Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to NYSE Rule 124 (Odd-Lot Orders), 56415-56419 [E7-19488]

Download as PDF Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices IV. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act,31 that the proposed rule change (SR–ISE–2007– 74), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis, for a pilot period, which will end on March 27, 2009. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.32 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–19500 Filed 10–2–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56551; File No. SR–NYSE– 2007–82] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to NYSE Rule 124 (Odd-Lot Orders) September 27, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 6, 2007, the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’), filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the NYSE. The Exchange has filed the proposal pursuant to Section 19(b)(3)(A) of the Act,3 and Rule 19b–4(f)(5) thereunder,4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change rwilkins on PROD1PC63 with NOTICES The Exchange proposes to amend Exchange Rule 124 (Odd-Lot Orders) to modify the way in which Exchange systems price and execute certain types of odd-lot orders. The text of the proposed rule change is available on the Exchange’s Web site (http:// www.nyse.com), at the Exchange’s 31 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(5). 32 17 VerDate Aug<31>2005 18:31 Oct 02, 2007 Jkt 211001 Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NYSE included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose This filing is submitted to amend Exchange Rule 124 to change the way in which certain odd-lot orders 5 are priced and executed by Exchange systems. The Exchange proposes that buy and sell odd-lot market orders and odd-lot limit orders marketable upon receipt by Exchange systems (collectively referred to herein as ‘‘marketable odd-lot orders’’) be paired and executed at the price of the next round-lot transaction, with any imbalance of buy or sell marketable odd-lot orders executed at the price of the national best bid or offer (‘‘NBBO’’) 6 pursuant to specific conditions described herein; and under certain circumstances, that nonmarketable odd-lot limit orders be executed at their limit price upon becoming marketable. a. Current Execution of Odd-Lot Orders Currently, odd-lot orders do not enter the Exchange’s auction market but are executed systemically by Exchange systems designated solely for odd-lot orders (the ‘‘odd-lot System’’).7 The odd-lot System executes all odd-lot orders against the specialist as the contra party. Odd-lot market orders are executed in time priority at the price of the next round-lot transaction.8 Buy and sell odd-lot market orders are, in essence, netted against one another and executed; however, since the specialist is buying the same amount that he or 5 Odd-lot orders are orders for a size less than the standard unit (round-lot) of trading, which is 100 shares for most stocks, although some stocks trade in 10 share units. 6 The National best bid or offer is defined by Rule 600 (b)(42) of Regulation NMS under the Act (‘‘Regulation NMS’’), 17 CFR 242.600(b)(42). 7 See Exchange Rule 124(a). 8 See Exchange Rule 124(b)(i). PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 56415 she is selling, there is no economic consequence to the specialist in this type of pairing-off of orders. There is a volume limitation inherent in the execution of odd-lot market orders in that any imbalance of buy or sell oddlot market orders are executed against the specialist, but only up to the size of the round-lot transaction.9 Any odd-lot market orders that do not receive an execution because of the volume limitation are executed, in order of time priority, at the price of the next roundlot transaction.10 An odd-lot market order that is not executed within 30 seconds is executed at the price of the national best bid or offer (‘‘NBBO’’).11 There is no volume limitation for oddlot market orders that receive an execution after 30 seconds have elapsed. Odd-lot market orders to sell short are executed at the price of the next roundlot transaction that follows the entry of the order that is higher than the last different last round-lot price (a ‘‘plus tick’’ or a ‘‘zero plus tick’’). There is no volume limitation for odd-lot market orders to sell short. Odd-lot limit orders to buy or sell are executed at the price of the first roundlot transaction that is at or higher/lower than the limit price of the odd-lot limit order, subject to the volume limitation of the round-lot transaction.12 Odd-lot limit orders are aggregated with odd-lot market orders for purposes of the volume limitation. Odd-lot limit orders eligible for execution are combined with odd-lot market orders in order to determine time priority. Odd-lot limit orders are similarly aggregated with odd-lot market orders for purposes of the netting provision. As with odd-lot market orders, odd-lot limit orders that would otherwise receive a partial execution will be executed in full. There is no 30-second default execution 9 See Exchange Rule 124(b)(i). See also Exchange Rule 124(b)(ii), which provides that any odd-lot market order that would otherwise receive a partial execution will be executed in full. 10 See Exchange Rule 124(b)(iii). 11 Exchange Rule 124(b)(iv) provides that any odd-lot market order that is not executed within 30 seconds shall be executed at the price of the ‘‘adjusted ITS offer’’ or ‘‘adjusted ITS bid’’, as those terms are defined in Exchange Rule 124.60, rather than the NBBO. However, with the elimination of the Intermarket Trading System (‘‘ITS’’) Plan on March 5, 2007, (see Securities Exchange Act Release No. 55397 (March 5, 2007), 72 FR 11066 (March 12, 2007) (File No. 4–208)), the ability to price such odd-lot orders in terms of the ‘‘adjusted ITS’’ bid or offer no longer existed. The Exchange states that, as of March 5, 2007, all odd-lot market orders that remain unexecuted after 30 seconds have been executed at the price of the NBBO, which is in fact the functional equivalent of the adjusted bid or offer. Through this filing, the Exchange, among other things, seeks to remove the concept of ‘‘adjusted ITS bid’’ and ‘‘adjusted ITS offer’’. 12 See Exchange Rule 124(c). E:\FR\FM\03OCN1.SGM 03OCN1 56416 Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices provision for odd-lot limit orders.13 Odd-lot limit orders to sell short are executed at the price of the first roundlot transaction which is a plus or a zero plus tick. The odd-lot portion of partial roundlot (‘‘PRL’’) orders 14 are executed at the same price as the round lot portion, and are processed through the odd-lot System with the specialist as the contra party. The PRL order is automatically executed in accordance with Exchange Rules 1000–1004. Where there is more than one transaction required to effect the complete execution of the round-lot portion of a PRL order, the odd-lot portion is executed at the price of the first transaction in which a round-lot portion of the PRL order is executed. b. Representing Odd-Lot Orders in the Round-Lot Market The Exchange has always believed that the most appropriate way to execute odd-lot orders is to represent them in the round-lot auction market where they would interact with all other market interest and be priced in accordance with supply and demand dynamics. However, such representation required technical changes to a number of Exchange systems and was not a readily viable option.15 In view of this, the pricing methodology of Exchange Rule 124 was amended in 2004 (as is reflected in its current operation today, i.e., using the next round-lot sale price) as an interim measure to accommodate the pricing and execution of odd-lot orders in a manner that was based on the prevailing market.16 The Exchange has continued its move towards the goal of integrating odd-lots into the round-lot market. The Exchange states that this proposal should be seen as part of the Exchange’s efforts to prepare its membership for subsequent changes in market structure. The Exchange proposes to amend the pricing and execution methodology of Exchange Rule 124 to more precisely emulate executions in the round-lot market. rwilkins on PROD1PC63 with NOTICES c. Proposed Change to Odd-Lot Trading Platform Through this filing, the Exchange seeks to modify the execution of odd-lot orders such that: (i) Marketable odd-lot 13 See Exchange Rule 124(c), which states that execution of an odd-lot limit order is subject to the principles of paragraphs (b)(i), (ii) and (iii) of the rule. 14 See Exchange Rule 124.50. 