Any
appropriate adjustment will be made
between the System’s facilities manager
and each Participant promptly following
the close of each calendar quarter.
(v) Communications Connection
Costs. Each Participant shall bear 100%
of the costs to provide communication
connection from a Participant’s facilities
to the System’s communications
facilities maintained by the facilities
manager.
(vi) Accounts. The System’s facilities
manager and the independent public
accountants hereinafter referred to shall
furnish any information and/or
documentation reasonably requested in
writing by a majority of the Participants
in support of or relating to any of the
computations referred to in this section
10(a). All expenses, allocations and
computations referred to or required by
this section 10(a) shall be reported at
least annually to the Participants. For
even numbered years, (or such other
yearly interval as the Supervisory
Committee, by affirmative vote of all its
members, may specify), such reports
shall be rendered by a firm of
independent public accountants (which
may be the firm regularly employed by
the NYSE or the System’s facilities
manager), and such accountants shall
render their opinion that such expenses,
allocations and computations have been
reported in accordance with the
understanding among the Participants
as set forth in this section 10(a). For
those years when a firm of independent
public accountants is not engaged to
render a report, the facilities manager’s
internal auditor shall review all
E:\FR\FM\06OCN1.SGM
06OCN1
cprice-sewell on PROD1PC66 with NOTICES
59156
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
expenses, allocations and computations
referred to or required by this section
10(a) and that internal auditor shall
report that such expenses, allocations
and computations have been reported in
accordance with the understanding
among the Participants as set forth in
this section 10(a).
(b) User Charges. Each Participant
shall be free to determine whether or
not to impose a fee or charge on some
or all of its members in connection with
use of its facilities to access the System
and, if so, the amount of such fee or
charge. Any fee or charge that may be
imposed by any Participant shall not be
of such size, and shall not be so
structured, as to discourage use of the
System.
(c) Facilities Manager Liability Limits.
The System’s facilities manager shall
not be liable to any Participant or to any
member of any Participant using or
having access to the System or to any
other person for any loss or damage
resulting from any non-performance, or
interruption in the operation of the
System, from any inaccuracies, errors or
omissions in any of the information
conveyed or received through the
System, or from any delays or errors in
the transmission of any such
information, or for making trade
adjustments.
11. Termination; withdrawal. The
Linkage Plan will terminate on June 30,
2007. Participants that wish to extend
the term may agree to do so, subject to
filing with and approval by the SEC.
During the term of the Plan a Participant
may withdraw with 30 days notice if it
continues to maintain connectivity to all
other Participants and accept orders
through the Linkage until June 30, 2007.
A withdrawing Participant’s right to
send orders through the Linkage shall
terminate on the date the withdrawal is
effective. In addition, a withdrawing
Participant’s obligation to share
development and production costs shall
terminate on the date the withdrawal is
effective, provided, however, that such
Participant shall remain liable for, and
shall pay upon demand, its portion of
the costs of developing and operating
the System and any other amounts
payable by it as determined pursuant to
sections 10 and 12 of the Linkage Plan.
12. System Inoperability.
(a) General. In the event of a disaster
that renders the System inoperable, the
NYSE has authorized the facilities
manager to utilize a designated NYSE
operating system (the ‘‘NYSE System’’)
on a preemptive and priority basis to
function as detailed in section (c)(i),
below.
(b) Participants’ Implementation
Obligations.
VerDate Aug<31>2005
14:52 Oct 05, 2006
Jkt 211001
(i) At any time the NYSE System
assumes the functions of the System, all
Plan provisions not inconsistent with
this section 12, and Participant rules
and policies governing use of the
System will continue to apply.
(ii) Each Participant’s cost of
maintaining communications
connectivity to the NYSE System shall
be borne by that Participant.
(c) NYSE Implementation Obligations.
In consideration of the fees to be paid
to the NYSE as specified in paragraph
(d) of this section 12, the NYSE agrees:
(i) To have and to make available the
NYSE System to assume the functions of
the System on a preemptive and priority
basis in the event of a disaster which
renders the System inoperable. Such
system is composed of computers and
peripheral equipment sufficient to
operate the System at a minimum of
50% of the System’s rated 150 messages
per second capacity and 75% of the
System’s disk capacity.
(ii) that the facilities manager is
authorized to take the actions necessary
to make the NYSE System available to
assume the functions of the System
within two hours in the event of a
limited disaster and on the next day in
the event of a full site disaster. The
facilities manager is authorized to make
the determinations that, in its good faith
judgment, there has been a limited
disaster or full site disaster, the System
is inoperable, and the NYSE System will
assume the functions of the System.
(iii) That the NYSE System will be
located at a site remote from the site
where the System is located.
(d) Implementation Obligations of
Participants Other than NYSE (‘‘Other
Participants’’).
(i) Fees. In consideration of the
NYSE’s making available the NYSE
System to assume the functions of the
System in the event of a disaster, the
Other Participants agree to pay to the
NYSE: (A) a preemptive and priority
reserve fee totaling $24,800 per calendar
quarter (such reserve fee shall be
adjusted each January by the same
percentage change as in the Consumer
Price Index as calculated by the U.S.
Department of Commerce for the
preceding calendar year); and (B) a per
diem fee, if in the event of a disaster the
NYSE System assumes the functions of
the System, for each day in excess of
five consecutive trading days that the
NYSE System is so utilized. Such per
diem fee shall equal 1/250 of the yearly
dollar amount the facilities manager
charges the NYSE to operate the NYSE
System.
This subsection (d)(i) shall become
effective on the date that the facilities
manager confirms in writing to the
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
Supervisory Committee that it has taken
all actions necessary to make the NYSE
System available to assume the
functions of the System as specified in
subsection (c) of this section 12. If such
effective date is other than the first day
of the calendar quarter, then the
preemptive and priority reserve fee for
such calendar quarter shall be
calculated pro rata based upon the
number of days in such calendar quarter
that the NYSE System is so available.
(ii) Fee Sharing. Each of the Other
Participants agrees to pay a share of the
preemptive and priority reserve and per
diem fees based upon a proportional
share of its production costs excluding
the NYSE’s share.
(iii) Fee Payment. Fee payment will
be computed by the System’s facilities
manager as soon as practicable
following the close of each calendar
month. Each Other Participant’s (or
former Participant’s) estimated share
thereof shall be billed by the System’s
facilities manager and shall be payable
to the System’s facilities manager
promptly following receipt. Any
appropriate adjustment will be made
between the System’s facilities manager
and each Other Participant promptly
following the close of each calendar
quarter. The facilities manager shall
forward such payments to the NYSE as
the NYSE may from time to time
instruct the facilities manager.
(e) Liability Limits. Neither the NYSE
nor the facilities manager shall be liable
to any Participant, to any member of any
Participant using or having access to the
NYSE system, or to any other person for
any loss or damage resulting from any
non-performance or interruption in the
operation of the NYSE System, from any
inaccuracies, errors or omissions in any
of the information conveyed or received
through the NYSE System, or from any
delays, omissions, or errors in the
transmissions, or errors in the
transmission of any such information.
(f) Termination.
(i) In the event that the NYSE
determines to withdraw the NYSE
System from use by the Linkage, it shall
so notify the Supervisory Committee, in
writing, a minimum of six months prior
to such withdrawal.
(ii) In the event of such withdrawal,
this section 12 shall be terminated and
the Participants must then determine
whether they should provide for
alternative procedures in the event of
System inoperability.
13. Effective Date: The Linkage Plan
shall become operative on October 1,
2006.
14. Counterparts. The Linkage Plan
may be executed in any number of
counterparts, no one of which need
E:\FR\FM\06OCN1.SGM
06OCN1
59157
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Notices
contain all signatures of all Participants,
and as many of such counterparts as
shall together contain all such
signatures shall constitute one and the
same instrument.
By lllllllllllllllll
AMERICAN STOCK EXCHANGE LLC.
