Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Relating to NYSE Rule 1500 (NYSE MatchPointSM, 65787-65797 [E7-22782]
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Federal Register / Vol. 72, No. 225 / Friday, November 23, 2007 / Notices
15B(b)(2)(C) of the Act,7 which provides
that the MSRB’s rules shall:
be designed to prevent fraudulent and
manipulative acts and practices, to promote
just and equitable principles of trade, to
foster cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with respect
to, and facilitating transactions in municipal
securities, to remove impediments to and
perfect the mechanism of a free and open
market in municipal securities, and, in
general, to protect investors and the public
interest.
The Board believes that the proposed
rule change will facilitate transactions
in municipal securities and protect
investors and the public interest by
clarifying that the requirements of Rule
G–27 apply solely in connection with
the municipal securities activities of
dealers and their associated persons.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Board does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act since it does
not modify existing rule obligations and
applies equally to all brokers, dealers
and municipal securities dealers.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The MSRB has received four letters
requesting guidance on or amendments
to the new supervisory requirements in
Rule G–27, as well as a delay in the
effectiveness of the new supervisory
requirements. In summary, these
commentators sought to understand the
circumstances under which individuals
must be qualified as either municipal
securities principals or municipal fund
securities limited principals in dealers’
offices in which supervisory
responsibilities are undertaken. The
clarification provided by the proposed
rule change that the new supervisory
requirements of the rule apply solely in
connection with the municipal
securities activities of dealers and their
associated persons, as the MSRB had
previously enunciated in the original
filing of the new supervisory
requirements, should resolve these and
other ambiguities regarding the
operation of these new provisions.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change: (i)
Does not significantly affect the
7 15
U.S.C. 78o–4(b)(2)(C).
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protection of investors or the public
interest; (ii) does not impose any
significant burden on competition; and
(iii) does not become operative for 30
days from November 8, 2007, the date
on which it was filed, and the MSRB
provided the Commission with written
notice of its intent to file the proposed
rule change at least five business days
prior to the filing date, the proposed
rule change has become effective
pursuant to Section 19(b)(3)(A) of the
Act 8 and Rule 19b–4(f)(6) thereunder.9
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
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.10
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 such filing also will be
available for inspection and copying at
the principal office of the MSRB. 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–MSRB–2007–05 and should
be submitted on or before December 14,
2007.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority. 11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–22780 Filed 11–21–07; 8:45 am]
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 rulecomments@sec.gov. Please include File
Number SR–MSRB–2007–05 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–MSRB–2007–05. 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
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
10 See Section 19(b)(3)(C) of the Act, 15 U.S.C.
78s(b)(3)(C).
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56798; File No. SR–NYSE–
2007–102]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change
Relating to NYSE Rule 1500 (NYSE
MatchPointSM)
November 15, 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 November
8, 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, II, and III below, which Items
have been substantially prepared by the
Exchange. 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
NYSE proposes to adopt NYSE Rule
1500 to establish NYSE MatchPointSM
(‘‘MatchPoint’’), an electronic facility
8 15
9 17
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11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 72, No. 225 / Friday, November 23, 2007 / Notices
that matches aggregated orders at
predetermined, one-minute sessions
throughout regular hours and after
hours of the Exchange. MatchPoint will
trade securities listed on all major
exchanges.3 The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.nyse.com), at the Exchange, 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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange seeks to establish the
MatchPoint matching system to provide
its customers with an ability to execute
securities at a predetermined, externally
derived, single trading price in
accordance with algorithmic
calculations during one-minute
matching sessions at predetermined
times during the regular hours (9:30
a.m. Eastern Time (‘‘ET’’) to 4 p.m. ET)
and after hours of the Exchange.4
MatchPoint participants (‘‘users’’)
transmit their market and limit orders,
which are undisplayed, by means of an
electronic interface. MatchPoint
matches aggregated, anonymous orders
of securities listed on the primary
exchanges such as the NYSE, as well as
securities admitted to trading on the
NYSE pursuant to the UTP Plan that are
listed on NYSE Arca, Nasdaq, Amex and
regional stock exchanges.
The Exchange believes that
MatchPoint will provide its customers a
greater ability to execute single, block
and portfolio (i.e., basket, list, etc.)
orders efficiently and reduce the trading
risks and costs associated with market
volatility. MatchPoint customers who
enter single orders, block orders and
portfolio orders will reap the benefits of
this centralized, neutral matching
environment.5 Additionally, the
Exchange believes that customers that
rely on index-based or model-driven
trading and investment strategies will
find MatchPoint to be a very effective
trading tool.
Because MatchPoint is an anonymous
trading platform, no order information
will be displayed and clearance and
settlement of executions will be
anonymous. Trade reports will be
disseminated after each matching
session.
All NYSE Members, Member
Organizations and Sponsored
Participants of Sponsoring Member
Organizations are automatically eligible
for access to MatchPoint. Before access
is granted to MatchPoint users, all users
must go through a connectivity
authorization process.6 After NYSE
Members, Member Organizations and
Sponsored Participants of Sponsoring
Member Organizations obtain
connectivity authorization they may
access MatchPoint.
NYSE MatchPoint Matching Sessions
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3 The
major exchanges include the NYSE
(including securities otherwise admitted to dealing
on the NYSE pursuant to the Joint Self-Regulatory
Organization Plan Governing the Collection,
Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed
Securities Traded on an Unlisted Trading Privilege
Basis (‘‘UTP Plan’’)), the NYSE Arca, Inc. Stock
Exchange LLC (‘‘NYSE Arca’’), the NASDAQ Stock
Market, Inc. (‘‘Nasdaq’’), the American Stock
Exchange (‘‘Amex’’) and regional stock exchanges.
The Exchange is a participant in the UTP Plan, a
National Market System Plan that accommodates
trading on participant exchanges of non-NYSElisted securities on an unlisted trading privileges
(‘‘UTP’’) basis. See Securities Exchange Act Release
No. 55192 (January 29, 2007), 72 FR 5456 (February
6, 2007) (File No. S7–24–89) (Plan amendment
admitting the Exchange as a Plan Participant). The
Exchange is proposing to permit UTP trading of
non-NYSE-listed securities in MatchPoint matching
sessions during the regular hours and after hours of
the Exchange.
4 NYSE MatchPoint will operate on an Eastern
Time basis. All references to time herein and in the
MatchPoint rules will mean Eastern Time.
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The first MatchPoint matching session
of the trading day will commence at
9:45 a.m. Thereafter, during the trading
day of the Exchange, there will be a
matching session at 10 a.m., 11 a.m., 12
p.m., 1 p.m., 2 p.m. and 3 p.m. A
5 The Exchange notes that portfolio matches have
been in existence for over twenty years. Instinet’s
crossing network has been matching portfolios
since December 1986 and Investment Technology
Group Inc.’s Portfolio System for Institutional
Trading (POSIT) has been matching portfolios since
July 1987.
6 MatchPoint can only be accessed through an
electronic Financial Information eXchange (‘‘FIX’’)
application and/or an internet based passwordprotected order entry application. Users must fill
out an application for connectivity through either
of these two electronic connectivity capabilities.
Once granted connectivity through the
authorization process, eligible users may access
MatchPoint.
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MatchPoint after hours matching
session will occur at 4:45 p.m.7
MatchPoint matching sessions are
predetermined one-minute trading
periods that occur through an
automated matching mechanism. During
the matching sessions, the Matchpoint
Reference Price (‘‘Reference Price’’) is
determined and eligible orders are
executed at the designated hour, as
stated in the rule, at the randomly
selected time during the predetermined
one-minute trading session. The
matching and execution of orders occurs
immediately after the algorithm selects
a Reference Price. No user can be
assured of a match unless they enter an
eligible portfolio or single order with an
internal match designation that
corresponds with contra side eligible
portfolio or single orders with internal
match designations from the same user.
No user knows precisely when the
match will occur. If an order is not
executed in a particular matching
session it will be immediately cancelled
back to the user upon completion of the
matching session. The user may
resubmit the order in any one of the
subsequent matching sessions.
NYSE MatchPoint Reference Prices
The Reference Price is the single
trading price at which MatchPoint
orders will execute during a
predetermined one-minute ‘‘matching
session.’’ MatchPoint employs a passive
pricing system. The Reference Price is
derived from external market data of the
Exchange and other primary securities
markets. There is no price discovery as
orders are not displayed and all trades
occur in accordance with a
predetermined algorithm.
The Reference Price is calculated
differently for regular hour matching
sessions and the after hours matching
session. During the regular hours of the
Exchange, the Reference Price shall be
the midpoint of the national best bid
and offer (‘‘NBBO’’) which is randomly
selected during a predetermined oneminute pricing period. For the after
hours MatchPoint matching session, the
Reference Price is the official closing
price of the primary market (i.e., the
listing market) for securities listed on
the NYSE, NYSE Arca, Amex, Nasdaq
and regional stock exchanges. If,
however, there is no official closing
price for a particular security, the
Reference Price will be the last sale
7 Because transactions from the MatchPoint after
hours matching session, which occurs at 4:45 p.m.,
occur outside of regular trading hours, they cannot
fall within the definition of trade-throughs and will
not be subject to the provisions of Rule 611 of
Regulation NMS. See 17 CFR 242.600(b)(64) and
(77).
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price of the primary market for a
particular security.
Half Penny Increments
The MatchPoint Reference Price for
the matching sessions that occur during
the regular hours (i.e., the midpoint of
the NBBO), may be calculated to three
(3) decimal places when the NBBO is an
odd penny spread (i.e., one (1) penny,
three (3) pennies, five (5) pennies, etc.).
For example, if the NBBO of Stock XYZ
is $23.01 to $23.02, the Reference Price
is $23.015. As a consequence,
executions at the midpoint of the NBBO
may be in half penny increments,
requiring the use of three decimal
places, as demonstrated in the
example.8
Securities Priced Below One Dollar
As discussed above, MatchPoint
orders in securities are not subject to
auction-market price discovery
procedures, as Reference Prices of
securities are not determined until a
matching session commences and the
algorithm calculates the price of the
securities. If the MatchPoint algorithm
prices a security (i.e., the Reference
Price) below one dollar ($1.00),
MatchPoint will not execute orders in
these securities but will cancel these
orders back to the user immediately
upon completion of the matching
session.