15 See Securities Exchange Act No. 49536 (April 7, 2004), 69 FR 19890, 19893 (April 14, 2004) (SR– NYSE–2003–37). 16 See Securities Exchange Act No. 49745 (May 20, 2004), 69 FR 29998 (May 26, 2004) (SR–NYSE– 2003–37). VerDate Aug<31>2005 18:31 Oct 02, 2007 Jkt 211001 orders will begin automatic execution only following the first round-lot transaction in the subject security; (ii) marketable odd-lot buy and sell orders will be netted against one another and executed, in time priority of receipt, at the price of the next round-lot transaction on the Exchange; (iii) any imbalance of marketable odd-lot buy and sell orders incapable of being netted will be executed at the price of the NBBO; (iv) odd-lot limit orders that are not marketable upon receipt will be executed, upon becoming marketable, at their limit price subject to certain conditions; and (v) in certain instances as described below, odd-lot executions will be limited in size to the lesser of either the number of shares of the last round-lot transaction or the number of shares of the national best bid (in the case of an odd-lot order to sell) or the national best offer (in the case of an odd-lot order to buy). Moreover, the odd-lot portion of a PRL order will be executed only if the entire round-lot portion of the PRL order has completed execution.17 The odd-lot portion of a PRL will be executed with and at the same price of the last round lot transaction that completes the round lot portion of the PRL. With respect to all the proposed modifications above, the specialist remains the contra side to all odd-lot executions. The pricing and execution of odd-lot orders are set forth in Exchange Rule 124.18 Section (a) of the rule remains unchanged. A new section (b) will be created to define the term ‘‘marketable’’ as it pertains to odd-lot limit orders. For the purposes of the rule, the term ‘‘marketable’’ when applied to an oddlot limit order to buy shall mean at a price that is at or higher than the current Exchange best offer and when applied to an odd-lot limit order to sell shall mean at a price that is at or lower than the current Exchange best bid. The original section (b) of the rule, which governs the pricing and execution of odd-lot market orders, will be amended to become section (c). Marketable Odd-Lot Orders—Proposed Section (c) Proposed section (c) of the rule will govern the execution of marketable oddlot orders, and provides that marketable odd-lot orders will begin automatic 17 Telephone conversation between Gillian Rowe, Principal Rule Counsel, NYSE, and Jennifer Dodd, Special Counsel, Division of Market Regulation, Commission, on September 24, 2007. 18 The Exchange has provided examples of the operation of the most relevant aspects of this proposed rule change. These examples are available on the Commission’s Web site at http:// www.sec.gov/rules/sro/nyse.shtml. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 execution only after the first round-lot transaction on the Exchange in the subject security. If there is no initial round-lot transaction in the subject security, then no odd-lot orders will be executed in the trading session.19 After the initial round-lot transaction in the subject security, marketable odd-lot orders will be executed in time priority upon receipt by the odd-lot System at the price of the next round-lot transaction in the subject security. Subsection (b)(i) of the original rule text will be amended to become subsection (c)(i). Proposed subsection (c)(i) retains the netting provision of the original rule text, and provides that an equal number of shares of marketable buy and sell odd-lot orders will be paired-off against one another and executed at the price of the applicable round-lot transaction with the specialist as the contra side to the executions. A new subsection (c)(ii) will be created to provide that marketable oddlot orders that do not receive an execution pursuant to proposed subsection (c)(i) will be executed in time priority of receipt at the price of the NBBO with the specialist as the contra side to the executions. Subsection (b)(ii) of the original rule text will be amended to become subsection (c)(iii). Proposed subsection (c)(iii) modifies the volume limitation of the original rule text and provides that the number of shares of marketable oddlot orders executed at the price of the NBBO 20 will not exceed the lesser of either (1) the number of shares in the last round-lot transaction, or (2) the number of shares available at the national bid (in the case of an odd-lot order to sell) or the national best offer (in the case of an odd-lot order to buy).21 Proposed subsection (c)(iii) also provides that a marketable odd-lot order that would receive a partial execution as a consequence of the volume limitation will continue to be executed in full. Subsection (b)(iii) of the original rule text, which explains the execution of odd-lot market orders that do not receive an execution because of the volume limitation, will be amended to 19 It should be noted that execution of odd-lot orders after a trading halt will be governed by proposed subsection (c)(vii) and executions on the close will be governed by proposed subsection (c)(viii), as described more fully below. 20 Non-marketable odd-lot limit orders that become marketable and do not receive an execution pursuant to subsection (c)(i) will be executed pursuant to (c)(ii) and (c)(iii) at their limit price. 21 In determining the size of the volume limitation described in proposed subsection (c)(iii), the Exchange will only consider the size of displayed ‘‘protected bids’’ and ‘‘protected offers’’ as defined by Rule 600(b)(57) of Regulation NMS, 17 CFR 242.600(b)(57). E:\FR\FM\03OCN1.SGM 03OCN1 rwilkins on PROD1PC63 with NOTICES Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices become subsection (c)(iv). The purpose of this subsection is to make clear that the procedure of proposed subsection (c)(i), (ii) and (iii) will repeat itself after each round-lot transaction on the Exchange. Since the same principle also applies to the operation of the 30second timing provision described in proposed subsection (c)(v), the Exchange has further amended this subsection to include a reference to subsection (c)(v). Accordingly, proposed subsection (c)(iv) provides that marketable odd-lot orders that do not receive an execution pursuant to subsections (c)(i), (ii), (iii) and (v), will be executed, in time priority of receipt, following subsequent round-lot transactions on the Exchange subject to the same procedures of proposed subsections (c)(i), (ii), (iii) and (v). Subsection (b)(iv) of the original rule text, which governs the handling of oddlot market orders that do not receive an execution after the next round lot transaction within 30 seconds of receipt, will be amended to become subsection (c)(v). Proposed subsection (c)(v) provides that marketable odd-lot orders that do not receive an execution within 30 seconds of receipt by the System will be executed, after 30 seconds, in time priority of receipt, at the price of the national best bid (in the case of an order to sell) or at the price of the national best offer (in the case of an order to buy) at the time of the execution, subject to the volume restrictions in subsection (c)(iii). The practical effect of this timing provision is that, starting with the initial round-lot transaction on the Exchange in the subject security, the operation of proposed subsection (c)(v) will repeat itself every 30 seconds, providing for the execution of marketable odd-lots at the price of the NBBO and the execution of non-marketable odd-lot limit orders that have become marketable at their limit price. Subsection (b)(v) of