By lllllllllllllllll
NATIONAL STOCK EXCHANGE.
By lllllllllllllllll
BOSTON STOCK EXCHANGE, INC.
By lllllllllllllllll
NEW YORK STOCK EXCHANGE LLC.
By lllllllllllllllll
CHICAGO BOARD OPTIONS
EXCHANGE, INC.
By lllllllllllllllll
NYSE ARCA, INC.
By lllllllllllllllll
CHICAGO STOCK EXCHANGE, INC.
By lllllllllllllllll
PHILADELPHIA STOCK EXCHANGE,
INC.
By lllllllllllllllll
NASDAQ STOCK MARKET LLC.
[FR Doc. 06–8543 Filed 10–5–06; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
cprice-sewell on PROD1PC66 with NOTICES
Sunshine Act Meetings
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Pub. L. 94–409, that the
Securities and Exchange Commission
will hold the following meetings during
the week of October 9, 2006: An Open
Meeting will be held on Wednesday,
October 11, 2006 at 10 a.m. in the
Auditorium, Room LL–002, and Closed
Meetings will be held on Wednesday,
October 11, 2006 at 11 a.m. and
Thursday, October 12, 2006 at 2 p.m.
Commissioners, Counsels to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meetings. Certain
staff members who have an interest in
the matters may also be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), (9)(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), (9)(ii),
and (10) permit consideration of the
scheduled matters at the Closed
Meetings.
Commissioner Atkins, as duty officer,
voted to consider the items listed for the
closed meeting in closed session.
The subject matter of the Open
Meeting on Wednesday, October 11,
2006 will be:
VerDate Aug<31>2005
14:52 Oct 05, 2006
Jkt 211001
The Commission will hear oral argument
in an appeal by James T. Patten from the
decision of an administrative law judge. The
law judge found that, during two separate
periods in 2002 and 2003, Patten
manipulated, and aided and abetted the
manipulation of, the common stock price of
Initio, Inc., formerly traded on the Nasdaq
Small Cap Market. The law judge found that,
through his conduct in placing orders to buy
Initio shares for himself and on behalf of a
customer, Patten violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule
10b–5 thereunder. The law judge ordered
Patten to cease and desist from committing,
causing, and aiding and abetting violations of
Section 10(b) and Rule 10b–5, ordered him
to pay a $60,000 civil penalty, and barred
him from association with any broker or
dealer. Among the issues likely to be argued
are whether Patten violated Section 10(b) of
the Exchange Act and Rule 10b–5 thereunder
in entering orders to buy Initio shares, and,
if so, whether and to what extent sanctions
should be imposed on him.
The subject matter of the Closed
Meeting scheduled for Wednesday,
October 11, 2006 will be: Post-argument
discussion.
The subject matters of the Closed
Meeting scheduled for Thursday,
October 12, 2006 will be: Formal orders
of investigation; institution and
settlement of injunctive actions;
institution and settlement of
administrative proceedings of an
enforcement nature; and an adjudicatory
matter.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact: The Office of the Secretary at
(202) 551–5400.
Dated: October 4, 2006.
Nancy M. Morris,
Secretary.
[FR Doc. 06–8580 Filed 10–4–06; 3:55 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54543; File No. SR–Amex–
2006–92]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change Relating to
the Exercise Deadline for Quarterly
Options Series
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
Frm 00088
Fmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Amex Rule 980(c) to provide that
options holders of quarterly options
have until the expiration date to make
a decision to exercise or not exercise an
expiring option. The text of the
proposed rule change is set forth below.
Proposed new language is italicized.
*
*
*
*
*
American Stock Exchange LLC
*
*
*
Sfmt 4703
*
*
Rule 980. Exercise of Option Contracts
(a)–(b) No change.
(c) Exercise cut-off time. Option
holders have until 5:30 p.m. Eastern
time (‘‘ET’’) on the business day
immediately prior to the expiration date
or, in the case of a Quarterly Options
Series, on the expiration date, to make
a final decision to exercise or not
exercise an expiring option. For
customer accounts, members and
member organizations may not accept
exercise instructions after 5:30 p.m. ET
but have until 6:30 p.m. ET to submit
a Contrary Exercise Advice. For noncustomer accounts, members and
member organizations may not accept
exercise instructions after 5:30 p.m. ET
but have until 6:30 p.m. ET to submit
a Contrary Exercise Advice if such
member or member organization
employs an electronic submission
procedure with time stamp for the
submission of exercise instructions by
option holders. Consistent with
Commentary .04, members and member
organizations are required to submit a
Contrary Exercise Advice by 5:30 p.m.
1 15
September 29, 2006.
PO 00000
(‘‘Act’’),1 and Rule 19(b)(4) thereunder,2
notice is hereby given that on
September 25, 2006, the American Stock
Exchange LLC (‘‘Amex’’ 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
substantially been prepared by the
Exchange. The Commission has
designated this proposed rule change as
non-controversial under Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
the proposed rule change effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
E:\FR\FM\06OCN1.SGM
06OCN1
]]>Agencies
[Federal Register Volume 71, Number 194 (Friday, October 6, 2006)]
[Notices]
[Pages 59148-59157]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8543]
[[Page 59148]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54551; File No. 4-524]
Joint Industry Plan; Order Approving NMS Linkage Plan Filed by
the American Stock Exchange LLC, Boston Stock Exchange, Inc., Chicago
Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., The
NASDAQ Stock Market LLC, National Stock Exchange, New York Stock
Exchange LLC, NYSE Arca, Inc., and Philadelphia Stock Exchange, Inc.
September 29, 2006.
I. Introduction
On July 17, 2006, pursuant to Rule 608 of the Securities Exchange
Act of 1934 (``Act''),\1\ the American Stock Exchange LLC (``Amex''),
the Boston Stock Exchange, Inc. (``BSE''), the Chicago Board Options
Exchange, Incorporated (``CBOE''), the Chicago Stock Exchange, Inc.
(``CHX''), The NASDAQ Stock Market LLC (``Nasdaq''), the National Stock
Exchange (``NSX''), the New York Stock Exchange LLC (``NYSE''), and
NYSE Arca, Inc. (``NYSE Arca'') (``Linkage Participants'') filed with
the Securities and Exchange Commission (``Commission'') an executed
copy of the ``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'' or ``Plan''), a
national market system plan to create and operate an intermarket
communications linkage pursuant to Section 11A(a)(3)(B) of the Act.\2\
The Linkage Plan was initially executed by the eight self-regulatory
organizations (``SROs'') listed above. The Philadelphia Stock Exchange,
Inc. (``Phlx'') subsequently executed the Linkage Plan on August 1,
2006.\3\ The Commission published the Linkage Plan for comment in the
Federal Register on August 4, 2006.\4\ No comments were received on the
Plan. This Order approves the Linkage Plan, thus authorizing the Plan
Participants to act jointly in planning, developing, operating and
regulating the NMS Linkage System (``Linkage'' or ``System'') that will
electronically link the Participant Markets to one another, as
described in the Linkage Plan, so as to further the objectives of
Congress as set forth in Section 11A of the Act.\5\ A copy of the Plan,
as approved, is attached as Exhibit A.
---------------------------------------------------------------------------
\1\ 17 CFR 242.608.
\2\ 15 U.S.C. 78k-1(a)(3)(B).
\3\ A Linkage Plan, dated August 1, 2006, reflecting Phlx's
inclusion as a Linkage Participant, was received by the Commission
on August 9, 2006.
\4\ See Securities Exchange Act Release No. 54239 (July 28,
2006), 71 FR 44328.
\5\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------
II. Background
Currently, the connectivity between markets is provided pursuant to
the Intermarket Trading System (``ITS'') Plan, a National Market System
plan, which was designed to facilitate intermarket trading in exchange-
listed equity securities based on current quotation information
emanating from the linked markets.\6\ Physical access is provided by
ITS connectivity, and the terms of access are governed by the ITS Plan.