Entry and Processing of NYSE
MatchPoint Orders
MatchPoint Orders
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MatchPoint users may enter, correct
or cancel orders beginning at 3:30 a.m.
until 4:45 p.m. The MatchPoint system
will not accept any orders before 3:30
a.m. or after 4:45 p.m. MatchPoint will
accept and execute single orders and
NYSE MatchPoint Portfolios
(‘‘portfolios’’). Orders may be either
market or limit orders and must have a
minimum size of one round lot. As
discussed in more detail below,
MatchPoint will permit odd lot and
partial round lot orders to be entered
into the system. Odd lot orders and the
8 MatchPoint will not display, rank or execute
orders in any NMS stock priced below one dollar
($1.00). In addition, MatchPoint will not display,
rank or execute orders in increments smaller than
a penny. However, when there is an odd penny
spread, as described above, MatchPoint will execute
it in a half penny increment. The Exchange notes
that, in response to public comments to the
Regulation NMS Proposing Release, the
Commission wrote, ‘‘Executions occurring at a subpenny price resulting from a midpoint, VWAP, or
similar volume-weighted pricing algorithm are not
prohibited by Rule 612 [of Regulation NMS].’’ See
Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (‘‘Regulation
NMS Release’’) at note 831.
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odd lot portion of partial round lot
orders will be reported as unexecuted.
Orders may not be cancelled or
replaced while a matching session is in
progress or when trading in the
applicable security is halted in the
MatchPoint system. MatchPoint orders
shall not be available for execution until
the next eligible matching session. All
orders must be available for automatic
execution. MatchPoint has no order
delivery capability and will not route to
other market centers. Users, however,
would be able to enter eligible orders
into MatchPoint through a FIX 9
application and/or an internet based
order entry system provided the orders
are available for automatic execution.
MatchPoint orders will not tradethrough a Protected Bid or Protected
Offer as defined in Regulation NMS.10
MatchPoint Order Parameters
All MatchPoint orders, single and
portfolio, must have the following
parameters: (1) List name; 11 (2)
matching session (if a user fails to
designate a specific matching session,
the system will provide a default
function and direct the order to the next
eligible matching session); (3) side of
the market (i.e., buy, sell or short side);
(4) symbol; and (5) minimum and
maximum amount of shares available
for execution. Additionally, a user may
include an optional constraint (i.e., net
cash and internal match constraints) for
a MatchPoint order.
MatchPoint Order Designation
MatchPoint orders must be designated
for only one of the matching sessions
during regular hours of the Exchange or
for the single after hours matching
session. If a MatchPoint order does not
execute in the designated matching
session, it will be cancelled back to the
user immediately upon completion of
the matching session. If a user fails to
designate a particular matching session
for a MatchPoint order, the order, by
default, shall be available for execution
in the next scheduled matching session.
If an undesignated order does not
execute in the next scheduled regular
hours matching session it will be
cancelled back to the user immediately
upon completion of such matching
9 FIX Protocol is a messaging standard developed
specifically for the real-time electronic exchange of
securities transactions.
10 See Regulation NMS Release, supra note 8.
Because the MatchPoint Reference Price during the
regular hours of the Exchange is calculated to be the
midpoint of the NBBO, no trade-through executions
will occur and, therefore, Rule 611 of Regulation
NMS (‘‘Order Protection Rule’’) will not be violated.
11 A portfolio must have a unique portfolio name
that is distinct from the names of other portfolios
of the same user.
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session. If a user fails to designate an
order and enters the order after 3 p.m.,
which is the last regular hours matching
session, the order will participate in the
after hours matching session at 4:45
p.m. If the order does not execute in the
after hours matching session it will be
cancelled back to the user immediately
upon completion of the after hours
matching session.
As discussed above, a user must
designate an order for only one
matching session at a time. For example,
if a user wishes to have an order
available for execution in the 11 a.m.
matching session, the user must
designate the order for the 11 a.m.
matching session and must enter the
order into the MatchPoint system
anytime between 3:30 a.m., when the
system opens to receive orders, and 11
a.m., when the designated matching
session commences. If the order does
not execute in the 11 a.m. matching
session, such order will be immediately
cancelled back to the User upon
completion of the matching session.
Thereafter, the user must submit a new
order for execution in another matching
session, e.g., the 12 p.m. matching
session. The user must submit the
subsequent order with a designation for
the 12 p.m. matching session. Such
order must then be entered into the
system before commencement of the 12
p.m. matching session. Again, if the
order does not execute in the 12 p.m.
matching session, such order will be
immediately cancelled back to the user
upon completion of the 12 p.m.
matching session.
Round Lot Orders
MatchPoint will execute orders only
in round lots. The MatchPoint system
will accept odd lot orders but not
execute them. Odd lot orders entered
into the MatchPoint system will be
reported to the user as unexecuted.
Similarly, orders containing partial
round lots (i.e., ‘‘mixed lots’’) may be
entered into MatchPoint in the form of
a portfolio but the odd lot portion of the
order will not be executed and will be
reported to the user as unexecuted. The
system will permit the entry of odd lot
and partial round lot orders to
accommodate portfolio orders. The
Exchange believes that to require the
portfolio-based users to first strip their
orders of odd lots and partial round lots
before entering their orders into
MatchPoint would introduce
operational risk into the administration
of the portfolios and, for example,
disturb the tracking of the portfolios that
follow the underlying index.
Additionally, the Exchange believes that
excluding odd lot and partial round lot
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Federal Register / Vol. 72, No. 225 / Friday, November 23, 2007 / Notices
orders from MatchPoint will discourage
portfolio trading and significantly
reduce liquidity in the MatchPoint
market.
The following example demonstrates
how odd lot and partial round lot orders
are processed through MatchPoint:
A portfolio of buy orders is entered
into MatchPoint:
Stock A: 12,300 shares.
Stock B: 5,650 shares.
Stock C: 35 shares.
Stock D: 17,099 shares.
Depending upon available contra side
interest, the following portfolio
executions could occur: Order A could
execute up to 12,300 shares. Order B
could execute up to 5,600 shares with
at least 50 shares immediately cancelled
back to the user upon completion of the
matching session. Order C will result in
all 35 shares being immediately
cancelled back to the user upon
completion of the matching session.
Order D will execute up to 17,000
shares and at least 99 shares will be
immediately cancelled back to the user
upon completion of the matching
session.
NYSE MatchPoint Order Allocation
MatchPoint orders will be allocated
on a pro rata basis, such that shares will
be allocated pro rata in round lots
(rounded down to the nearest 100
shares) to eligible orders based on the
original size of the order. In this process
MatchPoint will honor all user-directed
User
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User
User
User
User
User
User
User
User
User
Side
A ........................................................................................................................
B ........................................................................................................................
C ........................................................................................................................
D ........................................................................................................................
E ........................................................................................................................
F ........................................................................................................................
G ........................................................................................................................
H ........................................................................................................................
I .........................................................................................................................
In this example the total amount of
buy orders is 200,000 shares. The total
amount of sell orders is 270,000 shares.
There are 70,000 more shares to sell
than to buy. The greatest number of
shares that may execute in the
MatchPoint system is 200,000 shares.
200,000 shares is 74.074% (rounded
percentage) of 270,000. Therefore, the
pro rata percentage that will be
allocated to each of the seven sell orders
is 74.074%. Based on the order size of
each order, MatchPoint will prorate the
available liquidity (200,000 shares)
accordingly (see ‘‘Shares Executed’’ in
the example above). (* Users C and D
each receive an additional 100 shares
because C and D are the oldest eligible
orders after the pro rata share
allocations.)
The second example (below) will
illustrate the allocation of MatchPoint
shares when all orders are equal in size.
Under these circumstances, MatchPoint
will allocate shares based on order entry
sequence. The oldest order will get the
larger fill if residual shares remain after
the initial pro rata allocation. In the
example below, assume the following
orders are received in the following
sequence:
MatchPoint Orders:
1. Broker-dealer A: Buy 10,000 @ mkt
2. Broker-dealer B: Sell 10,000 @ mkt
3. Broker-dealer C: Sell 10,000 @ mkt
4. Broker-dealer D: Sell 10,000 @ mkt
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Buy
Buy
Sell
Sell
Sell
Sell
Sell
Sell
Sell
.........
.........
.........
.........
.........
.........
.........
.........
.........
MatchPoint Executions:
1. 10,000 fully allocated order
2. 3,300 shares + 100 residual shares
= 3,400 (oldest sell order)
3. 3,300 shares executed
4. 3,300 shares executed
The results of the matching session
are as follows: Broker-dealer A’s order is
allocated 9,900 shares from a pro rata
fill from each of the three sell orders
from broker-dealers B, C and D in the
amount of 3,300 shares. Each sell order
has an equal residual of 6,700 shares,
but because broker-dealer B has the
oldest order of the three sell orders, B’s
residual 100 shares of stock will be
allocated to A’s buy order resulting in
a fully allocated order of 10,000 shares.
Portfolio Trading
A MatchPoint user may submit NYSE
MatchPoint Portfolios into the
MatchPoint system for execution. An
NYSE MatchPoint Portfolio is a group of
linked orders with user-directed
parameters and a unique, user-defined
portfolio name. The portfolio orders
may represent separate and distinct
broker dealer-customer orders and
separate and distinct proprietary broker
dealer orders. A user may enter one
portfolio of buy and sell/short orders or
many portfolios of buy and sell/short
orders.
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constraints. If the allocation to an
eligible order is less than the minimum
acceptable execution quantity for that
order, the order shall not be eligible for
execution in that matching session. If
additional shares remain after the initial
pro rata allocation, those shares will
continue to be allocated pro rata to
eligible orders. If additional shares
remain thereafter that are the same size
or are unexecuted because of rounding
or minimum trade size constraints, the
remaining shares will be allocated in
100 share lots to the oldest eligible
orders.
The example below demonstrates how
MatchPoint will allocate shares on a pro
rata basis:
Shares entered
100,000
100,000
100,000
75,000
50,000
25,000
10,000
5,000
5,000
Price
MKT
MKT
MKT
MKT
MKT
MKT
MKT
MKT
MKT
.............