the original rule text, which explains the handling of odd-lot market orders entered prior to the opening in the subject security, will be changed to become subsection (c)(vi). Proposed subsection (c)(vi) of the rule states that marketable odd-lot orders entered before the opening transaction of the subject security will be executed at the price of the opening transaction. The volume limitation of proposed subsection (c)(iii) will not apply to the opening transaction in the subject security. A new subsection enumerated as (c)(vii) will be added to the rule text. Proposed subsection (c)(vii) provides that, in the event the Exchange halts trading in a subject security, marketable odd-lot orders that have been received VerDate Aug<31>2005 18:31 Oct 02, 2007 Jkt 211001 by Exchange systems during the trading halt shall be executed at the price of the re-opening transaction in the subject security. The volume limitation of proposed subsection (c)(iii) will not apply to any re-opening transaction in the subject security. Subsection (b)(vi) of the original rule text, which explains the handling of odd-lot market orders entered prior to the close of trading, will be changed to become subsection (c)(viii). Proposed subsection (c)(viii) describes the pricing of marketable odd-lot orders at the close of trading; however, it also governs the pricing and execution of non-marketable odd-lot limit orders that become marketable but remain unexecuted prior to the close of trading. The pricing and execution of non-marketable odd-lot limit orders is specifically described in proposed section (d) of the rule text.22 Proposed subsection (c)(viii) states that Marketable Odd-lot Orders at the Close will be executed, in time priority of receipt, at the price of the closing transaction. This subsection includes a netting provision (i.e., the execution of Marketable Odd-lot Orders at the Close will total an equal number of shares bought and sold). After such netting has occurred, any additional shares of Marketable Odd-lot Orders at the Close that remain will be executed subject to the volume limitation. The volume limitation of proposed subsection (c)(viii) is related specifically to the size of the closing transaction (i.e., the execution of additional shares of Marketable Odd-lot Orders at the Close will not exceed the number of shares of the closing transaction). Proposed subsection (c)(viii) also provides that Marketable Odd-lot Orders at the Close that would otherwise receive a partial execution will be executed in full. Subsection (b)(vii) of the original rule text, which governs the execution of odd-lot market orders to sell short, will be removed entirely as it is no longer necessary in light of the Commission’s elimination of restrictions on the execution prices of short sales under the Act and prohibition of self-regulatory organizations from having a short sale price test.23 22 In order to avoid confusion with respect to the description of how odd-lot orders are handled at the close, the Exchange collectively refers to marketable odd-lot orders and non-marketable odd-lot limit orders that have become marketable prior to the close of trading as ‘‘Marketable Odd-lot Orders at the Close’’ in its discussion below of the execution and pricing of odd-lot orders at the close of trading. 23 See Securities Exchange Release No. 55970 (June 28, 2007), 72 FR 36348 (July 3, 2007). PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 56417 Non-Marketable Odd-Lot Limit Orders— Proposed Section (d) Section (c) of the original rule text governs the operation of odd-lot limit orders. In this filing, the Exchange proposes to amend section (c) to become section (d). Proposed section (d) will govern the execution of odd-lot limit orders that are not marketable upon receipt by the odd-lot System. Pursuant to proposed section (d), non-marketable odd-lot limit orders shall, upon becoming marketable, be executed in time priority of receipt at the price of subsequent round-lot transactions on the Exchange in the subject security based on the conditions of proposed subsections (c)(i)–(v), except that when an odd-lot execution occurs pursuant to subsections (c)(ii) or (v), such odd-lot limit order will be executed at its limit price. Thus, a non-marketable odd-lot limit order that becomes marketable is eligible to be netted and executed at the price of the next round-lot transaction pursuant to proposed subsection (c)(i). If this odd-lot limit order does not receive an execution then, pursuant to proposed subsection (c)(ii), the odd-lot limit order is eligible to be executed, at its limit price, subject to the volume limitation of proposed subsection (c)(iii) and the provisions of subsections (c)(iv) and (c)(v).24 With respect to proposed subsection (c)(v), which explains the operation of the 30-second timing provision, if this odd-lot limit order remains unexecuted within 30 seconds, it will receive an execution after 30 seconds at its limit price, in accordance with proposed section (d). As previously discussed in this filing, proposed section (d) includes a second exception which provides that nonmarketable odd-lot limit orders that become marketable, but remain unexecuted prior to the close of trading will be executed at the price of the closing transaction, subject to the specific principals of proposed subsection (c)(viii), which governs the execution of odd-lots at the close of trading. Odd-Lot Market Orders To Sell Short Section (d) of the original rule text governs the operation of odd-lot limit orders to sell short and will be removed entirely pursuant to the Commission’s elimination of the short sale price test.25 24 Proposed subsection (c)(iv) explains how a non-marketable odd-lot limit order that has become eligible for execution will be executed if it does not receive an execution because of the volume limitation. 25 See footnote 23, supra. E:\FR\FM\03OCN1.SGM 03OCN1 56418 Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices Odd-Lot Stop Orders—Section (e) Section (e) of Exchange Rule 124 delineates the operation of odd-lot market stop orders. While the lettering of this section remains the same, this filing proposes to amend section (e) by removing term ‘‘market’’ from the description of the order type. Section (e) of the rule will retain the use of a roundlot transaction as a trigger to convert each type of odd-lot stop order delineated in section (e) into a market order. A new subsection (e)(i) will be added to indicate that stop orders entered prior to the opening which would be elected by the opening transaction will be executed at the price of the opening transaction. Subsections (e)(i) (Buy Stop Orders) and (e)(ii) (Sell Stop Orders, Marked ‘‘Long’’) of the original rule text will be amended to become subsection (e)(ii) and subsection (e)(iii), respectively. Pursuant to proposed subsections (e)(ii) and (e)(iii), once a buy stop order or a sell stop order is elected at its stop price and becomes a market order, it shall be filled, subject to all the provisions of proposed section (c) of the rule. In other words, once these orders are elected and become market orders they are priced and executed as any other marketable odd-lot order. References to the phrase ‘‘marked ‘Long’’’ will be removed from proposed subsection (e)(iii) since the Commission’s elimination of the short sale price test renders such distinctions between stop orders marked ‘‘short’’ and ‘‘long’’ unnecessary. Subsection (e)(iii) of the original rule text (Sell Stop Orders, Marked ‘‘Short’’) will be removed entirely pursuant to the Commission’s elimination of the short sale price test.26 rwilkins on PROD1PC63 with NOTICES Other Types of Odd-Lot Orders— Proposed Section (g) The lettering of section (h) (Other Types of Orders) of the rule will be amended in this filing to become section (g). Proposed subsection (g)(2) (Sell ‘‘On Close’’) will be amended to remove the phrase ‘‘marked ‘Long’’’ and the sentence ‘‘[a]n order to sell ‘‘On Close’’ marked ‘‘short’’ shall not be accepted’’ in order to conform with the elimination of the short sale price test by the Commission.27 The phrase ‘‘closing round-lot ‘sell’’’ found in proposed subsection (g)(2) will