Participants in the ITS Plan have agreed not to charge for access to
their markets through the ITS. The ITS Plan provides grievance
procedures for instances when a market's quote is traded through and
sets forth procedures to follow in the event of a locked or crossed
market.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 14661 (Apr. 14,
1978), 43 FR 17419 (Apr. 24, 1978) (temporarily approving the ITS
Plan). See also Securities Exchange Act Release No. 19456 (Jan. 27,
1983), 48 FR 4938 (Feb. 3, 1983) (permanently approving the ITS
Plan).
---------------------------------------------------------------------------
When the Commission adopted Regulation NMS over a year ago,\7\ it
stated its belief that fair and efficient access to markets can be
achieved without a collective intermarket linkage facility such as ITS,
if baseline intermarket access rules are established. The Commission
adopted Rule 610 (Access Rule) that requires non-discriminatory direct
or indirect access and enables the use of private linkages offered by a
variety of connectivity providers. The Commission also adopted Rule 611
(The Order Protection Rule) that establishes intermarket protection
against trade-throughs for all NMS stocks. The required date for full
operation of Regulation NMS-compliant trading systems of all automated
trading centers that intend to qualify their quotations for trade-
through protection under Rule 611 is February 5, 2007 (``Trading Phase
Date'').\8\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
\8\ See Securities Exchange Act Release No. 53829 (May 18,
2006), 71 FR 30038 (May 24, 2006) (extending Rule 610 and Rule 611
compliance dates).
---------------------------------------------------------------------------
Following the adoption of Regulation NMS and considering the
limitations of the ITS Plan, and anticipating its termination, the ITS
Participants (other than the NASD) agreed to the Linkage Plan, which,
together with the ITS Plan, would govern the operation of the System
until the termination of the ITS Plan, which is expected to take place
on the Trading Phase Date.\9\ After the Trading Phase Date and until
the SROs otherwise arrange to meet their access responsibilities, the
operation of the System would be governed by the Linkage Plan.\10\ The
Linkage Plan is intended to serve as an interim solution until all
Participants are able to make other arrangements to meet their access
responsibilities.\11\
---------------------------------------------------------------------------
\9\ Because the Linkage Plan does not contain trade-through and
locked/crossed market prohibitions, it is necessary to preserve the
operation of the ITS Plan for the period before the Trading Phase
Date. It is the Commission's understanding that the ITS Plan
Participants intend to file with the Commission a request for the
termination of the ITS Plan. See letter from ITS Plan Participants
to Nancy Morris, Secretary, Commission, dated September 18, 2006
(the ``Letter'').
\10\ As provided in Sections 11 and 13 of the Linkage Plan, the
Linkage Plan is to become operative on October 1, 2006 and will
terminate on June 30, 2007. Linkage Plan Participants that wish to
extend the term could agree to do so, subject to Commission
approval.
\11\ The National Association of Securities Dealers, Inc.
(``NASD'') is not planning to join the Linkage Plan and until the
Trading Phase Date will continue to maintain its connectivity under
the ITS Plan.
---------------------------------------------------------------------------
Until the Trading Phase Date, the Linkage Plan would run
concurrently with the ITS Plan. Therefore, until the Trading Phase
Date, when the ITS Plan is expected to terminate, all Linkage Plan
Participants remain subject to the ITS Plan. To permit the Linkage Plan
Participants to commence trading pursuant to the Linkage Plan, the ITS
Plan Participants have requested that the Commission issue an exemption
from certain provisions of the ITS Plan that would interfere with the
operation of the Linkage Plan.\12\
---------------------------------------------------------------------------
\12\ With the exception of SRO rules pertaining to locked and
crossed markets, the ITS Plan Participants have requested relief
from the requirement to enforce compliance with those SRO rules,
which correspond to the requested ITS Plan exemptions. See the
Letter. The Linkage Plan Participants will continue to be subject to
Section 8(d)(i) of the ITS Plan (Trade-Throughs; Locked Markets) and
corresponding SRO rules.
---------------------------------------------------------------------------
III. Description of the Linkage Plan
A. Operation of the Linkage Plan
The System includes the data processing hardware, software and
communications network that electronically link the Participant Markets
to one another. The System accommodates only regular-way trading. All
System trades must be compared, cleared and settled through Commission-
registered clearing corporations. The System is designed to accommodate
trading in any Eligible Security, as defined in Section VII of the
Consolidated Tape Association (``CTA'') Plan. Section VII of the CTA
Plan provides generally that Eligible Securities include equity
securities
[[Page 59149]]
registered on the NYSE, the Amex or another national securities
exchange whose original listing requirements substantially meet those
of NYSE or Amex except for securities that are listed on the Nasdaq
Stock Market. The particular securities that may be traded through the
System at any time are selected by the Supervisory Committee. The
Supervisory Committee may add or delete System securities as it deems
appropriate and may delay the commencement of trading in any Eligible
Security if capacity or other operational considerations require a
delay.
The Securities Industry Automation Corporation (``SIAC'') serves as
the System's facilities manager and has responsibility for the
operation and maintenance of the System. SIAC performs its function as
facilities manager in accordance with Plan provisions and subject to
the administrative oversight of the Supervisory Committee.\13\
---------------------------------------------------------------------------
\13\ Section 5(d) of the Linkage Plan.
---------------------------------------------------------------------------
The System accepts only immediate-or-cancel limit orders. Orders
must be sent to a Participant Market through the auspices of a member
of that Participant, known as a Sponsoring Member.\14\ The minimum
information that must be specified in an order includes the Sponsoring
Member; the ``give-up'' in the originating Participant Market; the
security; the side (buy or sell); the amount to be bought or sold
(which must be for one unit of trading (i.e., 100 shares) or any
multiple thereof); and the price.\15\ The price must be equal to the
bid or offer then being furnished by the destination Participant
Market. An order must specify a ``time in force'' of 5, 15 or 120
seconds, after which the order will expire if unexecuted.
---------------------------------------------------------------------------
\14\ In the event that the Participants are unable to implement
Sponsoring Member billing on October 1, 2006, the Participants have
agreed to accept direct exchange-to-exchange billing and have filed
proposed rule changes to this effect. See, e.g., Securities Exchange
Act Release No. 54480 (Sept. 21, 2006), 71 FR 57596 (Sept. 29,
2006).
\15\ Section 6(a)(ii) of the Linkage Plan.
---------------------------------------------------------------------------
After Trading Phase Date, all routed limit orders will be presumed
by the executing market to be intermarket sweep orders sent in
accordance with Rule 611(b) of Regulation NMS.\16\ The trading rules
applicable in destination Participant Markets will apply to orders
received in the market and the execution of those orders in the
market.\17\
---------------------------------------------------------------------------
\16\ Section 6(a)(v) of the Linkage Plan.
\17\ Section 6(b) of the Linkage Plan.
---------------------------------------------------------------------------
B. Terms and Conditions of Access
Section 3(c) of the Plan provides that any national securities
exchange or national securities association may become a Plan
Participant by agreeing, in an amendment to the Plan adopted in
accordance with its provisions, to comply, and to enforce compliance,
with the Plan as provided in Section 3(b) of the Plan. An applicant for
Plan participation is required to pay SIAC an amount estimated by SIAC
to cover development costs to be incurred to accommodate the new
Participant. In addition, before the applicant becomes a Plan
Participant, the applicant must pay SIAC actual development costs in
excess of estimated development costs, or SIAC will reimburse the
applicant estimated development costs that were paid and are in excess
of actual development costs. A new Participant shares in development
costs incurred after it becomes a Participant in accordance with
Section 10(a)(iii)(A).\18\
---------------------------------------------------------------------------
\18\ Section 10(a)(iii)(C) of the Linkage Plan.