.............
............
.............
.............
.............
............
.............
.............
Shares executed
100,000
100,000
*74,100
*55,600
37,000
18,500
7,400
3,700
3,700
Internal Match Constraints
MatchPoint portfolio users may
effectuate internal matches and
simultaneously match residual shares
against orders from other users within a
single matching session when using an
optional internal match constraint. This
type of constraint enables the user to
execute trades between the same user’s
portfolios first before trading with other
available orders in a particular matching
session. If, after an internal match
occurs and residual orders remain, the
residual portfolios will trade with all
other orders. Single orders may be
designated for internal matches as well.
Internal matches have priority over
other executions. MatchPoint will first
process internal matches and then
process all other orders in the matching
session. All user-directed constraints
will be honored in the internal match.
An internal match constraint, like a
MatchPoint order, is active only for a
single matching session. A user may
resubmit a new internal match
constraint when resubmitting an order
for a different matching session.
All orders that are designated with an
internal match designation, single or
portfolio orders, and entered by the
same user are eligible for matching with
all such orders. For example, single
orders that have internal match
designation are capable of matching
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with all other orders that have internal
match designations entered by the same
user. Portfolio orders within a portfolio
that are designated for internal matches
are also capable of matching with one
another when entered by the same user.
Such orders are allocated on a pro rata
basis as described above.
An internal match is illustrated in the
following example:
Broker-dealer A enters one order in a
portfolio to buy 20,000 shares of XYZ
stock and in another portfolio Brokerdealer A enters an order to sell 10,000
shares of XYZ stock. Broker-dealer B
enters an order to sell 10,000 shares of
XYZ stock, and broker-dealer C enters
an order to sell 10,000 shares of XYZ
stock. The internal match will result in
the following executions: Broker-dealer
A’s buy order for 20,000 shares of XYZ
stock will trade with broker-dealer A’s
sell order of 10,000 and 5,000 shares of
XYZ stock from broker dealer B and
5,000 shares of XYZ stock from broker
dealer C respectively, leaving brokerdealers B and C with residual amounts
of 5,000 shares each of XYZ stock. The
unexecuted shares of XYZ stock for
broker-dealers B and C (5,000 shares
each) will be immediately cancelled
back to broker-dealers B and C upon
completion of the matching session.
Net Cash Constraints
An optional ‘‘net cash’’ constraint
provides valuable risk and cash
management tools for portfolio users. A
user entering a single order may also
place a net cash constraint on that order.
To execute a net cash constraint, a user
must enter a specific net buy dollar
amount and a specific net sell dollar
amount for a portfolio. A net cash
constraint is active only for a single
matching session. A user may resubmit
a new net cash constraint when
resubmitting an order for a different
matching session. MatchPoint users may
utilize such net cash constraints as the
primary vehicle for controlling how
much a user may spend or raise in an
individual portfolio. This functionality
enables users to keep their purchases
and sales in line with each other and to
fund additional purchases.
When calculating a customer’s net
cash constraint position, the matching
algorithm takes into account the eligible
portfolio order shares in a specific
security, the reference price of the
security and the customer’s net cash
constraint. MatchPoint first processes
the stock with the largest orders in the
largest portfolios. In order to honor all
cash constraints, the matching algorithm
processes all single and portfolio orders
in a particular security that have net
cash constraints and calculates share
allocation by applying a percentage of
the original order size to contra side
shares that are available to fill the order.
The algorithm takes this percentage
calculation and multiplies it by the
Reference Price. This calculation is then
compared to the order’s net cash
Side
constraint and determines if the
allocation of the available contra side
shares will violate the order’s net cash
constraint. If the calculation violates the
net cash constraint, these shares will not
be allocated to the contra side order but
may be allocated to other eligible orders.
This algorithmic process continues until
all eligible orders are executed. There is
no priority given to orders with a net
cash constraint.
The example below demonstrates how
portfolios, with and without a net cash
constraint, execute in MatchPoint.
Specifically, the example illustrates the
portfolios of users A, B and C in three
different scenarios: The pre-match
scenario, the post-match scenario with
no net cash constraint and a post match
scenario with a net cash constraint. In
that third scenario, user B has a net cash
constraint of plus or minus $1,000,000
(+/¥$1,000,000). In the matching
session, user B’s portfolio cannot sell
(raise) $1 million more than it buys
(spends) and it cannot buy (spend) $1
million more than it sells (raises). Users
A and C have no net cash constraints on
their portfolios. Users A and B are on
the same side of the market and user C
represents the contra side interest in the
matching session. User B entered orders
first and would therefore receive any
residual shares to be allocated. As
previously mentioned, allocated shares
are rounded down to the nearest 100
shares.
Symbol
Shares entered
Price
PRE-MATCH
User A Portfolio:
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
User B Portfolio:
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
User C Portfolio:
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
ABC .............
QRS ............
XYZ .............
DEF .............
67,600
82,500
86,300
41,200
MKT
MKT
MKT
MKT
ABC .............
QRS ............
XYZ .............
DEF .............
47,600
98,600
61,800
62,200
MKT
MKT
MKT
MKT
XYZ .............
DEF .............
ABC .............
QRS ............
139,200
88,800
146,400
258,300
MKT
MKT
MKT
MKT
ABC .............
QRS ............
XYZ .............
DEF .............
67,600
82,500
81,100
35,300
32.66
23.55
38.71
72.03
ABC .............
QRS ............
XYZ .............
DEF .............
47,600
98,600
58,100
53,500
32.66
23.55
38.71
72.03
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POST MATCH WITH NO NET CASH CONSTRAINTS
User A Portfolio:
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
User B Portfolio:
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
User C Portfolio:
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Side
Buy
Buy
Sell
Sell
Symbol
......................................................................................................................................
......................................................................................................................................
.......................................................................................................................................
.......................................................................................................................................
Shares entered
XYZ .............
DEF .............
ABC .............
QRS ............
Price
139,200
88,800
115,200
181,100
38.71
72.03
32.66
23.55
ABC .............
QRS ............
XYZ .............
DEF .............
67,600
82,500
86,300
41,200
32.66
23.55
38.71
72.03
ABC .............
QRS ............
XYZ .............
DEF .............
47,600
98,600
45,500
43,100
32.66
23.55
38.71
72.03
XYZ .............
DEF .............
ABC .............
QRS ............
131,800
84,300
115,200
181,100
38.71
72.03
32.66
23.55
POST MATCH WITH NET CASH CONSTRAINT
User A Portfolio:
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
User B Portfolio:
+/¥$1 Million Cash Constraint
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
User C Portfolio:
Buy ......................................................................................................................................
Buy ......................................................................................................................................
Sell .......................................................................................................................................
Sell .......................................................................................................................................
As the example shows, the allocation
of shares may vary significantly with
and without the net cash constraint.
User B’s portfolio executes fewer shares
with a net cash constraint than without
the constraint. Users A and C, with no
net cash constraints, are able to obtain
more executions and have a more
competitive position than user B when
user B has a net cash constraint in place.
Below is a chart comparing the post
match customer net cash position
results (i.e., total dollars raised and total
dollars spent) from the example above.
Post match 1
Net cash
position
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Customer A ............................................................................................................................
Customer B ............................................................................................................................
Customer C ............................................................................................................................
Post Match 1 reflects the net cash
position for Customers A, B and C when
their portfolios match with one another
and when Customer B has no net cash
constraint. Customer A raised
$1,535,220 more than he spent;
Customer B raised $2,222,139 more than
he spent and Customer C spent
$3,757,359 more than she raised.
Post Match 2 reflects the net cash
position for Customers A, B and C when
they match with one another and
Customer B has a net cash constraint of
plus or minus $1,000,000 (+/
¥$1,000,000). Customer B raised
$989,152 more than he spent, which is
within his net cash constraint of
$1,000,000, but is $1,232,987 less than
what he raised in Post Match 1 (when
he had no net cash constraint). This
shows the effect of Customer B’s net
cash constraint on his eligible portfolio
orders, which limits the dollar amount
that he can raise (or spend). The
matching algorithm honors Customer
12 Numbers that appear in parentheses represent
expenditures.
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$1,535,220
$2,222,139
($3,757,359)
B’s net cash constraint before allocating
shares.
Customer B has an additional $10,848
that he could raise up to the $1 million
constraint, but because the
algorithmically calculated percentage of
the available shares would violate his
constraint if allocated, the available
shares are not allocated to Customer B
and he stops raising cash. The example
demonstrates how the matching
algorithm honors Customer B’s net cash
constraint before allocating shares.
Further, in Post Match 2, Customer A
raised $2,157,618 more than he spent
and $622,398 more than he raised in
Post Match 1. Customer A was able to
match more shares because of Customer
B’s net cash constraint, which restricted
Customer B’s ability to raise or spend
more than $1,000,000. Customer C spent
$3,146,770 more than she raised and
spent $610,589 less than she spent in
Post Match 1. This reflects Customer A’s
ability to increase the number of his
executions and Customer B’s ability to
limit the number of his executions
through his net cash constraint.
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Post match 2
Net cash
position
$2,157,618
$989,152
($3,146,770)
Post match 1
and 2
Cash difference
$622,398
12($1,232,987)
($610,589)
The above example also illustrates the
following MatchPoint principles for net
cash constraints: (1) A net cash
constraint placed on a portfolio may
affect the execution of other orders in
the matching session by generally
allowing additional shares for such
other orders to be executed, and (2) net
cash constraints will generally result in
fewer executions of a portfolio and may
inhibit the maximum order execution
potential of a particular security in a
particular matching session.
Price Collar Threshold in the After
Hours Matching Session
In the after hours matching session,
the Exchange will place parameters on
the prices of all MatchPoint eligible
securities in order to dampen volatility
and provide accurate pricing for
executions. Such parameters will be
referred to as a ‘‘Price Collar
Threshold.’’ A Price Collar Threshold is
an after hours market price beyond
which a MatchPoint order will not be
executed. The Price Collar Threshold
will protect against unusual occurrences
when the market has moved
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significantly from the official closing
price of the primary market based on
information that becomes available after
the market close. In this situation, the
Exchange will cancel the after hours
MatchPoint matching session rather
than execute the matching session at a
price that no longer reflects the market
accurately. All unexecuted orders will
be immediately cancelled back to the
user upon completion of the matching
session.