be changed to the phrase ‘‘closing round-lot ‘sale’’’ in order to clarify the sentence. PRL Orders The execution of PRL orders is discussed in section .50 of the 26 Id. 27 Id. VerDate Aug<31>2005 18:31 Oct 02, 2007 Jkt 211001 Supplementary Material of the rule. The Exchange proposes to amend section .50 of the Supplementary Material to reflect that, where more than one round lot transaction is required to effect the complete execution of the round-lot portion of a PRL, the odd lot portion will receive an execution only if the entire round lot portion of the order as received by the Exchange is executed. Moreover, the odd lot portion will then be executed at the same price as the last round lot transaction that is needed to complete the entire round-lot portion of the PRL. Conforming Changes to Exchange Rule 124 The Exchange further proposes to make conforming changes to other sections of Exchange Rule 124. The lettering of the original section (g) (Limited Order, ‘‘With or Without Sale’’) of Exchange Rule 124 will be changed to section (f).28 Section .60 of the Supplementary Material of the rule, which defines the term ‘‘adjusted ITS bid/offer’’ for the purposes of the rule, will be removed in its entirety to conform with the elimination of ITS. Section .70 of the Supplementary Material of the original rule text will be re-numbered to become section .60. Proposed section .60, which explains the handling of odd-lot market orders in instances when quotation collection or dissemination facilities are inoperable or the market in a security is in a ‘‘nonfirm’’ mode, will be amended to reflect that marketable odd-lot orders will resume execution once quotation information is available, at a price that is in accordance with all the provisions of proposed section (c) of the rule. Finally, section .80 of the Supplementary Material of the original rule text will be re-numbered to become section .70. Proposed section .70 of the Supplementary Material will be amended to reflect that the execution of odd-lot orders will be suspended and resume trading pursuant to Exchange Rule 1000, paragraph (a), subsections (i)–(v). References to Exchange Rules 1002, 1003 and 1004 will be removed because they do not specifically pertain to the suspension of automatic executions. The Exchange believes that the aforementioned proposed modifications to the odd-lot System will further the efficient execution of customer odd-lot 28 The original section (f) of Exchange Rule 124 (‘‘Limit Stop Orders’’) was removed in a previous rule filing and the lettering of the remainder of the rule was not revised at that time. See Securities Exchange Act Release No. 54820 (November 27, 2006), 71 FR 70824 (December 6, 2006) (SR–NYSE– 2006–65). PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 orders while ensuring that the odd-lot orders are appropriately executed without an unfair time priority or price advantage over round-lot orders. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b) of the Act,29 in general, and with Section 6(b)(5) of the Act,30 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange also states that the proposed rule change also is designed to support the principles of Section 11A(a)(1) 31 in that it seeks to assure economically efficient execution of securities transactions, make it practicable for brokers to execute investors’ orders in the best market and provide an opportunity for investors’ orders to be executed without the participation of a dealer. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that the proposed rule change will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change effects a change in an existing order-entry or trading system of a selfregulatory organization that does not (1) significantly affect the protection of investors of the public interest, (2) impose any significant burden on competition, and (3) have the effect of limiting the access to or availability of the system, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 32 and Rule 19b–4(f)(5) thereunder.33 At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the 29 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 31 15 U.S.C. 78k–1(a)(1). 32 15 U.S.C. 78s(b)(3)(A)(iii). 33 17 CFR 240.19b–4(f)(5). 30 15 E:\FR\FM\03OCN1.SGM 03OCN1 Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices Commission that such action is necessary or appropriate in the public interest, for the protection of investors or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: rwilkins on PROD1PC63 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSE–2007–82 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2007–82. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE–2007–82 and should be submitted on or before October 24, 2007. VerDate Aug<31>2005 18:31 Oct 02, 2007 Jkt 211001 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.34 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–19488 Filed 10–2–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56554; File No. SR–NYSE– 2007–84] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to NYSE Rule 104.10(6) (Dealings With Specialists) September 27, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 25, 2007, the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the NYSE. The NYSE has designated the proposed rule change as a ‘‘non-controversial’’ rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b– 4(f)(6) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The NYSE is proposing to extend for three (3) months the current pilot related to specialist stabilization requirements operating pursuant to NYSE Rule 104.10(6) (Specialist Transactions in Active Securities that Establish or Increase the Specialist’s Position) (‘‘Stabilization Pilot’’),5 that is scheduled to terminate on September 30, 2007. The text of the proposed rule change is available on NYSE’s Web site at http://www.nyse.com, at NYSE’s 34 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 See Securities Exchange Act Release No. 54860 (December 1, 2006), 71 FR 71221 (December 8, 2006) (SR–NYSE 2006–76). 1 15 PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 56419 principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the NYSE included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The NYSE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to extend the operation of the Stabilization Pilot pursuant to NYSE Rule 104.10(6) from September 30, 2007 to the earlier of December 31, 2007 or such time as the Commission approves a proposal by the Exchange to modify the current Pilot.6 a. Stabilization Pilot On December 1, 2006, the Commission approved changes to NYSE Rules 104.10(5) and 104.10(6) governing specialist stabilization requirements.7 The amendments to the Rule moved away from defining stabilization in terms of the last sale to focus on market conditions, the type of trade in question and the specialist’s existing position. The amendments to NYSE Rule 104.10(6) govern Conditional Transactions (as defined below) in active securities (‘‘Stabilization Pilot’’).8 Pursuant to the Stabilization Pilot, specialists can trade in active securities that establish or increase a position by reaching across the market to trade in 6 On September 14, 2007, the Exchange filed SR– NYSE–2007–83 in order to amend NYSE Rule 104.10 to (i) extend the duration of the Stabilization Pilot to March 31, 2008; (ii) remove the ‘‘active securities’’ limitation on Conditional Transactions that establish or increase a specialist’s position and reach across the market to transact with the Exchange’s published quote; and (iii) make certain conforming changes to NYSE Rule 104.10(5). See Securities Exchange Act Release No. 56455 (September 18, 2007), 72 FR 54499 (September 25, 2007) (SR–NYSE–2007–83). 7 See Securities Exchange Act Release No. 54860, supra note 5. 8 ‘‘Active’’ securities are: (a) securities comprising the S&P 500 Stock Index; (b) securities trading on the Exchange during the first five trading days following their initial public offering of such securities; and (c) securities that have been designated as ‘‘active’’ by a Floor Official subject to the provisions of the Rule. E:\FR\FM\03OCN1.SGM 03OCN1