---------------------------------------------------------------------------
C. Fees and Charges
The Linkage Plan imposes no fees or charges in connection with
orders executed through the Linkage. A Sponsoring Member is subject to
applicable transaction charges imposed by the executing market.\19\
Each Participant is free to determine whether or not to impose, and the
amount of, a fee or charge on its members in connection with use of its
facilities to access the System. Any such fee or charge must not be of
such size, or so structured, as to discourage use of the System.\20\
---------------------------------------------------------------------------
\19\ The Sponsoring Member is responsible for paying applicable
transaction fees of the destination market.
\20\ Section 10(b) of the Linkage Plan. Any fees charged by
Participants must be filed with the Commission pursuant to Section
19(b) of the Act.
---------------------------------------------------------------------------
D. Dispute Resolution
The Linkage Plan does not include specific provisions regarding
resolution of disputes between or among Participants. Section 4(d) of
the Plan provides that no action or inaction by the Supervisory
Committee shall prejudice any Participant's right to present its views
to the Commission or any other person with respect to any matter
relating to the System or to seek to enforce its views in any other
forum it deems appropriate. In addition, Section 6(b) provides that the
trading rules of the destination market apply to orders received in
that market, as well as to executions of orders in that market. Each
Participant determines the extent to which its trading rules apply to
members in its market with respect to the members' issuance of orders
from the market and executions that occur in the market.
IV. Discussion
In Section 11A of the Act,\21\ Congress directed the Commission to
facilitate the development of a national market system consistent with
the objectives of the Act. In particular, Section 11A(a)(3)(B) of the
Act \22\ authorizes the Commission ``by rule or order, to authorize or
require SROs to act jointly with respect to matters as to which they
share authority under this title in planning, developing, operating, or
regulating a national market system (or a subsystem thereof) or one or
more facilities''. Rule 608 under the Act establishes the procedures
for filing, amending, and approving national market system plans.\23\
Pursuant to paragraph (b)(2) of Rule 608, the Commission's approval of
a national market system plan is conditioned upon a finding that the
proposed plan ``is necessary or appropriate in the public interest, for
the protection of investors and the maintenance of fair and orderly
markets, to remove impediments to, and perfect the mechanisms of, a
national market system, or otherwise in furtherance of the purposes of
the Act''.\24\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78k-1.
\22\ 15 U.S.C. 78k-1(a)(3)(B).
\23\ 17 CFR 242.608.
\24\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
After carefully considering the proposed Linkage Plan, the
Commission has determined to approve, pursuant to Section 11A(a)(3)(B)
of the Act,\25\ and Rule 608 thereunder,\26\ the Linkage Plan, thus
authorizing the Plan Participants to act jointly to implement the
Plan's intermarket linkage.\27\
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78k-1(a)(3)(B).
\26\ 17 CFR 242.608.
\27\ Although Phlx initially did not sign the Plan, it
subsequently executed the Linkage Plan on August 1, 2006. A Linkage
Plan, dated August 1, 2006, reflecting Phlx's inclusion as a Linkage
Participant, was received by the Commission on August 9, 2006.
---------------------------------------------------------------------------
In 1975, Congress determined that the ``linking of all markets''
for NMS stocks through communications and data processing facilities
would ``foster efficiency; enhance competition; increase the
information available to brokers, dealers, and investors; facilitate
the offsetting of investors' orders; and contribute to the best
execution of investors' orders''.\28\ All SROs that trade exchange-
listed stocks currently are linked through ITS, an intermarket linkage
facility. ITS provides a means of access to exchanges and Nasdaq by
permitting each market to send a
[[Page 59150]]
``commitment to trade'' through the system, with receiving markets
generally having up to 30 seconds to respond. ITS also provides access
to quotations of participants without fees and establishes uniform
rules to govern quoting practices. Although ITS promotes access among
participants that is uniform and free, it also is often slow and
limited. Moreover, it is governed by a unanimous vote requirement that
has at times impeded innovation in the system or its set of rules. In
contrast, there is no collective intermarket linkage system for Nasdaq
stocks. Instead, access is achieved primarily through private linkages
among individual trading centers. This approach has demonstrated its
benefits among electronic markets; it is flexible and can readily
incorporate technological advances as they occur.
---------------------------------------------------------------------------
\28\ Section 11A(a)(1)(D) of the Act.
---------------------------------------------------------------------------
Rule 610 adopted by the Commission in Regulation NMS \29\ reflects
the Commission's determination that fair and efficient access to
markets can be achieved without an intermarket linkage facility such as
ITS, if baseline intermarket access rules are established.
---------------------------------------------------------------------------
\29\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------
The proposed Linkage Plan would govern the operation of the System
together with the ITS Plan until the termination of the ITS Plan
expected to take place on the Trading Phase Date.\30\ After the Trading
Phase Date and until the SROs otherwise arrange to meet their access
responsibilities, the operation of the System would be governed by the
Linkage Plan.\31\ The Linkage Plan is intended to serve as an interim
solution until all Participants otherwise arrange to meet their access
responsibilities.\32\
---------------------------------------------------------------------------
\30\ The Linkage Plan does not contain trade-through and locked/
crossed market prohibitions, therefore it is necessary to preserve
the operation of the ITS Plan for the period before the Trading
Phase Date. It is the Commission's understanding that the ITS Plan
Participants intend to file with the Commission a request for the
termination of the ITS Plan. See the Letter.
\31\ As provided in Sections 11 and 13 of the Linkage Plan, the
Linkage Plan is to become operative on October 1, 2006 and will
terminate on June 30, 2007. Linkage Plan Participants that wished to
extend the term could agree to do so, subject to Commission
approval.
\32\ NASD is not planning to join the Linkage Plan and until the
Trading Phase Date will maintain its connectivity under the ITS
Plan.
---------------------------------------------------------------------------
To permit the Linkage Plan Participants to commence trading
pursuant to the Linkage Plan, the ITS Plan Participants have requested
that the Commission issue an exemption from certain provisions of the
ITS Plan that would interfere with the operation of the Linkage
Plan.\33\ In a separate action, the Commission today has granted an
exemption from certain provisions of the ITS Plan that could interfere
with the operation of the Linkage Plan, but until the Trading Phase
Date, the Linkage Plan Participants will continue to be subject to
certain provisions of the ITS Plan and corresponding SRO rules
governing Trade-Throughs and Locked Markets, as well as to some other
provisions of the ITS Plan.\34\
---------------------------------------------------------------------------
\33\ With the exception of SRO rules pertaining to locked and
crossed markets, the ITS Plan Participants have requested relief
from the requirement to enforce compliance with those SRO rules,
which correspond to the requested ITS Plan exemptions. See the
Letter.
\34\ See letter from Erik R. Sirri, Director, Division of Market
Regulation, Commission, dated September 29, to Robert Hill,
Chairman, ITS Operating Committee.
---------------------------------------------------------------------------
In approving the Linkage Plan, the Commission finds that the
Linkage Plan is consistent with the Act in that it enhances intermarket
competition by providing a means of intermarket access for Eligible
securities, pending the full implementation of Regulation NMS and,
therefore, would promote investor protection and the maintenance of
fair and orderly markets.
V. Conclusion
It is hereby ordered, pursuant to Section 11A(a)(3)(B) of the
Act,\35\ and Rule 608 thereunder,\36\ that the Linkage Plan submitted
by the Linkage Plan Participants is approved and the Linkage Plan
Participants (and any other self-regulatory organization which agrees
to be a Plan Participant) are authorized to act jointly in planning,
developing, operating or regulating the Linkage Plan as a means of
facilitating a national market system.\37\
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78k-1(a)(3)(B).
\36\ 17 CFR 242.608.
\37\ 17 CFR 200.30-2(a)(27).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
Exhibit A
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
Agreement made as of June 12, 2006, among American Stock Exchange
LLC, Boston Stock Exchange, Inc., Chicago Board Options Exchange, Inc.,
Chicago Stock Exchange, Inc., Nasdaq Stock Market LLC, National Stock
Exchange, New York Stock Exchange LLC, and NYSE \1\Arca, Inc.