The Price Collar Threshold will be set
at a predetermined percentage of the
MatchPoint after hours Reference Price.
Initially, the Price Collar Threshold will
be set at two percent (2%). Therefore, if
the difference between the Price Collar
Threshold and the consolidated last sale
price of the security is two percent or
more, the matching session in that
particular security will not occur. All
unexecuted orders will be cancelled
back to the user upon completion of the
scheduled matching session. For
example, if the Reference Price of XYZ
stock is $100, and at 4:45 p.m. the
consolidated last sale price for XYZ
stock is either $98 or less or $102 or
more, the Price Collar Threshold will
cause the stock to be halted in the after
hours matching session.
In the future, if the Exchange
determines that the Price Collar
Threshold should be adjusted in order
to protect users and provide more
accurate trades, the Exchange may make
such adjustments, up to and including
five percent (5%) of the MatchPoint
after hours Reference Price. The
Exchange will inform its users of such
an adjustment via the NYSE MatchPoint
Web site at https://www.nyse.com/
MatchPoint and the Member Firm
Notice, and notice of such adjustments
will be provided to all users reasonably
in advance of any such adjustments.
Locked and Crossed Markets
If the NBBO for a particular security
is locked at the time of a MatchPoint
matching session during the regular
trading hours of the Exchange, the
matching session shall execute orders at
the locked price. Unexecuted
MatchPoint orders in that security shall
be cancelled back to the user
immediately upon completion of the
matching session.
If the NBBO for a particular security
is crossed at the time of a MatchPoint
matching session during the regular
trading hours of the Exchange, the
matching session in that particular
security shall not occur. Unexecuted
MatchPoint orders in that security shall
be cancelled back to the user
immediately upon completion of the
matching session.
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Trading Ahead of Customer Orders
In the event a MatchPoint Order
executes at the midpoint of the NBBO
resulting in a Member or Member
Organization’s trading ahead of a held
customer order at the same price, the
Exchange believes that NYSE Rule 92
(Limitations on Member’s Trading
Because of Customers’ Orders) may be
implicated. NYSE Rule 92(a) generally
restricts a Member or Member
Organization from entering a proprietary
order while in possession of a customer
order. NYSE Rule 92(b) through (d)
provides several exceptions to the
general restrictions of Rule 92(a). When
trading on the MatchPoint system, all
users will be expected to comply with
Rule 92(a) unless such trading falls
within an applicable exception in NYSE
Rule 92(b) through (d).
Halting, Suspending and Closing of
NYSE MatchPoint Trading on the
Exchange
Trading on MatchPoint will be halted,
suspended or closed 13 when necessary
in order to maintain a fair and orderly
market, and in certain other conditions,
as described below. If trading in a
particular security is halted, suspended
or closed due to regulatory or unusual
market conditions at the time a
matching session commences, the
matching session will not occur in that
security and all unexecuted orders will
be immediately cancelled back to the
user upon completion of the matching
session.
MatchPoint trading may be halted,
suspended or closed when: (1) In the
exercise of its regulatory capacity, the
Exchange determines such action is
necessary or appropriate to maintain a
fair and orderly market, to protect
investors, or otherwise is in the public
interest due to extraordinary
circumstances or unusual market
conditions; (2) in the case of a particular
security whenever, for regulatory
purposes, trading in the related security
has been halted, suspended or closed on
the Exchange or the primary listing
exchange; (3) in the case of a particular
security trading on the Exchange
pursuant to unlisted trading privileges,
whenever, for regulatory purposes,
trading in that security has been halted,
suspended or closed on the primary
listing exchange; (4) with respect to a
particular security trading on the
Exchange pursuant to unlisted trading
13 The use of the word ‘‘close’’ in the context of
this rule refers to the intentional closing of the
market due to regulatory or other unusual
circumstances as described above, and does not
refer to the predetermined ‘‘close’’ or end of the
regular trading day at 4 p.m.
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65793
privileges, if the authority under which
a security trades on the Exchange or its
primary market is revoked (i.e., because
it is delisted); or (5) in the after hours
matching session, news reports and/or
corporate actions are disclosed after the
close of the regular hours of the market
that have a material impact on a
particular security, which may include
the following situations: (a) New
corporate earnings; (b) major market
index company deletions or additions;
(c) corporate takeovers; (d) other
significant corporate actions; (e) court
decisions and injunctions; and (f)
governmental announcements. No terms
or conditions specified in this rule shall
be interpreted to be inconsistent with
any other rules of the Exchange.
Clearance and Settlement of
MatchPoint Executions
Details of each MatchPoint trade will
be automatically matched and compared
by the Exchange and will be submitted
to a registered clearing agency for
clearing and settlement on a locked-in
basis.14 All executions effected by a
Member or Member Organization will
be cleared and settled using the
Member’s and Member Organization’s
account, and all executions effected by
a Sponsored Participant will be cleared
and settled using the relevant
Sponsoring Member Organization’s
account.
Because MatchPoint is an anonymous
trading facility, the proposed rule will
require MatchPoint transaction reports
to indicate the details of the transaction,
but not to reveal contra party and
clearing firm identities,15 except under
the following circumstances: (1) In the
event the National Securities Clearing
Corporation (‘‘NSCC’’) 16 ceases to act
for a Member or Member Organization,
which is the unidentified contra side of
any such trade processing, and/or the
relevant clearing firm, the NYSE shall
have the responsibility to identify to
14 MatchPoint executions will be compared
through the Regional Interface Organization Online
process (‘‘RIO Online’’). RIO Online is NYSE Arca’s
internal processing interface that sends order
execution information to the Depository Trust &
Clearing Corporation (DTCC). RIO Online gathers
the trades that are executed on any given day,
places the trades into the appropriate message
format and sends them to DTCC. RIO Online
provides a record of all trades that were sent to
DTCC. RIO Online is also used to manage any
approved trade corrections.
15 Post-trade anonymity described herein has
been previously approved by the Commission for
other exchanges. See, e.g., Securities Exchange Act
Release Nos. 48527 (September 23, 2003), 68 FR
56361 (September 30, 2003) (SR–NASD–2003–85);
and 49786 (May 28, 2004), 69 FR 32087 (June 8,
2004) (SR–PCX–2004–40).
16 The Exchange will submit completed
MatchPoint trades for clearance and settlement to
NSCC, which is a subsidiary of DTCC.
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Members or Member Organizations the
trades included in reports produced by
the NSCC which are with the affected
Member or Member Organization, and
(2) for regulatory purposes or to comply
with an order of a court or arbitrator.
The trade reports that the NSCC will
receive from MatchPoint for anonymous
trades will contain the identities of the
parties to the trade. This measure will
enable the NSCC to conduct its risk
management functions and settle
anonymous trades. The trade report sent
to the NSCC will contain an indicator
noting that the trade is anonymous. On
the contract sheets the NSCC issues to
its participants, the NSCC will
substitute ‘‘ANON’’ for the acronym of
the contra-party. The purpose of this
masking is to preserve anonymity
through settlement.
The Exchange states that it will be
able to maintain anonymity with respect
to disputed or erroneous trades because
the Exchange resolves disputes through
a centralized process and conducts the
process on behalf of its Members and
Member Organizations.
mstockstill on PROD1PC66 with NOTICES
Dissemination of Trading Information
The MatchPoint system will report
trade information to the Securities
Information Processors for all
MatchPoint eligible securities. Trades
will be reported as one print for each
security with the total volume of the
transaction reported with the price.
Market data for NYSE-listed securities
will be disseminated via the
consolidated tape pursuant to the
Consolidated Tape Association Plan
(‘‘CTA Plan’’). Trade reports of
securities that are governed by the UTP
Plan will be disseminated pursuant to
the UTP Plan. All trades will indicate
the market of execution as the NYSE for
CTA and UTP purposes.
Member Organization and Non-Member
Access to the NYSE MatchPoint System
Members and Member Organizations
of the Exchange are automatically
eligible for access to MatchPoint by
their membership on the Exchange. A
non-member who wishes to trade
securities on MatchPoint may do so as
a ‘‘Sponsored Participant’’ of a Member
Organization, i.e., ‘‘Sponsoring Member
Organization,’’ and must enter into a
written agreement with the Sponsoring
Member Organization and with the
Exchange. As previously explained, all
Members, Member Organizations and
Sponsored Participants of Sponsoring
Member Organizations must first obtain
connectivity authorization before they
can access MatchPoint.
The proposed rule requires the
Sponsoring Member Organization and
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16:16 Nov 21, 2007
Jkt 214001
the Sponsored Participant to enter into
a sponsorship arrangement and
maintain a written ‘‘sponsorship
agreement.’’ The sponsorship agreement
must be agreed to by both the
Sponsoring Member Organization and
the Sponsored Participant and include
provisions for Authorized Traders. Such
written agreement must include the
Sponsoring Member’s consent to
sponsor the Sponsored Participant. The
proposed sponsorship agreement must
also include the following provisions:
Sponsorship Provisions
(A) Sponsored Participant and its
Sponsoring Member Organization must
have entered into and maintained a
written agreement with the Exchange.
The Sponsoring Member Organization
must designate the Sponsored
Participant by name in its written
agreement as such.
(B) Sponsoring Member Organization
acknowledges and agrees that:
(i) All orders entered by the
Sponsored Participants and any person
acting on behalf of or in the name of
such Sponsored Participant and any
executions occurring as a result of such
orders are binding in all respects on the
Sponsoring Member Organization and
(ii) Sponsoring Member Organization
is responsible for any and all actions
taken by such Sponsored Participant
and any person acting on behalf of or in
the name of such Sponsored Participant.
(C) Sponsoring Member Organization
shall comply with the rules of the
Exchange, the rules and procedures
with regard to MatchPoint and
Sponsored Participant shall comply
with the rules of the Exchange and the
rules and procedures with regard to
MatchPoint, as if Sponsored Participant
were a Sponsoring Member
Organization.