Agencies

[Federal Register Volume 72, Number 191 (Wednesday, October 3, 2007)]
[Notices]
[Pages 56415-56419]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19488]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56551; File No. SR-NYSE-2007-82]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to NYSE Rule 124 (Odd-Lot Orders)

 September 27, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 6, 2007, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the NYSE. The 
Exchange has filed the proposal pursuant to Section 19(b)(3)(A) of the 
Act,\3\ and Rule 19b-4(f)(5) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(5).
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Exchange Rule 124 (Odd-Lot Orders) 
to modify the way in which Exchange systems price and execute certain 
types of odd-lot orders. The text of the proposed rule change is 
available on the Exchange's Web site (http://www.nyse.com), at the 
Exchange's Office of the Secretary, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    This filing is submitted to amend Exchange Rule 124 to change the 
way in which certain odd-lot orders \5\ are priced and executed by 
Exchange systems. The Exchange proposes that buy and sell odd-lot 
market orders and odd-lot limit orders marketable upon receipt by 
Exchange systems (collectively referred to herein as ``marketable odd-
lot orders'') be paired and executed at the price of the next round-lot 
transaction, with any imbalance of buy or sell marketable odd-lot 
orders executed at the price of the national best bid or offer 
(``NBBO'') \6\ pursuant to specific conditions described herein; and 
under certain circumstances, that non-marketable odd-lot limit orders 
be executed at their limit price upon becoming marketable.
---------------------------------------------------------------------------

    \5\ Odd-lot orders are orders for a size less than the standard 
unit (round-lot) of trading, which is 100 shares for most stocks, 
although some stocks trade in 10 share units.
    \6\ The National best bid or offer is defined by Rule 600 
(b)(42) of Regulation NMS under the Act (``Regulation NMS''), 17 CFR 
242.600(b)(42).
---------------------------------------------------------------------------

a. Current Execution of Odd-Lot Orders
    Currently, odd-lot orders do not enter the Exchange's auction 
market but are executed systemically by Exchange systems designated 
solely for odd-lot orders (the ``odd-lot System'').\7\ The odd-lot 
System executes all odd-lot orders against the specialist as the contra 
party. Odd-lot market orders are executed in time priority at the price 
of the next round-lot transaction.\8\ Buy and sell odd-lot market 
orders are, in essence, netted against one another and executed; 
however, since the specialist is buying the same amount that he or she 
is selling, there is no economic consequence to the specialist in this 
type of pairing-off of orders. There is a volume limitation inherent in 
the execution of odd-lot market orders in that any imbalance of buy or 
sell odd-lot market orders are executed against the specialist, but 
only up to the size of the round-lot transaction.\9\ Any odd-lot market 
orders that do not receive an execution because of the volume 
limitation are executed, in order of time priority, at the price of the 
next round-lot transaction.\10\ An odd-lot market order that is not 
executed within 30 seconds is executed at the price of the national 
best bid or offer (``NBBO'').\11\ There is no volume limitation for 
odd-lot market orders that receive an execution after 30 seconds have 
elapsed. Odd-lot market orders to sell short are executed at the price 
of the next round-lot transaction that follows the entry of the order 
that is higher than the last different last round-lot price (a ``plus 
tick'' or a ``zero plus tick''). There is no volume limitation for odd-
lot market orders to sell short.
---------------------------------------------------------------------------

    \7\ See Exchange Rule 124(a).
    \8\ See Exchange Rule 124(b)(i).
    \9\ See Exchange Rule 124(b)(i). See also Exchange Rule 
124(b)(ii), which provides that any odd-lot market order that would 
otherwise receive a partial execution will be executed in full.
    \10\ See Exchange Rule 124(b)(iii).
    \11\ Exchange Rule 124(b)(iv) provides that any odd-lot market 
order that is not executed within 30 seconds shall be executed at 
the price of the ``adjusted ITS offer'' or ``adjusted ITS bid'', as 
those terms are defined in Exchange Rule 124.60, rather than the 
NBBO. However, with the elimination of the Intermarket Trading 
System (``ITS'') Plan on March 5, 2007, (see Securities Exchange Act 
Release No. 55397 (March 5, 2007), 72 FR 11066 (March 12, 2007) 
(File No. 4-208)), the ability to price such odd-lot orders in terms 
of the ``adjusted ITS'' bid or offer no longer existed. The Exchange 
states that, as of March 5, 2007, all odd-lot market orders that 
remain unexecuted after 30 seconds have been executed at the price 
of the NBBO, which is in fact the functional equivalent of the 
adjusted bid or offer. Through this filing, the Exchange, among 
other things, seeks to remove the concept of ``adjusted ITS bid'' 
and ``adjusted ITS offer''.
---------------------------------------------------------------------------

    Odd-lot limit orders to buy or sell are executed at the price of 
the first round-lot transaction that is at or higher/lower than the 
limit price of the odd-lot limit order, subject to the volume 
limitation of the round-lot transaction.\12\ Odd-lot limit orders are 
aggregated with odd-lot market orders for purposes of the volume 
limitation. Odd-lot limit orders eligible for execution are combined 
with odd-lot market orders in order to determine time priority. Odd-lot 
limit orders are similarly aggregated with odd-lot market orders for 
purposes of the netting provision. As with odd-lot market orders, odd-
lot limit orders that would otherwise receive a partial execution will 
be executed in full. There is no 30-second default execution

[[Page 56416]]

provision for odd-lot limit orders.\13\ Odd-lot limit orders to sell 
short are executed at the price of the first round-lot transaction 
which is a plus or a zero plus tick.
---------------------------------------------------------------------------

    \12\ See Exchange Rule 124(c).
    \13\ See Exchange Rule 124(c), which states that execution of an 
odd-lot limit order is subject to the principles of paragraphs 
(b)(i), (ii) and (iii) of the rule.
---------------------------------------------------------------------------