---------------------------------------------------------------------------
\1\ The Philadelphia Stock Exchange, Inc. (``Phlx'')
subsequently executed the Linkage Plan on August 1, 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.
---------------------------------------------------------------------------
Whereas, the undersigned national securities exchanges are parties
to the plan submitted to the Securities and Exchange Commission (the
``SEC'') 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 (the ``Act'').
Now, Therefore, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties agree to submit
this Agreement called the NMS Linkage Plan to the SEC for approval
pursuant to section 11A(a)(3)(B) of the Act and Rule 608 thereunder.
1. Definitions.
(1) ``Application'' means any use of the System to facilitate
trades between Participant Markets that is described in the NMS Linkage
Plan.
(2) ``CTA Plan'' means the plan filed with the SEC pursuant to SEC
Rule 17a-15 (subsequently amended and redesignated as Rule 11Aa3-1, and
subsequently amended and redesignated as Rule 601), approved by the SEC
and declared effective as of May 17, 1974, as from time to time
amended.
(3) ``CTA Plan Processor'' means the organization serving as
recipient and processor of last sale prices under the CTA Plan.
(4) ``Eligible Security'' has the meaning assigned to that term in
the CTA Plan.
(5) ``NMS Linkage Plan'' or ``Linkage Plan'' means this plan as
from time to time amended in accordance with the provisions hereof.
(6) ``NMS Linkage System'' (``Linkage'' or ``Linkage System'')
means the system described in section 5.
(7) ``Network A Eligible Security'' has the meaning assigned to
that term in the CTA Plan.
(8) ``Network B Eligible Security'' has the meaning assigned to
that term in the CTA Plan.
(9) ``Participant'' means a party to the Linkage Plan with respect
to which such plan has become effective pursuant to section 13.
(10) ``Participant('s) Market'' means a facility for the trading of
System securities operated by a Participant.
(11) ``System'' means the data processing hardware, software and
communications network that links electronically the Participant
Markets to one another. The System includes (a) computers that perform
such functions as message validation, processing, logging and switching
and (b) from a functional standpoint, (i) high speed communications
lines that link such computers with the Participant Markets (either
directly or through Participant
[[Page 59151]]
Switches), and (ii) Linkage System stations.
(12) ``System security (stock)'' means a security (stock) selected
for trading through the Applications in accordance with section
5(b)(ii).
(13) ``System trade'' means any trade made through any Application.
2. Purpose of Linkage Plan. The purpose of the Linkage Plan is to
enable the Participants to act jointly in planning, developing,
operating and regulating the system as described in the Linkage Plan so
as to further the objectives of Congress as set forth in section 11A(a)
of the Act and to facilitate compliance by the Participants and their
respective members with SEC Rules 610 and 611.
3. Parties.
(a) List of Parties. The parties to the Linkage Plan are as
follows: American Stock Exchange LLC (``AMEX''), registered as a
national securities exchange under the Act and having its principal
place of business at 86 Trinity Place, New York, New York 10006.
Boston Stock Exchange, Inc. (``BSE''), registered as a national
securities exchange under the Act and having its principal place of
business at 100 Franklin Street, Boston, Massachusetts 02110. Chicago
Board Options Exchange, Inc. (``CBOE''), registered as a national
securities exchange under the Act and having its principal place of
business at 400 South LaSalle Street, Chicago, Illinois 60605.
Chicago Stock Exchange, Inc. (``CHX''), registered as a national
securities exchange under the Act and having its principal place of
business at One Financial Place, 440 South LaSalle Street, Chicago,
Illinois 60605.
Nasdaq Stock Market LLC (``Nasdaq''), registered as a national
securities exchange under the Act and having its principal place of
business at 1 Liberty Plaza, 165 Broadway, New York, NY 10006.
National Stock Exchange (``NSX''), registered as a national
securities exchange under the Act and having its principal place of
business at 440 South LaSalle Street, Suite 2600, Chicago, Illinois
60605.
New York Stock Exchange LLC (``NYSE''), registered as a national
securities exchange under the Act and having its principal place of
business at 11 Wall Street, New York, New York 10005. NYSE Arca, Inc.
(``Arca''), registered as a national securities exchange under the Act
and having its principal place of business at 100 S. Wacker Drive,
Chicago, IL 60606.
Philadelphia Stock Exchange, Inc. (``Phlx''), registered as a
national securities exchange under the Act and having its principal
place of business at 1900 Market Street, Philadelphia, Pennsylvania
19103.
(b) Compliance Undertaking. By subscribing to and submitting the
Linkage Plan for filing with the SEC, each undersigned party agrees to
comply to the best of its ability and, absent reasonable justification
or excuse, to enforce compliance by its members in their use of the
Linkage through its facilities with the provisions of the Linkage Plan.
(c) New Participants. The Participants agree that any other
national securities exchange or national securities association may
subscribe to the Linkage Plan and become a Participant by agreeing, in
an amendment to the Linkage Plan adopted in accordance with its
provisions, to comply and to enforce compliance with the provisions of
the Linkage Plan as provided in section 3(b).
4. Administration of Linkage Plan.
(a) Supervisory Committee: Composition, Voting. Each Participant
shall select from its staff one individual to represent such
Participant as a member of the Supervisory Committee under the Linkage
Plan. Except as may be specifically otherwise provided herein, action
taken pursuant to the vote of a majority of the members of the
Supervisory Committee present at a meeting of the committee at which a
majority of the full committee is present shall be deemed to be the
action of the Supervisory Committee.
(b) Supervisory Committee: Authority. The Supervisory Committee
shall not be a policy-making or a rule-making body, but shall, either
directly or by delegating its functions to individuals, subcommittees
established by it from time to time or others, (i) oversee development
of the System in accordance with the specifications therefore agreed
upon by each Participant, (ii) monitor the operation of the System and
(iii) advise the Participants with respect to any deficiencies,
problems or recommendations as the Supervisory Committee may deem
appropriate in its administration of the Linkage Plan. In this
connection, the Supervisory Committee shall have authority to develop
procedures and make administrative decisions necessary to facilitate
the operation of the System in accordance with the provisions of the
Linkage Plan.
(c) Amendments to Linkage Plan. Any proposed change in, addition
to, or deletion from the Linkage Plan may be effected only by means of
a written amendment to the Linkage Plan which sets forth the change,
addition or deletion, is executed on behalf of each Participant and is
approved by the SEC or otherwise becomes effective pursuant to section
11A of the Act and Rule 608(b).
(d) Participant's Rights. No action or inaction by the Supervisory
Committee shall prejudice any Participant's right to present its views
to the SEC or any other person with respect to any matter relating to
the System or to seek to enforce its views in any other forum it deems
appropriate.
5. The System.
(a) System Monitoring.
(i) Linkage Supervisory Stations. Each Participant will maintain a
Linkage supervisory station where supervisors appointed by such
Participant will be able to coordinate trade adjustments.
(ii) Linkage Control Center. The System also includes the Linkage
control center (``LCC''), which monitors and controls communications
within the System, including the processing of error conditions. The
LCC staff is able to display and, when authorized by any Participant,
to modify the security and market records of that Participant's Market
as such records relate to the System. The LCC staff is also able to
indicate whether or not any Participant Market is open for System
trades. In addition, the LCC may be used as ``back-up'' for the Linkage
supervisory system-wide broadcasts. Finally, the LCC staff is able to
enter adjustments of any trade pursuant to the procedures specified in
section 6(a)(iv) and to perform data base control after trading hours.
(b) General Operation.
(i) Registered Clearing Corporations. The System accommodates only
regular-way trading, and all System trades must be compared, cleared
and settled through clearing corporations registered with the SEC that
maintain facilities through which such transactions may be compared and
settled and that agree to supply each Participant with data reasonably
requested in order to permit such Participant to enforce compliance by
its members with its rules, the provisions of the Act, the rules and
regulations thereunder, and the Linkage Plan.