(D) Sponsored Participant shall
maintain, keep current and provide to
the Sponsoring Member Organization a
list of Authorized Traders who may
obtain access to the MatchPoint on
behalf of the Sponsored Participant.
(E) Sponsored Participant shall
familiarize its Authorized Traders with
all of the Sponsored Participant’s
obligations under this Rule and will
assure that they receive appropriate
training prior to any use or access to
MatchPoint.
(F) Sponsored Participant may not
permit anyone other than Authorized
Traders to use or obtain access to
MatchPoint.
(G) Sponsored Participant shall take
reasonable security precautions to
prevent unauthorized use or access to
MatchPoint, including unauthorized
entry of information into MatchPoint, or
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the information and data made available
therein. Sponsored Participant
understands and agrees that Sponsored
Participant is responsible for any and all
orders, trades and other messages and
instructions entered, transmitted or
received under identifiers, passwords
and security codes of Authorized
Traders, and for the trading and other
consequences thereof.
(H) Sponsored Participant
acknowledges its responsibility to
establish adequate procedures and
controls that permit it to effectively
monitor its employees, agents and
customers’ use and access to
MatchPoint for compliance with the
terms of this agreement.
(I) Sponsored Participant shall pay
when due all amounts, if any, payable
to Sponsoring Member Organization,
MatchPoint or any other third parties
that arise from the Sponsored
Participants access to and use of
MatchPoint. Such amounts include, but
are not limited to applicable exchange
and regulatory fees.
(J) Sponsored Participant shall
maintain and keep current all records
and documents relating to its trading
activities on MatchPoint, and shall
provide all such records and documents
to the Sponsoring Member Organization
upon request.
Notice of Consent to the Exchange
(A) The Sponsoring Member
Organization must provide the
Exchange with a notice of consent
acknowledging its responsibility for the
orders, executions and actions of its
Sponsored Participant at issue prior to
providing the Sponsored Participant
with authorized access to MatchPoint.
Authorized Traders
(A) Sponsoring Member Organization
shall maintain a list of Authorized
Traders who may obtain access to
MatchPoint on behalf of the Sponsoring
Member Organization or the Sponsoring
Member Organization’s Sponsored
Participants. The Sponsoring Member
Organization shall update the list of
Authorized Traders as necessary.
Sponsoring Member Organizations must
provide the list of Authorized Traders to
the Exchange upon request.
(B) A Sponsoring Member
Organization must have reasonable
procedures to ensure that all Authorized
Traders comply with the trading rules
and procedures related to MatchPoint
and all other rules of the Exchange.
(C) A Sponsoring Member
Organization must suspend or withdraw
a person’s status as an Authorized
Trader if the Exchange has determined
that the person has caused the
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Sponsoring Member Organization to fail
to comply with the rules of the
Exchange and the Exchange has directed
the Sponsoring Member Organization to
suspend or withdraw the person’s status
as an Authorized Trader.
(D) A Sponsoring Member
Organization must have reasonable
procedures to ensure that an Authorized
Trader maintain the physical security of
the equipment for accessing the
facilities of MatchPoint to prevent the
improper use or access to the system,
including unauthorized entry of
information into the system.
Limitations on the Use of MatchPoint
(A) Specialists on the Floor of the
Exchange are not authorized to access
MatchPoint. The off-Floor operations of
specialist firms may obtain authorized
access to MatchPoint provided they
have policies and procedures and
barriers in place that preclude improper
information sharing between the
specialist firm and the firm’s specialist
on the Floor of the Exchange.17
(B) Members who have authorized
access to MatchPoint are not permitted
to enter orders into the MatchPoint
system from the Floor of the Exchange
when such orders are for their own
accounts, the accounts of associated
persons, or accounts over which it or an
associated person exercises investment
discretion. Similarly, Members on the
Floor may not have such orders entered
into MatchPoint by sending them to an
off-Floor facility for entry. Members
with authorized access to MatchPoint
may only enter customer orders into
MatchPoint from the Floor of the
Exchange. Members that have
authorized access to MatchPoint may
enter proprietary and customer orders
into MatchPoint from off the Floor of
the Exchange.
mstockstill on PROD1PC66 with NOTICES
Applicability of Section 11(a) and (b) of
the Act
Section 11(a) of the Act prohibits a
member of a national securities
exchange from effecting transactions on
that exchange for its own account, the
account of an associated person, or an
account over which it or its associated
person exercises investment discretion,
unless an exception applies. The ‘‘Effect
versus Execute Rule,’’ as Rule 11a2–2(T)
under the Act is known, permits an
17 Currently, all specialist organizations on the
Exchange utilize information barrier procedures
pursuant to NYSE Rule 98 (Restrictions on
Approved Person Associated with a Specialist’s
Member Organization). Information barrier
procedures that would be utilized to block access
by a specialist to any MatchPoint trading
information generated by the off-Floor personnel of
the specialist organization would be similar in
design and utilization.
VerDate Aug<31>2005
16:16 Nov 21, 2007
Jkt 214001
exchange member, subject to certain
conditions, to effect a transaction for
such accounts, utilizing an unaffiliated
member to execute transactions on the
exchange floor. The Rule requires that:
(1) The order must be transmitted from
off-floor; (2) once the order has been
transmitted, the member may not
participate in the execution; (3) the
transmitting member may not be
affiliated with the executing member;
and (4) neither the member or
associated person may retain any
compensation in connection with
effecting such transaction, respecting
accounts over which either has
investment discretion, without the
express written consent of the person
authorized to transact business for the
account. The Exchange requests
interpretation that MatchPoint orders
entered from off-floor comply with the
following provisions of the Rule:
1. Off -Floor Transmissions: Orders
are electronically entered into the
MatchPoint system from on and off the
Floor of the Exchange; however,
Members are not permitted to enter
orders into the MatchPoint system from
the Floor of the Exchange when such
orders are for their own accounts, the
accounts of associated persons, or
accounts over which it or an associated
person exercises investment discretion.
Also, specialists on the Floor are not
permitted to enter any orders into the
MatchPoint system and they do not
have access to the MatchPoint system
from the Floor, as described in more
detail below. However, ‘‘upstairs’’
specialist firms are permitted to be
MatchPoint users and may enter orders
from off the Floor provided such firms
have adequate policies, procedures and
‘‘barriers’’ in place between the upstairs
firm and the Floor specialists, which
will preclude improper sharing of
trading information.
2. Non-Participation in Order
Execution: In accordance with Rule
11a2–2(T), once orders are entered into
the MatchPoint system, a member may
not participate in, guide or influence the
execution of such orders. MatchPoint
orders are sent by electronic means (i.e.,
FIX application or an internet-based
application) to the MatchPoint trading
platform. Users may enter, correct or
cancel MatchPoint orders any time prior
to the commencement of a matching
session. However, once the matching
session has commenced, the system will
not permit a user to affect the order or
its execution in any way. Thus, when
the matching session commences, the
member relinquishes all control of
MatchPoint orders. Users have no
special or unique order handling or
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
65795
trading advantages when trading on
MatchPoint.
3. Affiliated Executing Members: Rule
11a2–2(T) provides that the transmitting
member may not be affiliated with the
executing member. The Commission has
previously recognized that this
requirement may be satisfied when
automated exchange facilities are
used.18 MatchPoint is a fully automated,
electronic trading facility. As described
above, MatchPoint orders are sent by
electronic means to the MatchPoint
trading platform. Matching sessions
commence automatically at a
predetermined time. Matching, trading
and pricing of orders is effectuated
through an algorithm, which does not
permit entry, correction or cancellation
of orders during the matching session.
At the completion of a matching
session, transaction reports, including
order cancellation reports for orders that
were not executed, are sent back to the
user. Reference Prices are derived from
outside sources. The intra-day Reference
price is the midpoint of the NBBO, and
the after hours Reference Price is the
official closing price or last sale price of
a particular security.
The Exchange believes that
MatchPoint complies with the
‘‘Affiliated Executing Member’’
provision of Rule 11a2–2(T) because the
automatic execution function of
MatchPoint ensures that all authorized
MatchPoint users have the same
abilities with respect to entering orders,
and no users can effect an order once
the matching session has commenced.
The design of the MatchPoint system
ensures that members do not possess
any special or unique trading
advantages in the handling of orders.
Thus, the Rule’s provision respecting
the use of affiliated members to execute
orders is not implicated by the
MatchPoint system.
4. Non-Retention of Compensation:
The Exchange represents that members
that rely on Rule 11a2–2(T) for a
managed account transaction must
comply with the limitations on
compensation set forth in the rule.
Section 11(b) of the Act and Rule
11b–1 thereunder, which pertains to
18 In considering the operation of automated
execution systems by an exchange, the Commission
has noted in the past that the execution of an order
is automatic once it has been transmitted into a
system, and therefore satisfies the independent
execution requirement of rule 11a2–2(T). See, e.g.,
Securities Exchange Act Release Nos. 49068
(January 13, 2004), 69 FR 2775 (January 20, 2004)
(order approving the Boston Options Exchange as
an options trading facility of the Boston Stock
Exchange); 29237 (May 24, 1991), 56 FR 24853
(May 31, 1991) (regarding NYSE’s Off-Hours
Trading Facility); and 53128 (January 13, 2006), 71
FR 3550 (January 23, 2006) (File No. 10–131).
E:\FR\FM\23NON1.SGM
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mstockstill on PROD1PC66 with NOTICES
65796
Federal Register / Vol. 72, No. 225 / Friday, November 23, 2007 / Notices
specialists, are not applicable to the
operation of the MatchPoint system for
several reasons. First, as stated above,
specialists on the Floor of the Exchange
are not able to access MatchPoint.
MatchPoint can only be accessed
through an electronic FIX application
and/or an internet based, passwordprotected order entry application, which
are not available to individual
specialists on the Floor. Although the
upstairs firms that employ specialists
are able to access MatchPoint through
these two applications, such firms must
be authorized to access MatchPoint, and
the firms must have policies and
procedures and information barriers in
place to preclude the improper sharing
of trading information between the
specialists on the Floor and in the
upstairs firm. Further, the specialist
firms will be subject to examinations by
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) as agent for
NYSE Group pursuant to a Regulatory
Services Agreement dated July 30, 2007,
to ensure that such policies and
procedures and information barriers are
in place and are adequate to preclude
improper sharing of trading information.
