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]
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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 (https://
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
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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).
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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).
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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.
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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).
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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 https://
www.sec.gov/rules/sro/nyse.shtml.
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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).
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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
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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).
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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.
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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
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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.
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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
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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 (https://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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 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 https://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 (https://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 https://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\
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\23\ See Securities Exchange Release No. 55970 (June 28, 2007),
72 FR 36348 (July 3, 2007).
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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.
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\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.
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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\
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\25\ See footnote 23, supra.
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[[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\
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\26\ Id.
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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.
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\27\ Id.
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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 (https://
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 (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 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