(ii) Selection of System Securities. The System is designed to
accommodate trading in any Eligible Security. The particular securities
that may be traded through the System at any time (``System
securities'') shall be selected by the Supervisory Committee. The
Supervisory Committee may add or delete System securities as it deems
appropriate and may delay the commencement of trading in any Eligible
Security if capacity or other
[[Page 59152]]
operational considerations shall require such delay.
(c) Administrative Messages. Administrative messages, as
distinguished from orders, responses thereto and trade adjustment
inputs (including names later information), may also be sent through
the System. There are two categories of administrative messages that
can be sent by Participant members: Single destination and security
broadcast. Another category of administrative message, a ``system-wide
broadcast'', may be sent through the System only from the Linkage
control center.
(d) Facilities Manager. The Securities Industry Automation
Corporation (``SIAC'') serves as the System's facilities manager and
has responsibility for the operation and maintenance of the System.
SIAC performs its function as facilities manager in accordance with the
provisions of the Linkage Plan and subject to the administrative
oversight of the Supervisory Committee.
6. Linkage System.
(a) Technical Matters.
(i) The System shall accept immediate or cancel (``IOC'') orders,
provided however, that, upon the request of a Participant or
Participants, and in accordance with Section 10(a)(iii)(A) relating to
New Development Costs Sharing, the System shall accommodate additional
order types to be utilized by such Participant or Participants. Orders
must be sent to a Participant market through the auspices of a member
of that Participant, known as a Sponsoring Member. Each market will
maintain within SIAC a database of default Sponsoring Members (not to
exceed 10) for after hours processing and billing for orders sent to a
market where the originating firm is not a member of the destination
market.
(ii) Order Information. An order shall, at a minimum, specify the
following:
(A) The member of the destination market (either clearing member or
Sponsoring Member); \2\
---------------------------------------------------------------------------
\2\ The member of the destination market will be identified by a
unique clearing number. If the clearing number provided by the
originating Participant Market does not identify a member of the
destination market, SIAC will identify the default Sponsoring Member
of the originating market at the destination market for the security
in question and that Sponsoring Member's identification information
will be included on the order to the destination market on all
reports sent to the destination market, including any report for
billing purposes. The member identified on the order will be
responsible for any fees in the destination market. SIAC will
provide to Participants a key to match the clearing number to the
member's name.
---------------------------------------------------------------------------
(B) Original clearing member or omnibus clearing account of the
originating Participant Market, commonly referred to as the Give-Up,
(C) The receiving Participant Market,
(D) The security that is the subject of the order,
(E) Designation of the order as an order to buy or to sell,
(F) The amount of the security to be bought or sold, which amount
shall be for one unit of trading or any multiple thereof,
(G) A price equal to the offer or bid price then being furnished by
the destination Participant Market, which price shall represent the
price at or below which the security is to be bought or the price at or
above which the security is to be sold, respectively,
(H) To facilitate application of the short sale rule in effect in
the destination Participant Market, a designation of the order as
``short'' or ``short exempt'' whenever it is a order to sell short, and
(I) Time in force as 5, 15 or 120 seconds.\3\
---------------------------------------------------------------------------
\3\ A Participant Market may prevent the execution, through its
facilities, of an otherwise marketable System order, prior to the 5,
15 or 120 second time in force parameter assigned to that order, if
the time in force parameter would result in the issuance of an
expiration notice to the sending market before execution of such
order could be reported to SIAC. Any such procedure must be
effective pursuant to a filing with the SEC. No order with a time in
force parameter of 5 or 15 seconds shall be sent to AMEX, CBOE, CHX,
or PHLX prior to the earlier of (i) the date on which all automated
trading centers intending to qualify their quotations for trade-
through protection under Rule 611 of Regulation NMS must have
achieved full operation of Regulation NMS-compliant trading systems
or (ii) the date on which AMEX, CBOE, CHX, or PHLX, as the case may
be, has notified the Supervisory Committee in writing that it is
capable of accepting and executing such orders. If an order with
either of these time in force parameters is sent to AMEX, CBOE, CHX,
or PHLX prior to such time, it will not be executed due to system
limitations.
---------------------------------------------------------------------------
(iii) Order Validation, Routing. At the time of transmission, each
order undergoes validation procedures. If the order passes the
validation procedures, the System assigns a unique order identifier
number (a ``OID'') to the order, time stamps it and logs it on a mass
storage device (the ``daily log''). The System also sends a
transmission acceptance message to the Participant Market that
originated the order. The order is then routed to the destination
Participant Market. If the order is accepted, in whole or in part, in
the destination Participant Market, the execution is reported back
through the System to the originating and receiving Participant
Markets.
The System rejects the transmission of a response that fails the
validation check and sends an appropriate error message to the
Participant Market that originated the response. The validation of a
response causes the System to retrieve the related order from the daily
log and update it with appropriate response information. This log forms
the basis from which the after-hours reports described in section 7(a)
are produced. Validation also causes the System to send a transmission
acceptance message to the Participant Market that originated the
response. The System then sends the response to the Participant Market
that originated the order. When an order is only partially executed,
the unexecuted shares are not filled, and the System generates a
cancellation for the unexecuted quantity and appends the cancellation
to the execution report that it sends to the Participant Market that
originated the order.
(iv) Trade Adjustments. In accordance with section 5(a)(ii),
supervisors monitoring the Participant Markets may request the LCC to
enter adjustments to trades (i.e., to price, share size, buy or sell
side, to cancel a trade or to insert a trade ``as-of'' a prior day).
The following sets forth the procedures to facilitate trade adjustments
and to authorize the LCC to make such adjustments. All requests among
Participants and to the LCC for trade adjustments shall be in the form
of administrative messages sent through the System. For the purposes of
this section 6(a)(vi), administrative messages sent or received among
Participant Markets, or sent to the LCC, shall be deemed to have been
issued by supervisors of Participant Markets authorized by such
Participant Markets to issue such administrative messages.
(A) Adjustments on Trade Day. The LCC shall make an adjustment to a
trade entered into that same day based upon an administrative message
request made from a supervisor of the Participant Market that received
and executed the order (``executing market supervisor''). Such request
shall not be made to the LCC unless an executing market supervisor has
received from a supervisor in the Participant Market that issued the
order (``issuing market supervisor''), in the form of an administrative
message sent through the System, agreement as to the terms of, and
authorization to make, the adjustment. The administrative message
request to the LCC by the executing market supervisor shall specify the
terms of, and authorization to the LCC to make, the adjustment.
In the event that, notwithstanding the provisions of the prior
paragraph, an executing market supervisor requests the LCC to make a
trade adjustment without having received an administrative message from
an issuing market supervisor, and the LCC has
[[Page 59153]]
made such requested adjustment, then the LCC shall, at the request and
direction of an issuing market supervisor, made prior to the settlement
for such trade, readjust such trade to its terms as they existed prior
to such adjustment.
(B) Adjustments for Prior Trade Day. Except as provided in the
preceding paragraph, the LCC shall make an adjustment to a trade
entered into on a prior day only upon administrative message requests
made from both executing and issuing market supervisors, each message
specifying the same terms of, and authorization to the LCC to make, the
adjustment.
(C) The provisions of paragraphs (A) and (B) of this section
6(a)(iv) shall not restrict the ability of any Participant Market to
unilaterally request the LCC to end adjustments to trades or to cancel
or adjust any System trade executed in its market pursuant to its rules
pertaining to clearly erroneous transactions or obvious errors, and
system malfunctions. The sending market may invoke any appellate or
review process provided by such rules on behalf of the Sponsoring
Member. In the event of any cancellation or adjustment, the executing
market shall notify the LCC and all affected Participants by
administrative message specifying the terms of the cancellation or
adjustment and authorizing the LCC to make the adjustments or cancel
the trades.
(D) LCC Confirmation. The LCC shall, after making a trade
adjustment, send an administrative message to both the executing and
sending market supervisors confirming that the adjustment has been made
and specifying the terms of the adjustment.