    The odd-lot portion of partial round-lot (``PRL'') orders \14\ are 
executed at the same price as the round lot portion, and are processed 
through the odd-lot System with the specialist as the contra party. The 
PRL order is automatically executed in accordance with Exchange Rules 
1000-1004. Where there is more than one transaction required to effect 
the complete execution of the round-lot portion of a PRL order, the 
odd-lot portion is executed at the price of the first transaction in 
which a round-lot portion of the PRL order is executed.
---------------------------------------------------------------------------

    \14\ See Exchange Rule 124.50.
---------------------------------------------------------------------------

b. Representing Odd-Lot Orders in the Round-Lot Market
    The Exchange has always believed that the most appropriate way to 
execute odd-lot orders is to represent them in the round-lot auction 
market where they would interact with all other market interest and be 
priced in accordance with supply and demand dynamics. However, such 
representation required technical changes to a number of Exchange 
systems and was not a readily viable option.\15\ In view of this, the 
pricing methodology of Exchange Rule 124 was amended in 2004 (as is 
reflected in its current operation today, i.e., using the next round-
lot sale price) as an interim measure to accommodate the pricing and 
execution of odd-lot orders in a manner that was based on the 
prevailing market.\16\
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act No. 49536 (April 7, 2004), 69 
FR 19890, 19893 (April 14, 2004) (SR-NYSE-2003-37).
    \16\ See Securities Exchange Act No. 49745 (May 20, 2004), 69 FR 
29998 (May 26, 2004) (SR-NYSE-2003-37).
---------------------------------------------------------------------------

    The Exchange has continued its move towards the goal of integrating 
odd-lots into the round-lot market. The Exchange states that this 
proposal should be seen as part of the Exchange's efforts to prepare 
its membership for subsequent changes in market structure. The Exchange 
proposes to amend the pricing and execution methodology of Exchange 
Rule 124 to more precisely emulate executions in the round-lot market.
c. Proposed Change to Odd-Lot Trading Platform
    Through this filing, the Exchange seeks to modify the execution of 
odd-lot orders such that: (i) Marketable odd-lot orders will begin 
automatic execution only following the first round-lot transaction in 
the subject security; (ii) marketable odd-lot buy and sell orders will 
be netted against one another and executed, in time priority of 
receipt, at the price of the next round-lot transaction on the 
Exchange; (iii) any imbalance of marketable odd-lot buy and sell orders 
incapable of being netted will be executed at the price of the NBBO; 
(iv) odd-lot limit orders that are not marketable upon receipt will be 
executed, upon becoming marketable, at their limit price subject to 
certain conditions; and (v) in certain instances as described below, 
odd-lot executions will be limited in size to the lesser of either the 
number of shares of the last round-lot transaction or the number of 
shares of the national best bid (in the case of an odd-lot order to 
sell) or the national best offer (in the case of an odd-lot order to 
buy). Moreover, the odd-lot portion of a PRL order will be executed 
only if the entire round-lot portion of the PRL order has completed 
execution.\17\ The odd-lot portion of a PRL will be executed with and 
at the same price of the last round lot transaction that completes the 
round lot portion of the PRL. With respect to all the proposed 
modifications above, the specialist remains the contra side to all odd-
lot executions. The pricing and execution of odd-lot orders are set 
forth in Exchange Rule 124.\18\
---------------------------------------------------------------------------

    \17\ Telephone conversation between Gillian Rowe, Principal Rule 
Counsel, NYSE, and Jennifer Dodd, Special Counsel, Division of 
Market Regulation, Commission, on September 24, 2007.
    \18\ The Exchange has provided examples of the operation of the 
most relevant aspects of this proposed rule change. These examples 
are available on the Commission's Web site at http://www.sec.gov/
rules/sro/nyse.shtml.
---------------------------------------------------------------------------

    Section (a) of the rule remains unchanged. A new section (b) will 
be created to define the term ``marketable'' as it pertains to odd-lot 
limit orders. For the purposes of the rule, the term ``marketable'' 
when applied to an odd-lot limit order to buy shall mean at a price 
that is at or higher than the current Exchange best offer and when 
applied to an odd-lot limit order to sell shall mean at a price that is 
at or lower than the current Exchange best bid. The original section 
(b) of the rule, which governs the pricing and execution of odd-lot 
market orders, will be amended to become section (c).
Marketable Odd-Lot Orders--Proposed Section (c)
    Proposed section (c) of the rule will govern the execution of 
marketable odd-lot orders, and provides that marketable odd-lot orders 
will begin automatic execution only after the first round-lot 
transaction on the Exchange in the subject security. If there is no 
initial round-lot transaction in the subject security, then no odd-lot 
orders will be executed in the trading session.\19\ After the initial 
round-lot transaction in the subject security, marketable odd-lot 
orders will be executed in time priority upon receipt by the odd-lot 
System at the price of the next round-lot transaction in the subject 
security.
---------------------------------------------------------------------------

    \19\ It should be noted that execution of odd-lot orders after a 
trading halt will be governed by proposed subsection (c)(vii) and 
executions on the close will be governed by proposed subsection 
(c)(viii), as described more fully below.
---------------------------------------------------------------------------

    Subsection (b)(i) of the original rule text will be amended to 
become subsection (c)(i). Proposed subsection (c)(i) retains the 
netting provision of the original rule text, and provides that an equal 
number of shares of marketable buy and sell odd-lot orders will be 
paired-off against one another and executed at the price of the 
applicable round-lot transaction with the specialist as the contra side 
to the executions.
    A new subsection (c)(ii) will be created to provide that marketable 
odd-lot orders that do not receive an execution pursuant to proposed 
subsection (c)(i) will be executed in time priority of receipt at the 
price of the NBBO with the specialist as the contra side to the 
executions. Subsection (b)(ii) of the original rule text will be 
amended to become subsection (c)(iii). Proposed subsection (c)(iii) 
modifies the volume limitation of the original rule text and provides 
that the number of shares of marketable odd-lot orders executed at the 
price of the NBBO \20\ will not exceed the lesser of either (1) the 
number of shares in the last round-lot transaction, or (2) the number 
of shares available at the national bid (in the case of an odd-lot 
order to sell) or the national best offer (in the case of an odd-lot 
order to buy).\21\ Proposed subsection (c)(iii) also provides that a 
marketable odd-lot order that would receive a partial execution as a 
consequence of the volume limitation will continue to be executed in 
full.
---------------------------------------------------------------------------

    \20\ Non-marketable odd-lot limit orders that become marketable 
and do not receive an execution pursuant to subsection (c)(i) will 
be executed pursuant to (c)(ii) and (c)(iii) at their limit price.
    \21\ In determining the size of the volume limitation described 
in proposed subsection (c)(iii), the Exchange will only consider the 
size of displayed ``protected bids'' and ``protected offers'' as 
defined by Rule 600(b)(57) of Regulation NMS, 17 CFR 242.600(b)(57).
---------------------------------------------------------------------------