Specifically, FINRA examiners will
perform an on-site review of the
combined specialist firm’s written
policies and procedures and determine
if they are adequate in relation to
trading on MatchPoint. In addition,
FINRA will interview appropriate
individuals both within the affected
departments as well as other areas of the
specialist firm to determine whether
firm policies have been appropriately
disseminated and appear to be followed
in relation to MatchPoint trading. The
examination will also determine
whether there have been any apparent
breaches of the information barriers.
Second, the MatchPoint system is
independent of all other electronic
trading platforms, including the
specialists’ API (‘‘Application
Programmed Interface’’) which is also
known as the specialists’ ‘‘algorithm.’’
As a consequence, the specialists’
algorithm cannot interface with the
MatchPoint system and has no access to
order entry information or MatchPoint
market data. Similarly, the individual
specialist on the Floor has no
MatchPoint order entry information or
MatchPoint market data. Without access
to MatchPoint and without access to
MatchPoint order entry information and
market data, specialists will not be able
to manipulate MatchPoint trading.
Third, the Exchange has an internal
authorization process that authorizes
MatchPoint users to access MatchPoint
through the FIX application and internet
by providing an authorized user name
VerDate Aug<31>2005
16:16 Nov 21, 2007
Jkt 214001
and protected password. Individual
specialists on the Floor will not be
authorized through the internal process.
Upstairs firms that employ specialists
may be authorized to access MatchPoint
through MatchPoint’s internal
authorization process, provided, as
noted above, FINRA, as agent for NYSE
Group, examines such firms to ensure
that policies, procedures and barriers
are in place and are adequate to
preclude improper sharing of trading
information.
Therefore, because specialists on the
Floor do not have access to the
MatchPoint system or MatchPoint order
information, and because the specialist
firms are subject to regulatory
examinations to ensure the integrity of
information barriers between the firms
and their specialists on the Floor, the
Exchange believes that section 11(b) of
the Act and Rule 11b–1 thereunder,
which pertains to specialists, is not
applicable to the operation of the
MatchPoint system.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Regulation of the MatchPoint System
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:
The Exchange notes that NYSE
Regulation represents that it has
appropriate policies and procedures in
place to adequately and effectively
regulate the MatchPoint system. A
surveillance plan describing the various
surveillances that will be in place to
monitor the operation of MatchPoint has
been submitted to the Commission
under separate cover, and will be
implemented prior to any trading on the
MatchPoint system. Also, FINRA, as
agent for NYSE Group, will perform
examinations of specialist firms that
trade on MatchPoint as described above.
2. Statutory Basis
The Exchange states that the statutory
basis for proposed rule change is the
requirement under section 6(b)(5) 19 of
the Act that an Exchange have rules that
are designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
19 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00099
Fmt 4703
Sfmt 4703
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the NYSE consents, the
Commission will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
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–2007–102 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–2007–102. 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
E:\FR\FM\23NON1.SGM
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Federal Register / Vol. 72, No. 225 / Friday, November 23, 2007 / Notices
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 such 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–2007–102 and
should be submitted on or before
December 14, 2007.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–22782 Filed 11–21–07; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–56790; File No. SR–
NYSEArca–2007–113]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to the Mid-Point
Passive Liquidity Order
mstockstill on PROD1PC66 with NOTICES
November 15, 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 November
5, 2007, NYSE Arca, Inc. (‘‘NYSE Arca’’
or ‘‘Exchange’’), through its wholly
owned subsidiary, NYSE Arca Equities,
Inc. (‘‘NYSE Arca Equities’’ or
‘‘Corporation’’), filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially prepared by the Exchange.
The Exchange filed the proposed rule
change as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A) 3 of the Act and Rule
19b–4(f)(6) thereunder,4 which renders
the proposal effective upon filing with
the Commission. The Commission is
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for
the proposed rule change, and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has substantially prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
1. Purpose
As part of its continuing efforts to
provide additional flexibility and
increased functionality to its system and
its Users,5 the Exchange proposes to
amend Rule 7.31(h)(5) in order to
reduce the MPL Order’s minimum order
entry size and minimum executable size
from 1000 to 100. The MPL Order 6 is a
version of the NYSE Arca Passive
Liquidity Order,7 except that it is
executable only at the midpoint of the
Protected Best Bid and Offer (‘‘PBBO’’).
Presently, the MPL Order’s minimum
order entry and execution size is 1000.
The Exchange represents that this MPL
Order type was initially designed to
accommodate larger customer
transactions. However, since its
inception, it has become clear that Users
with a typical order flow less than this
threshold are frequently unable to use it.
This proposed reduction of the order
entry and execution size from 1000 to
100 will allow all Users the same
flexibility in using this order type.
The Exchange is not proposing any
other changes or amendments to the
5 See NYSE Arca Rule 1.1(yy) for the definition
of ‘‘User.’’
6 See Securities Exchange Act Release No. 56072
(July 13, 2007), 72 FR 39867 (July 20, 2007) (SR–
NYSEArca–2007–61).
7 See NYSE Arca Rule 7.31(h)(4).
20 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).
1 15
16:16 Nov 21, 2007
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NYSE Arca Rule 7.31(h)(5) in order to
reduce the Mid-Point Passive Liquidity
Order’s (‘‘MPL Order’’) minimum order
entry size and minimum executable size
from 1000 to 100.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
VerDate Aug<31>2005
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
Jkt 214001
PO 00000
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65797
MPL order. The Exchange intends to
offer this functionality in concert with
other planned technological upgrades
presently scheduled to be implemented
on November 19, 2007, or such later
date as communicated to its Users
through a customer notice.
The Exchange believes that reducing
the minimum order entry size and the
minimum execution size will further
enhance order entry and execution
opportunities on the Exchange. Retail
customers, whose orders are typically
smaller than 1000, will particularly
benefit from this reduction and thus the
proposed rule change will allow those
Users the same opportunities as larger
institutional customers.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the Act,8
in general, and furthers the objectives of
Section 6(b)(5) of the Act,9 in particular,
in that it is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
and to remove impediments to and
perfect the mechanisms of a free and
open market and a national market
system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
filing (or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest) the proposed rule
change has become effective pursuant to
8 15
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
E:\FR\FM\23NON1.SGM
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]]>Agencies
[Federal Register Volume 72, Number 225 (Friday, November 23, 2007)]
[Notices]
[Pages 65787-65797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-22782]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56798; File No. SR-NYSE-2007-102]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Relating to NYSE Rule 1500
(NYSE MatchPoint\SM\)
November 15, 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 November 8, 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, II,
and III below, which Items have been substantially prepared by the
Exchange. 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NYSE proposes to adopt NYSE Rule 1500 to establish NYSE
MatchPoint\SM\ (``MatchPoint''), an electronic facility
[[Page 65788]]
that matches aggregated orders at predetermined, one-minute sessions
throughout regular hours and after hours of the Exchange. MatchPoint
will trade securities listed on all major exchanges.\3\ The text of the
proposed rule change is available on the Exchange's Web site (https://
www.nyse.com), at the Exchange, and at the Commission's Public
Reference Room.
---------------------------------------------------------------------------
\3\ The major exchanges include the NYSE (including securities
otherwise admitted to dealing on the NYSE pursuant to the Joint
Self-Regulatory Organization Plan Governing the Collection,
Consolidation and Dissemination of Quotation and Transaction
Information for Nasdaq-Listed Securities Traded on an Unlisted
Trading Privilege Basis (``UTP Plan'')), the NYSE Arca, Inc. Stock
Exchange LLC (``NYSE Arca''), the NASDAQ Stock Market, Inc.
(``Nasdaq''), the American Stock Exchange (``Amex'') and regional
stock exchanges. The Exchange is a participant in the UTP Plan, a
National Market System Plan that accommodates trading on participant
exchanges of non-NYSE-listed securities on an unlisted trading
privileges (``UTP'') basis. See Securities Exchange Act Release No.
55192 (January 29, 2007), 72 FR 5456 (February 6, 2007) (File No.
S7-24-89) (Plan amendment admitting the Exchange as a Plan
Participant). The Exchange is proposing to permit UTP trading of
non-NYSE-listed securities in MatchPoint matching sessions during
the regular hours and after hours of the Exchange.
---------------------------------------------------------------------------
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange seeks to establish the MatchPoint matching system to
provide its customers with an ability to execute securities at a
predetermined, externally derived, single trading price in accordance
with algorithmic calculations during one-minute matching sessions at
predetermined times during the regular hours (9:30 a.m. Eastern Time
(``ET'') to 4 p.m. ET) and after hours of the Exchange.\4\ MatchPoint
participants (``users'') transmit their market and limit orders, which
are undisplayed, by means of an electronic interface. MatchPoint
matches aggregated, anonymous orders of securities listed on the
primary exchanges such as the NYSE, as well as securities admitted to
trading on the NYSE pursuant to the UTP Plan that are listed on NYSE
Arca, Nasdaq, Amex and regional stock exchanges.
---------------------------------------------------------------------------
\4\ NYSE MatchPoint will operate on an Eastern Time basis. All
references to time herein and in the MatchPoint rules will mean
Eastern Time.
---------------------------------------------------------------------------
The Exchange believes that MatchPoint will provide its customers a
greater ability to execute single, block and portfolio (i.e., basket,
list, etc.) orders efficiently and reduce the trading risks and costs
associated with market volatility. MatchPoint customers who enter
single orders, block orders and portfolio orders will reap the benefits
of this centralized, neutral matching environment.\5\ Additionally, the
Exchange believes that customers that rely on index-based or model-
driven trading and investment strategies will find MatchPoint to be a
very effective trading tool.
---------------------------------------------------------------------------
\5\ The Exchange notes that portfolio matches have been in
existence for over twenty years. Instinet's crossing network has
been matching portfolios since December 1986 and Investment
Technology Group Inc.'s Portfolio System for Institutional Trading
(POSIT) has been matching portfolios since July 1987.