(v) Intermarket Sweep Orders. All routed limit orders shall be
presumed by the executing market to be orders sent pursuant to the
intermarket sweep order exception in SEC Rule 611(b).
(vi) Other. Each Participant shall also determine how orders
received in the market for which it has responsibility are to be
handled therein and agrees that any procedures it may adopt in this
regard shall be consistent with the provisions of the Linkage Plan and
the efficient operation of the System. Participants are required to
execute orders at a minimum at the size of their displayed quotes. Each
Participant shall insure that no communication shall be entered into
the System from its market except (A) on behalf of a member of such
Participant who is permitted by the Linkage Plan and such Participant's
rules to use the System with respect to the security or securities that
are the subject of the communication or (B) by employees of such
Participant in performance of such Participant's obligations under the
Linkage Plan.
(b) Participant Trading Rules. The trading rules applicable in
destination Participant Markets shall apply to orders received in such
market and executions of orders therein. Each Participant shall
determine the extent to which its trading rules shall apply to members
within its market insofar as such members' issuance of orders from such
market and resulting executions are concerned.
7. Comparison and Settlement. Comparison of a side of a System
trade furnished by a Participant shall be the responsibility of such
Participant.
(a) After Hours Functions. The functions of the System after the
close of trading in all Participant Markets shall consist of the
following:
(i) The System's daily log of messages will be put on tape for
retention;
(ii) The System will generate four reports:
(A) An order/response report that will match orders to trade with
the appropriate responses,
(B) An order/cancellation report that will list all orders to trade
that were canceled,
(C) A trade adjustment report that will list all adjustments made
to previously executed System trades, and
(D) A traffic summary report that will indicate the number of
orders to trade, the number of responses and the number of
administrative messages entered from each Participant Market during the
trading day; and
(iii) The System will generate the clearing tape referred to in
section 7(b).
(b) Clearing Tape. At the end of each trading day, the System
generates a clearing tape as part of after-hours processing. This tape
is in OID sequence, includes all of the day's System trades, and shows:
(i) The OID,
(ii) The originating Participant and clearing member(s), or the
clearing corporation(s) through which such clearing member(s) shall
settle the trade,
(iii) The destination Participant and destination clearing
member(s), or the clearing corporation(s) through which such clearing
member(s) shall settle the trade,
(iv) The type of trade action (buy or sell),
(v) The security symbol,
(vi) The executed quantity and price, and
(vii) The date and time of trade.
Adjustments to any System trade made by agreement between both
sides of the trade are included in the tape and shown as a separate
``trade adjustment record''. If a trade has been adjusted, the original
trade record is followed by trade adjustment record(s). The trade
adjustment record(s) carry the same OID as the original trade record.
There are two types of trade adjustments, System trade cancellations
and System trade changes. For System trade cancellations, the
adjustment record negates the original trade record. For example, a
cancellation of a trade to buy is reflected on the adjustment record as
a ``negative buy''. For System trade changes, there are two adjustment
records. The first adjustment record negates the original trade record.
The second adjustment record logs the trade data as adjusted for, e.g.,
a change in action, security, quantity and/or price. The adjustment
records are generated from the trade adjustment file that is created
during trading hours and from inputs from the Linkage control center
pursuant to requests from the Participants' supervisors.
(c) Comparison of System Trades. The contra side of each System
trade ultimately is the clearing interface account used to identify the
clearing corporation through which the comparison of such side is
completed. If both sides of a System trade are to settle through the
same clearing corporation, the clearing corporation may, at its option,
either book each side against the clearing member responsible for that
side or offset each side against an internal omnibus account (in which
case the omnibus account will net to zero).
While sorting and format changes may be required, the various
clearing corporations are able to use the System clearing tape as the
basic input to their trade comparison operations. The clearing
member(s) responsible for an Exchange-supplied side of a System trade
shall follow routine comparison procedures. In instances where an
uncompared transaction cannot be resolved through routine procedures,
the Exchange-supplied side(s) of the trade discrepancy will be handled
in accordance with the rules of the Participant(s) and clearing
corporation(s) involved.
Once comparison has been completed, clearance and settlement can
proceed in a routine manner. System trades are processed with all other
transactions through established clearing interfaces.
(d) Participant Settlement Obligations. The rules of each
Participant shall be designed to assure that if a System trade reported
on the clearing tape (as adjusted) at the close of any trading day, as
such trade relates to such Participant, cannot be compared
[[Page 59154]]
notwithstanding the use of routine comparison procedures, such
Participant shall on the scheduled settlement date honor such
uncompared trade; provided, however, that, if such a System trade as it
relates to such Participant is rejected or excluded from the settlement
operation conducted by the clearing corporation to which it was
reported for settlement either because of the insolvency of the
member(s) for whose account(s) it was to be settled or for any other
reason (other than failure to compare), such Participant shall not be
obligated to honor such trade and such trade shall be returned to such
member(s).
In the event that a System trade as it relates to any Participant
is rejected or excluded from the settlement operation conducted by the
clearing corporation to which it was reported for settlement for any
reason other than failure to compare, neither the Participant from
whose market the side of the trade that is rejected or excluded was
supplied, the Participant from whose market the contra side of such
trade was supplied nor any clearing corporation to which either side of
the trade was submitted shall be obligated to honor the trade. Instead,
the member(s) constituting the contra side of the rejected or excluded
trade (the ``contra party'') shall, without unnecessary delay after
receipt of notice of such rejection or exclusion, close out such trade
in the best available market, except insofar as the rules of the
clearing corporation to which the contra side was submitted or of the
Participant from whose market the contra side was supplied are
applicable and provide an alternative method for closing. The rules of
each Participant shall state the foregoing closing obligations of the
contra party.
8. Pre-Opening Price Information.
The NYSE and AMEX will disseminate, through the System, pre-opening
price information whenever a member in that Participant market, in
arranging an opening transaction in his or her market in a System
security, anticipates that the opening transaction will be at a price
that represents a change from the ``previous day's consolidated closing
price'' of more than the ``applicable price change''.
The ``previous day's consolidated closing price'' is the last price
at which a transaction in the security was reported by the CTA Plan
Processor on the last previous day on which transactions in the
security were reported by the CTA Plan Processor. The ``applicable
price changes'' are:
------------------------------------------------------------------------
Applicable
Consolidated closing price change
Security price ($) (more
than)
------------------------------------------------------------------------
Network A......................... Under $15........... 0.10
$15 or over......... \4\ 0.25
Network B......................... Under $5............ 0.10
$5 or over.......... \5\ 0.25
------------------------------------------------------------------------
Prior to the opening of trading in a System security for which the
NYSE or AMEX has disseminated pre-opening price information, orders in
that security shall be sent to that Participant through the
Participant's order delivery system and not the NMS Linkage.
---------------------------------------------------------------------------
\4\ If the previous day's consolidated closing price of a
Network A Eligible Security exceeded $100 and the security does not
underlie an individual stock option contract listed and currently
trading on a national securities exchange, the ``applicable price
change'' is one dollar.
\5\ If the previous day's consolidated closing price of a
Network B Eligible Security exceeded $75 and the security is not a
Portfolio Depositary Receipt, Index Fund Share, or Trust Issued
Receipt, or does not underlie an individual stock option contract
listed and currently trading on a national securities exchange, the
``applicable price change'' is one dollar.
---------------------------------------------------------------------------
9. Operating Hours. Regular trading hours are from 9:30 a.m. to 4
p.m. eastern time. The normal operating hours of the System are 9 a.m.
to 6:30 p.m. eastern time or such other period as the Supervisory
Committee, by affirmative vote of all its members, may specify. Any
period outside the normal operating hours of the System is herein
referred to as an ``additional period''. The System shall be operable
during any additional period requested in writing by any two or more
Participants; provided that such Participants have agreed to pay all
costs and expenses attributable to the operation of the System during
such additional period as agreed to by those Participants.