    Subsection (b)(iii) of the original rule text, which explains the 
execution of odd-lot market orders that do not receive an execution 
because of the volume limitation, will be amended to

[[Page 56417]]

become subsection (c)(iv). The purpose of this subsection is to make 
clear that the procedure of proposed subsection (c)(i), (ii) and (iii) 
will repeat itself after each round-lot transaction on the Exchange. 
Since the same principle also applies to the operation of the 30-second 
timing provision described in proposed subsection (c)(v), the Exchange 
has further amended this subsection to include a reference to 
subsection (c)(v). Accordingly, proposed subsection (c)(iv) provides 
that marketable odd-lot orders that do not receive an execution 
pursuant to subsections (c)(i), (ii), (iii) and (v), will be executed, 
in time priority of receipt, following subsequent round-lot 
transactions on the Exchange subject to the same procedures of proposed 
subsections (c)(i), (ii), (iii) and (v).
    Subsection (b)(iv) of the original rule text, which governs the 
handling of odd-lot market orders that do not receive an execution 
after the next round lot transaction within 30 seconds of receipt, will 
be amended to become subsection (c)(v). Proposed subsection (c)(v) 
provides that marketable odd-lot orders that do not receive an 
execution within 30 seconds of receipt by the System will be executed, 
after 30 seconds, in time priority of receipt, at the price of the 
national best bid (in the case of an order to sell) or at the price of 
the national best offer (in the case of an order to buy) at the time of 
the execution, subject to the volume restrictions in subsection 
(c)(iii). The practical effect of this timing provision is that, 
starting with the initial round-lot transaction on the Exchange in the 
subject security, the operation of proposed subsection (c)(v) will 
repeat itself every 30 seconds, providing for the execution of 
marketable odd-lots at the price of the NBBO and the execution of non-
marketable odd-lot limit orders that have become marketable at their 
limit price.
    Subsection (b)(v) of the original rule text, which explains the 
handling of odd-lot market orders entered prior to the opening in the 
subject security, will be changed to become subsection (c)(vi). 
Proposed subsection (c)(vi) of the rule states that marketable odd-lot 
orders entered before the opening transaction of the subject security 
will be executed at the price of the opening transaction. The volume 
limitation of proposed subsection (c)(iii) will not apply to the 
opening transaction in the subject security.
    A new subsection enumerated as (c)(vii) will be added to the rule 
text. Proposed subsection (c)(vii) provides that, in the event the 
Exchange halts trading in a subject security, marketable odd-lot orders 
that have been received by Exchange systems during the trading halt 
shall be executed at the price of the re-opening transaction in the 
subject security. The volume limitation of proposed subsection (c)(iii) 
will not apply to any re-opening transaction in the subject security.
    Subsection (b)(vi) of the original rule text, which explains the 
handling of odd-lot market orders entered prior to the close of 
trading, will be changed to become subsection (c)(viii). Proposed 
subsection (c)(viii) describes the pricing of marketable odd-lot orders 
at the close of trading; however, it also governs the pricing and 
execution of non-marketable odd-lot limit orders that become marketable 
but remain unexecuted prior to the close of trading. The pricing and 
execution of non-marketable odd-lot limit orders is specifically 
described in proposed section (d) of the rule text.\22\
---------------------------------------------------------------------------

    \22\ In order to avoid confusion with respect to the description 
of how odd-lot orders are handled at the close, the Exchange 
collectively refers to marketable odd-lot orders and non-marketable 
odd-lot limit orders that have become marketable prior to the close 
of trading as ``Marketable Odd-lot Orders at the Close'' in its 
discussion below of the execution and pricing of odd-lot orders at 
the close of trading.
---------------------------------------------------------------------------

    Proposed subsection (c)(viii) states that Marketable Odd-lot Orders 
at the Close will be executed, in time priority of receipt, at the 
price of the closing transaction. This subsection includes a netting 
provision (i.e., the execution of Marketable Odd-lot Orders at the 
Close will total an equal number of shares bought and sold). After such 
netting has occurred, any additional shares of Marketable Odd-lot 
Orders at the Close that remain will be executed subject to the volume 
limitation. The volume limitation of proposed subsection (c)(viii) is 
related specifically to the size of the closing transaction (i.e., the 
execution of additional shares of Marketable Odd-lot Orders at the 
Close will not exceed the number of shares of the closing transaction). 
Proposed subsection (c)(viii) also provides that Marketable Odd-lot 
Orders at the Close that would otherwise receive a partial execution 
will be executed in full.
    Subsection (b)(vii) of the original rule text, which governs the 
execution of odd-lot market orders to sell short, will be removed 
entirely as it is no longer necessary in light of the Commission's 
elimination of restrictions on the execution prices of short sales 
under the Act and prohibition of self-regulatory organizations from 
having a short sale price test.\23\
---------------------------------------------------------------------------

    \23\ See Securities Exchange Release No. 55970 (June 28, 2007), 
72 FR 36348 (July 3, 2007).
---------------------------------------------------------------------------

Non-Marketable Odd-Lot Limit Orders--Proposed Section (d)
    Section (c) of the original rule text governs the operation of odd-
lot limit orders. In this filing, the Exchange proposes to amend 
section (c) to become section (d). Proposed section (d) will govern the 
execution of odd-lot limit orders that are not marketable upon receipt 
by the odd-lot System. Pursuant to proposed section (d), non-marketable 
odd-lot limit orders shall, upon becoming marketable, be executed in 
time priority of receipt at the price of subsequent round-lot 
transactions on the Exchange in the subject security based on the 
conditions of proposed subsections (c)(i)-(v), except that when an odd-
lot execution occurs pursuant to subsections (c)(ii) or (v), such odd-
lot limit order will be executed at its limit price. Thus, a non-
marketable odd-lot limit order that becomes marketable is eligible to 
be netted and executed at the price of the next round-lot transaction 
pursuant to proposed subsection (c)(i). If this odd-lot limit order 
does not receive an execution then, pursuant to proposed subsection 
(c)(ii), the odd-lot limit order is eligible to be executed, at its 
limit price, subject to the volume limitation of proposed subsection 
(c)(iii) and the provisions of subsections (c)(iv) and (c)(v).\24\ With 
respect to proposed subsection (c)(v), which explains the operation of 
the 30-second timing provision, if this odd-lot limit order remains 
unexecuted within 30 seconds, it will receive an execution after 30 
seconds at its limit price, in accordance with proposed section (d). As 
previously discussed in this filing, proposed section (d) includes a 
second exception which provides that non-marketable odd-lot limit 
orders that become marketable, but remain unexecuted prior to the close 
of trading will be executed at the price of the closing transaction, 
subject to the specific principals of proposed subsection (c)(viii), 
which governs the execution of odd-lots at the close of trading.
---------------------------------------------------------------------------

    \24\ Proposed subsection (c)(iv) explains how a non-marketable 
odd-lot limit order that has become eligible for execution will be 
executed if it does not receive an execution because of the volume 
limitation.
---------------------------------------------------------------------------

Odd-Lot Market Orders To Sell Short
    Section (d) of the original rule text governs the operation of odd-
lot limit orders to sell short and will be removed entirely pursuant to 
the Commission's elimination of the short sale price test.\25\
---------------------------------------------------------------------------

    \25\ See footnote 23, supra.