---------------------------------------------------------------------------
Because MatchPoint is an anonymous trading platform, no order
information will be displayed and clearance and settlement of
executions will be anonymous. Trade reports will be disseminated after
each matching session.
All NYSE Members, Member Organizations and Sponsored Participants
of Sponsoring Member Organizations are automatically eligible for
access to MatchPoint. Before access is granted to MatchPoint users, all
users must go through a connectivity authorization process.\6\ After
NYSE Members, Member Organizations and Sponsored Participants of
Sponsoring Member Organizations obtain connectivity authorization they
may access MatchPoint.
---------------------------------------------------------------------------
\6\ MatchPoint can only be accessed through an electronic
Financial Information eXchange (``FIX'') application and/or an
internet based password-protected order entry application. Users
must fill out an application for connectivity through either of
these two electronic connectivity capabilities. Once granted
connectivity through the authorization process, eligible users may
access MatchPoint.
---------------------------------------------------------------------------
NYSE MatchPoint Matching Sessions
The first MatchPoint matching session of the trading day will
commence at 9:45 a.m. Thereafter, during the trading day of the
Exchange, there will be a matching session at 10 a.m., 11 a.m., 12
p.m., 1 p.m., 2 p.m. and 3 p.m. A MatchPoint after hours matching
session will occur at 4:45 p.m.\7\
---------------------------------------------------------------------------
\7\ Because transactions from the MatchPoint after hours
matching session, which occurs at 4:45 p.m., occur outside of
regular trading hours, they cannot fall within the definition of
trade-throughs and will not be subject to the provisions of Rule 611
of Regulation NMS. See 17 CFR 242.600(b)(64) and (77).
---------------------------------------------------------------------------
MatchPoint matching sessions are predetermined one-minute trading
periods that occur through an automated matching mechanism. During the
matching sessions, the Matchpoint Reference Price (``Reference Price'')
is determined and eligible orders are executed at the designated hour,
as stated in the rule, at the randomly selected time during the
predetermined one-minute trading session. The matching and execution of
orders occurs immediately after the algorithm selects a Reference
Price. No user can be assured of a match unless they enter an eligible
portfolio or single order with an internal match designation that
corresponds with contra side eligible portfolio or single orders with
internal match designations from the same user. No user knows precisely
when the match will occur. If an order is not executed in a particular
matching session it will be immediately cancelled back to the user upon
completion of the matching session. The user may resubmit the order in
any one of the subsequent matching sessions.
NYSE MatchPoint Reference Prices
The Reference Price is the single trading price at which MatchPoint
orders will execute during a predetermined one-minute ``matching
session.'' MatchPoint employs a passive pricing system. The Reference
Price is derived from external market data of the Exchange and other
primary securities markets. There is no price discovery as orders are
not displayed and all trades occur in accordance with a predetermined
algorithm.
The Reference Price is calculated differently for regular hour
matching sessions and the after hours matching session. During the
regular hours of the Exchange, the Reference Price shall be the
midpoint of the national best bid and offer (``NBBO'') which is
randomly selected during a predetermined one-minute pricing period. For
the after hours MatchPoint matching session, the Reference Price is the
official closing price of the primary market (i.e., the listing market)
for securities listed on the NYSE, NYSE Arca, Amex, Nasdaq and regional
stock exchanges. If, however, there is no official closing price for a
particular security, the Reference Price will be the last sale
[[Page 65789]]
price of the primary market for a particular security.
Half Penny Increments
The MatchPoint Reference Price for the matching sessions that occur
during the regular hours (i.e., the midpoint of the NBBO), may be
calculated to three (3) decimal places when the NBBO is an odd penny
spread (i.e., one (1) penny, three (3) pennies, five (5) pennies,
etc.). For example, if the NBBO of Stock XYZ is $23.01 to $23.02, the
Reference Price is $23.015. As a consequence, executions at the
midpoint of the NBBO may be in half penny increments, requiring the use
of three decimal places, as demonstrated in the example.\8\
---------------------------------------------------------------------------
\8\ MatchPoint will not display, rank or execute orders in any
NMS stock priced below one dollar ($1.00). In addition, MatchPoint
will not display, rank or execute orders in increments smaller than
a penny. However, when there is an odd penny spread, as described
above, MatchPoint will execute it in a half penny increment. The
Exchange notes that, in response to public comments to the
Regulation NMS Proposing Release, the Commission wrote, ``Executions
occurring at a sub-penny price resulting from a midpoint, VWAP, or
similar volume-weighted pricing algorithm are not prohibited by Rule
612 [of Regulation NMS].'' See Securities Exchange Act Release No.
51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS
Release'') at note 831.
---------------------------------------------------------------------------
Securities Priced Below One Dollar
As discussed above, MatchPoint orders in securities are not subject
to auction-market price discovery procedures, as Reference Prices of
securities are not determined until a matching session commences and
the algorithm calculates the price of the securities. If the MatchPoint
algorithm prices a security (i.e., the Reference Price) below one
dollar ($1.00), MatchPoint will not execute orders in these securities
but will cancel these orders back to the user immediately upon
completion of the matching session.
Entry and Processing of NYSE MatchPoint Orders
MatchPoint Orders
MatchPoint users may enter, correct or cancel orders beginning at
3:30 a.m. until 4:45 p.m. The MatchPoint system will not accept any
orders before 3:30 a.m. or after 4:45 p.m. MatchPoint will accept and
execute single orders and NYSE MatchPoint Portfolios (``portfolios'').
Orders may be either market or limit orders and must have a minimum
size of one round lot. As discussed in more detail below, MatchPoint
will permit odd lot and partial round lot orders to be entered into the
system. Odd lot orders and the odd lot portion of partial round lot
orders will be reported as unexecuted.
Orders may not be cancelled or replaced while a matching session is
in progress or when trading in the applicable security is halted in the
MatchPoint system. MatchPoint orders shall not be available for
execution until the next eligible matching session. All orders must be
available for automatic execution. MatchPoint has no order delivery
capability and will not route to other market centers. Users, however,
would be able to enter eligible orders into MatchPoint through a FIX
\9\ application and/or an internet based order entry system provided
the orders are available for automatic execution. MatchPoint orders
will not trade-through a Protected Bid or Protected Offer as defined in
Regulation NMS.\10\
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\9\ FIX Protocol is a messaging standard developed specifically
for the real-time electronic exchange of securities transactions.
\10\ See Regulation NMS Release, supra note 8. Because the
MatchPoint Reference Price during the regular hours of the Exchange
is calculated to be the midpoint of the NBBO, no trade-through
executions will occur and, therefore, Rule 611 of Regulation NMS
(``Order Protection Rule'') will not be violated.
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MatchPoint Order Parameters
All MatchPoint orders, single and portfolio, must have the
following parameters: (1) List name; \11\ (2) matching session (if a
user fails to designate a specific matching session, the system will
provide a default function and direct the order to the next eligible
matching session); (3) side of the market (i.e., buy, sell or short
side); (4) symbol; and (5) minimum and maximum amount of shares
available for execution. Additionally, a user may include an optional
constraint (i.e., net cash and internal match constraints) for a
MatchPoint order.
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\11\ A portfolio must have a unique portfolio name that is
distinct from the names of other portfolios of the same user.
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MatchPoint Order Designation
MatchPoint orders must be designated for only one of the matching
sessions during regular hours of the Exchange or for the single after
hours matching session. If a MatchPoint order does not execute in the
designated matching session, it will be cancelled back to the user
immediately upon completion of the matching session. If a user fails to
designate a particular matching session for a MatchPoint order, the
order, by default, shall be available for execution in the next
scheduled matching session. If an undesignated order does not execute
in the next scheduled regular hours matching session it will be
cancelled back to the user immediately upon completion of such matching
session. If a user fails to designate an order and enters the order
after 3 p.m., which is the last regular hours matching session, the
order will participate in the after hours matching session at 4:45 p.m.
If the order does not execute in the after hours matching session it
will be cancelled back to the user immediately upon completion of the
after hours matching session.
As discussed above, a user must designate an order for only one
matching session at a time. For example, if a user wishes to have an
order available for execution in the 11 a.m. matching session, the user
must designate the order for the 11 a.m. matching session and must
enter the order into the MatchPoint system anytime between 3:30 a.m.,
when the system opens to receive orders, and 11 a.m., when the
designated matching session commences. If the order does not execute in
the 11 a.m. matching session, such order will be immediately cancelled
back to the User upon completion of the matching session. Thereafter,
the user must submit a new order for execution in another matching
session, e.g., the 12 p.m. matching session. The user must submit the
subsequent order with a designation for the 12 p.m. matching session.
Such order must then be entered into the system before commencement of
the 12 p.m. matching session. Again, if the order does not execute in
the 12 p.m. matching session, such order will be immediately cancelled
back to the user upon completion of the 12 p.m. matching session.
Round Lot Orders
MatchPoint will execute orders only in round lots. The MatchPoint
system will accept odd lot orders but not execute them. Odd lot orders
entered into the MatchPoint system will be reported to the user as
unexecuted. Similarly, orders containing partial round lots (i.e.,
``mixed lots'') may be entered into MatchPoint in the form of a
portfolio but the odd lot portion of the order will not be executed and
will be reported to the user as unexecuted. The system will permit the
entry of odd lot and partial round lot orders to accommodate portfolio
orders. The Exchange believes that to require the portfolio-based users
to first strip their orders of odd lots and partial round lots before
entering their orders into MatchPoint would introduce operational risk
into the administration of the portfolios and, for example, disturb the
tracking of the portfolios that follow the underlying index.
Additionally, the Exchange believes that excluding odd lot and partial
round lot
[[Page 65790]]
orders from MatchPoint will discourage portfolio trading and
significantly reduce liquidity in the MatchPoint market.
The following example demonstrates how odd lot and partial round
lot orders are processed through MatchPoint:
A portfolio of buy orders is entered into MatchPoint:
Stock A: 12,300 shares.
Stock B: 5,650 shares.
Stock C: 35 shares.
Stock D: 17,099 shares.