10. Financial Matters.
(a) Costs. The Participants shall share the ``development costs''
and ``production costs'', in accordance with the provisions of this
section 10(a).
(i) Costs Definitions
(A) ``Computer software'' includes all programs or routines
developed by or at the direction of the System's facilities manager
(including such development in connection with the Intermarket Trading
System) to cause computers to perform tasks required for any one or
more Applications and the documentation required to describe and
maintain those programs. Computer programs of all classes, for example,
operating systems, execution systems, monitors, compilers and
translators, assembly routines, and utility programs are included.
(B) ``Development costs'' mean all costs incurred by the System's
facilities manager in developing and improving the computer software
and installing hardware as necessary to facilitate System functionality
(including any testing conducted in connection with the System).
(C) ``Installing hardware as necessary'' includes, but is not
limited to, installation and maintenance of all installations and
computer facilities required to support the System.
(D) ``New Participant'' means any national securities exchange or
national securities association that becomes a Participant in
accordance with section 3(c) after SEC approval of this Linkage Plan.
(E) ``Production costs'' mean all operating expenses associated
with the operation of the System, including all costs and expenses
(including appropriate overhead costs and all applicable taxes however
designated, exclusive of net income taxes) of the System's facilities
manager associated with, relating to, or resulting from its operation
or maintenance of the System, but excluding any cost or expense
associated with any Participant's self-regulatory function. Production
costs also include the costs and expenses of the facilities manager:
(i) In maintaining ``hot lines'' that permit conversations among
broker-dealers and staff in different Participant Markets and with the
Systems control center; and (ii) associated with reports rendered by a
firm of independent accountants pursuant to paragraph (a)(vi) of this
section 10.
(F) ``Routed orders base'' for any calendar quarter means the total
number of orders sent through the System.
[[Page 59155]]
(G) ``Share of the routed orders base'' of any Participant as
computed for any calendar quarter means a fraction, the numerator of
which is the total number of orders sent through the System by that
Participant during the calendar quarter and the denominator of which is
the routed orders base for the calendar quarter.
(H) ``Share of the transactions base'' for a calendar quarter
means:
(1) For any Participant other than AMEX or NYSE, a fraction, the
numerator of which is the total number of transactions in Network A
Eligible Securities that the Participant reports to the CTA Plan
Processor during that quarter and the denominator of which is the
quarter's transactions base;
(2) For AMEX, a fraction, the numerator of which is the number of
transactions in ``Top Ten Network B Eligible Securities'' (as clause
(2) of section 10(a)(i)(I) defines that term) that AMEX reports to the
CTA Plan Processor during that quarter and the denominator of which is
the quarter's transactions base; and
(3) For NYSE, the fraction derived by subtracting from 1 (one) the
sum of all other Participants' shares of the transaction base for the
quarter.
(I) ``Transactions base'' for any calendar quarter means the sum of
(1) the number of transaction reports in Network A Eligible Securities
that the CTA Plan Processor disseminates during the quarter and (2) the
number of transaction reports in the ``Top Ten Network B Eligible
Securities'' that the CTA Plan Processor disseminates during the
quarter. A quarter's ``Top Ten Network B Eligible Securities'' refers
to the ten Network B Eligible securities for which the CTA Plan
Processor disseminates the greatest number of transaction reports
during that quarter.
(ii) Dispute Costs Excluded. The development costs and production
costs shall not include any cost or expense incurred by any Participant
as a result of or in connection with the defense of any claim, suit or
proceeding against the Supervisory Committee or any one or more of the
Participants relating to the Linkage Plan or the operation of the
System. All such costs and expenses incurred by any Participant shall
be borne by such Participant without contribution or reimbursement.
(iii) Development Costs.
(A) New Development Costs Sharing. Development costs shall not be
incurred except as agreed to by all Participants. Each Participant
shall pay a fraction equal to its share of the transactions base for
the calendar quarter preceding the calendar quarter during which the
Participants agree to incur such cost. Any development costs that are
incurred for the benefit of less than all Participants shall be shared
by the Participant or Participants that benefit therefrom as they shall
mutually agree.
(B) Development Costs Payment. Development costs will be computed
by the System's facilities manager as soon as practicable following the
close of the calendar month or, if relatively small, the calendar
quarter during which they were incurred. Each Participant's share shall
be billed to, and payable by, such Participant promptly thereafter.
(C) New Participant's Share of Development Costs. At the time any
national securities exchange or national securities association applies
to become a new Participant, such applicant shall be charged by, and
shall pay to, the System's facilities manager an amount estimated by
the System's facilities manager to cover development costs to be
incurred to accommodate such applicant's status as a Participant. Prior
to the effective date of the SEC's approval of such Participant status,
the applicant shall pay to the System's facility manager actual
development costs in excess of estimated development costs, if any, or
the System's facility manager shall reimburse to the applicant
estimated development costs that were paid and that are in excess of
actual development costs. Each new Participant shall share in
development costs incurred after it becomes a Participant in accordance
with section 10(a)(iii)(A).
(D) Title to Software. The entire right, title and interest in and
to all ``computer software'' (as defined in section 10(a)(i)(A))
developed prior to July 1, 1978 shall be vested in the Participants who
share the cost of such computer software as joint owners. The entire
right, title and interest in and to all computer software developed
after June 30, 1978 shall be vested in the Participant who pays the
cost thereof. If more than one Participant shares in the cost of
computer software developed after June 30, 1978, then the entire right,
title and interest in and to such computer software, the cost of which
is so shared, shall be vested in the Participants who share such cost
as joint owners. The System's facilities manager shall use computer
software solely for the purpose of performing tasks required for the
Applications as provided in the Linkage Plan.
(iv) Production Costs
(A) Production Costs Sharing. The production costs attributable to
any calendar quarter shall be shared by the markets that were
Participants during any portion of the calendar quarter. Each such
Participant, except the NYSE, shall pay 50% of the fraction of such
production costs equal to its share of the routed orders base as
computed for the calendar quarter. Notwithstanding the foregoing, the
aggregate dollar amount of all of a Participant's quarterly payments
shall not exceed its ``Production Costs Sharing Cap''. A Participant's
``Production Costs Sharing Cap'' means total production costs for
calendar year 2005 multiplied by 50 percent of the Participant's
percentage of the routed order base for the period commencing January
1, 2005, and ending July 31, 2005. The NYSE shall pay those production
costs that this Paragraph does not require the other Participants to
pay.
(B) Production Costs Payment. Production costs will be computed by
the System's facilities manager as soon as practicable following the
close of each calendar month. Each Participant's (or former
Participant's) estimated share thereof shall be billed by the System's
facilities manager and shall be payable to the System's facilities
manager promptly following receipt. Any appropriate adjustment will be
made between the System's facilities manager and each Participant
promptly following the close of each calendar quarter.
(v) Communications Connection Costs. Each Participant shall bear
100% of the costs to provide communication connection from a
Participant's facilities to the System's communications facilities
maintained by the facilities manager.
(vi) Accounts. The System's facilities manager and the independent
public accountants hereinafter referred to shall furnish any
information and/or documentation reasonably requested in writing by a
majority of the Participants in support of or relating to any of the
computations referred to in this section 10(a). All expenses,
allocations and computations referred to or required by this section
10(a) shall be reported at least annually to the Participants. For even
numbered years, (or such other yearly interval as the Supervisory
Committee, by affirmative vote of all its members, may specify), such
reports shall be rendered by a firm of independent public accountants
(which may be the firm regularly employed by the NYSE or the System's
facilities manager), and such accountants shall render their opinion
that such expenses, allocations and computations have been reported in
accordance with the understanding among the Participants as set forth
in this section 10(a). For those years when a firm of independent
public accountants is not engaged to render a report, the facilities
manager's internal auditor shall review all
[[Page 59156]]
expenses, allocations and computations referred to or required by this
section 10(a) and that internal auditor shall report that such
expenses, allocations and computations have been reported in acco