---------------------------------------------------------------------------

[[Page 56418]]

Odd-Lot Stop Orders--Section (e)
    Section (e) of Exchange Rule 124 delineates the operation of odd-
lot market stop orders. While the lettering of this section remains the 
same, this filing proposes to amend section (e) by removing term 
``market'' from the description of the order type. Section (e) of the 
rule will retain the use of a round-lot transaction as a trigger to 
convert each type of odd-lot stop order delineated in section (e) into 
a market order. A new subsection (e)(i) will be added to indicate that 
stop orders entered prior to the opening which would be elected by the 
opening transaction will be executed at the price of the opening 
transaction.
    Subsections (e)(i) (Buy Stop Orders) and (e)(ii) (Sell Stop Orders, 
Marked ``Long'') of the original rule text will be amended to become 
subsection (e)(ii) and subsection (e)(iii), respectively. Pursuant to 
proposed subsections (e)(ii) and (e)(iii), once a buy stop order or a 
sell stop order is elected at its stop price and becomes a market 
order, it shall be filled, subject to all the provisions of proposed 
section (c) of the rule. In other words, once these orders are elected 
and become market orders they are priced and executed as any other 
marketable odd-lot order. References to the phrase ``marked `Long''' 
will be removed from proposed subsection (e)(iii) since the 
Commission's elimination of the short sale price test renders such 
distinctions between stop orders marked ``short'' and ``long'' 
unnecessary.
    Subsection (e)(iii) of the original rule text (Sell Stop Orders, 
Marked ``Short'') will be removed entirely pursuant to the Commission's 
elimination of the short sale price test.\26\
---------------------------------------------------------------------------

    \26\ Id.
---------------------------------------------------------------------------

Other Types of Odd-Lot Orders--Proposed Section (g)
    The lettering of section (h) (Other Types of Orders) of the rule 
will be amended in this filing to become section (g). Proposed 
subsection (g)(2) (Sell ``On Close'') will be amended to remove the 
phrase ``marked `Long''' and the sentence ``[a]n order to sell ``On 
Close'' marked ``short'' shall not be accepted'' in order to conform 
with the elimination of the short sale price test by the 
Commission.\27\ The phrase ``closing round-lot `sell''' found in 
proposed subsection (g)(2) will be changed to the phrase ``closing 
round-lot `sale''' in order to clarify the sentence.
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

PRL Orders

    The execution of PRL orders is discussed in section .50 of the 
Supplementary Material of the rule. The Exchange proposes to amend 
section .50 of the Supplementary Material to reflect that, where more 
than one round lot transaction is required to effect the complete 
execution of the round-lot portion of a PRL, the odd lot portion will 
receive an execution only if the entire round lot portion of the order 
as received by the Exchange is executed. Moreover, the odd lot portion 
will then be executed at the same price as the last round lot 
transaction that is needed to complete the entire round-lot portion of 
the PRL.
Conforming Changes to Exchange Rule 124
    The Exchange further proposes to make conforming changes to other 
sections of Exchange Rule 124. The lettering of the original section 
(g) (Limited Order, ``With or Without Sale'') of Exchange Rule 124 will 
be changed to section (f).\28\ Section .60 of the Supplementary 
Material of the rule, which defines the term ``adjusted ITS bid/offer'' 
for the purposes of the rule, will be removed in its entirety to 
conform with the elimination of ITS.
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    \28\ The original section (f) of Exchange Rule 124 (``Limit Stop 
Orders'') was removed in a previous rule filing and the lettering of 
the remainder of the rule was not revised at that time. See 
Securities Exchange Act Release No. 54820 (November 27, 2006), 71 FR 
70824 (December 6, 2006) (SR-NYSE-2006-65).
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    Section .70 of the Supplementary Material of the original rule text 
will be re-numbered to become section .60. Proposed section .60, which 
explains the handling of odd-lot market orders in instances when 
quotation collection or dissemination facilities are inoperable or the 
market in a security is in a ``non-firm'' mode, will be amended to 
reflect that marketable odd-lot orders will resume execution once 
quotation information is available, at a price that is in accordance 
with all the provisions of proposed section (c) of the rule.
    Finally, section .80 of the Supplementary Material of the original 
rule text will be re-numbered to become section .70. Proposed section 
.70 of the Supplementary Material will be amended to reflect that the 
execution of odd-lot orders will be suspended and resume trading 
pursuant to Exchange Rule 1000, paragraph (a), subsections (i)-(v). 
References to Exchange Rules 1002, 1003 and 1004 will be removed 
because they do not specifically pertain to the suspension of automatic 
executions.
    The Exchange believes that the aforementioned proposed 
modifications to the odd-lot System will further the efficient 
execution of customer odd-lot orders while ensuring that the odd-lot 
orders are appropriately executed without an unfair time priority or 
price advantage over round-lot orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\29\ in general, and 
with Section 6(b)(5) of the Act,\30\ in particular, in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest. The Exchange also states that the proposed rule change 
also is designed to support the principles of Section 11A(a)(1) \31\ in 
that it seeks to assure economically efficient execution of securities 
transactions, make it practicable for brokers to execute investors' 
orders in the best market and provide an opportunity for investors' 
orders to be executed without the participation of a dealer.
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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change effects a change in an 
existing order-entry or trading system of a self-regulatory 
organization that does not (1) significantly affect the protection of 
investors of the public interest, (2) impose any significant burden on 
competition, and (3) have the effect of limiting the access to or 
availability of the system, it has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \32\ and Rule 19b-4(f)(5) thereunder.\33\
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    \32\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \33\ 17 CFR 240.19b-4(f)(5).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the

[[Page 56419]]

Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors or otherwise in furtherance 
of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2007-82 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2007-82. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the NYSE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2007-82 and should be 
submitted on or before October 24, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-19488 Filed 10-2-07; 8:45 am]
BILLING CODE 8011-01-P