Depending upon available contra side interest, the following
portfolio executions could occur: Order A could execute up to 12,300
shares. Order B could execute up to 5,600 shares with at least 50
shares immediately cancelled back to the user upon completion of the
matching session. Order C will result in all 35 shares being
immediately cancelled back to the user upon completion of the matching
session. Order D will execute up to 17,000 shares and at least 99
shares will be immediately cancelled back to the user upon completion
of the matching session.
NYSE MatchPoint Order Allocation
MatchPoint orders will be allocated on a pro rata basis, such that
shares will be allocated pro rata in round lots (rounded down to the
nearest 100 shares) to eligible orders based on the original size of
the order. In this process MatchPoint will honor all user-directed
constraints. If the allocation to an eligible order is less than the
minimum acceptable execution quantity for that order, the order shall
not be eligible for execution in that matching session. If additional
shares remain after the initial pro rata allocation, those shares will
continue to be allocated pro rata to eligible orders. If additional
shares remain thereafter that are the same size or are unexecuted
because of rounding or minimum trade size constraints, the remaining
shares will be allocated in 100 share lots to the oldest eligible
orders.
The example below demonstrates how MatchPoint will allocate shares
on a pro rata basis:
----------------------------------------------------------------------------------------------------------------
Shares
User Side Shares entered Price executed
----------------------------------------------------------------------------------------------------------------
User A............................. Buy................ 100,000 MKT................... 100,000
User B............................. Buy................ 100,000 MKT................... 100,000
User C............................. Sell............... 100,000 MKT................... *74,100
User D............................. Sell............... 75,000 MKT................... *55,600
User E............................. Sell............... 50,000 MKT................... 37,000
User F............................. Sell............... 25,000 MKT................... 18,500
User G............................. Sell............... 10,000 MKT................... 7,400
User H............................. Sell............... 5,000 MKT................... 3,700
User I............................. Sell............... 5,000 MKT................... 3,700
----------------------------------------------------------------------------------------------------------------
In this example the total amount of buy orders is 200,000 shares.
The total amount of sell orders is 270,000 shares. There are 70,000
more shares to sell than to buy. The greatest number of shares that may
execute in the MatchPoint system is 200,000 shares. 200,000 shares is
74.074% (rounded percentage) of 270,000. Therefore, the pro rata
percentage that will be allocated to each of the seven sell orders is
74.074%. Based on the order size of each order, MatchPoint will prorate
the available liquidity (200,000 shares) accordingly (see ``Shares
Executed'' in the example above). (* Users C and D each receive an
additional 100 shares because C and D are the oldest eligible orders
after the pro rata share allocations.)
The second example (below) will illustrate the allocation of
MatchPoint shares when all orders are equal in size. Under these
circumstances, MatchPoint will allocate shares based on order entry
sequence. The oldest order will get the larger fill if residual shares
remain after the initial pro rata allocation. In the example below,
assume the following orders are received in the following sequence:
MatchPoint Orders:
1. Broker-dealer A: Buy 10,000 @ mkt
2. Broker-dealer B: Sell 10,000 @ mkt
3. Broker-dealer C: Sell 10,000 @ mkt
4. Broker-dealer D: Sell 10,000 @ mkt
MatchPoint Executions:
1. 10,000 fully allocated order
2. 3,300 shares + 100 residual shares = 3,400 (oldest sell order)
3. 3,300 shares executed
4. 3,300 shares executed
The results of the matching session are as follows: Broker-dealer
A's order is allocated 9,900 shares from a pro rata fill from each of
the three sell orders from broker-dealers B, C and D in the amount of
3,300 shares. Each sell order has an equal residual of 6,700 shares,
but because broker-dealer B has the oldest order of the three sell
orders, B's residual 100 shares of stock will be allocated to A's buy
order resulting in a fully allocated order of 10,000 shares.
Portfolio Trading
A MatchPoint user may submit NYSE MatchPoint Portfolios into the
MatchPoint system for execution. An NYSE MatchPoint Portfolio is a
group of linked orders with user-directed parameters and a unique,
user-defined portfolio name. The portfolio orders may represent
separate and distinct broker dealer-customer orders and separate and
distinct proprietary broker dealer orders. A user may enter one
portfolio of buy and sell/short orders or many portfolios of buy and
sell/short orders.
Internal Match Constraints
MatchPoint portfolio users may effectuate internal matches and
simultaneously match residual shares against orders from other users
within a single matching session when using an optional internal match
constraint. This type of constraint enables the user to execute trades
between the same user's portfolios first before trading with other
available orders in a particular matching session. If, after an
internal match occurs and residual orders remain, the residual
portfolios will trade with all other orders. Single orders may be
designated for internal matches as well.
Internal matches have priority over other executions. MatchPoint
will first process internal matches and then process all other orders
in the matching session. All user-directed constraints will be honored
in the internal match. An internal match constraint, like a MatchPoint
order, is active only for a single matching session. A user may
resubmit a new internal match constraint when resubmitting an order for
a different matching session.
All orders that are designated with an internal match designation,
single or portfolio orders, and entered by the same user are eligible
for matching with all such orders. For example, single orders that have
internal match designation are capable of matching
[[Page 65791]]
with all other orders that have internal match designations entered by
the same user. Portfolio orders within a portfolio that are designated
for internal matches are also capable of matching with one another when
entered by the same user. Such orders are allocated on a pro rata basis
as described above.
An internal match is illustrated in the following example:
Broker-dealer A enters one order in a portfolio to buy 20,000
shares of XYZ stock and in another portfolio Broker-dealer A enters an
order to sell 10,000 shares of XYZ stock. Broker-dealer B enters an
order to sell 10,000 shares of XYZ stock, and broker-dealer C enters an
order to sell 10,000 shares of XYZ stock. The internal match will
result in the following executions: Broker-dealer A's buy order for
20,000 shares of XYZ stock will trade with broker-dealer A's sell order
of 10,000 and 5,000 shares of XYZ stock from broker dealer B and 5,000
shares of XYZ stock from broker dealer C respectively, leaving broker-
dealers B and C with residual amounts of 5,000 shares each of XYZ
stock. The unexecuted shares of XYZ stock for broker-dealers B and C
(5,000 shares each) will be immediately cancelled back to broker-
dealers B and C upon completion of the matching session.
Net Cash Constraints
An optional ``net cash'' constraint provides valuable risk and cash
management tools for portfolio users. A user entering a single order
may also place a net cash constraint on that order. To execute a net
cash constraint, a user must enter a specific net buy dollar amount and
a specific net sell dollar amount for a portfolio. A net cash
constraint is active only for a single matching session. A user may
resubmit a new net cash constraint when resubmitting an order for a
different matching session. MatchPoint users may utilize such net cash
constraints as the primary vehicle for controlling how much a user may
spend or raise in an individual portfolio. This functionality enables
users to keep their purchases and sales in line with each other and to
fund additional purchases.
When calculating a customer's net cash constraint position, the
matching algorithm takes into account the eligible portfolio order
shares in a specific security, the reference price of the security and
the customer's net cash constraint. MatchPoint first processes the
stock with the largest orders in the largest portfolios. In order to
honor all cash constraints, the matching algorithm processes all single
and portfolio orders in a particular security that have net cash
constraints and calculates share allocation by applying a percentage of
the original order size to contra side shares that are available to
fill the order. The algorithm takes this percentage calculation and
multiplies it by the Reference Price. This calculation is then compared
to the order's net cash constraint and determines if the allocation of
the available contra side shares will violate the order's net cash
constraint. If the calculation violates the net cash constraint, these
shares will not be allocated to the contra side order but may be
allocated to other eligible orders. This algorithmic process continues
until all eligible orders are executed. There is no priority given to
orders with a net cash constraint.
The example below demonstrates how portfolios, with and without a
net cash constraint, execute in MatchPoint. Specifically, the example
illustrates the portfolios of users A, B and C in three different
scenarios: The pre-match scenario, the post-match scenario with no net
cash constraint and a post match scenario with a net cash constraint.
In that third scenario, user B has a net cash constraint of plus or
minus $1,000,000 (+/-$1,000,000). In the matching session, user B's
portfolio cannot sell (raise) $1 million more than it buys (spends) and
it cannot buy (spend) $1 million more than it sells (raises). Users A
and C have no net cash constraints on their portfolios. Users A and B
are on the same side of the market and user C represents the contra
side interest in the matching session. User B entered orders first and
would therefore receive any residual shares to be allocated. As
previously mentioned, allocated shares are rounded down to the nearest
100 shares.
----------------------------------------------------------------------------------------------------------------
Side Symbol Shares entered Price
----------------------------------------------------------------------------------------------------------------
PRE-MATCH
----------------------------------------------------------------------------------------------------------------
User A Portfolio:
Buy............................... ABC....................... 67,600 MKT
Buy............................... QRS....................... 82,500 MKT
Sell.............................. XYZ....................... 86,300 MKT
Sell.............................. DEF....................... 41,200 MKT
User B Portfolio:
Buy............................... ABC....................... 47,600 MKT
Buy............................... QRS....................... 98,600 MKT
Sell.............................. XYZ....................... 61,800 MKT
Sell.............................. DEF....................... 62,200 MKT
User C Portfolio:
Buy............................... XYZ....................... 139,200 MKT
Buy............................... DEF....................... 88,800 MKT
Sell.............................. ABC....................... 146,400 MKT
Sell.............................. QRS....................... 258,300 MKT
----------------------------------------------------------------------------------------------------------------
POST MATCH WITH NO NET CASH CONSTRAINTS
----------------------------------------------------------------------------------------------------------------
User A Portfolio:
Buy............................... ABC....................... 67,600 32.66
Buy............................... QRS....................... 82,500 23.55
Sell.............................. XYZ....................... 81,100 38.71
Sell.............................. DEF....................... 35,300 72.03
User B Portfolio:
Buy............................... ABC....................... 47,600 32.66
Buy............................... QRS....................... 98,600 23.55
Sell.............................. XYZ....................... 58,100 38.71
Sell.............................. DEF....................... 53,500 72.03
User C Portfolio:
[[Page 65792]]
Buy............................... XYZ....................... 139,200 38.71
Buy............................... DEF....................... 88,800 72.03
Sell.............................. ABC....................... 115,200 32.66
Sell.............................. QRS....................... 181,100 23.55
----------------------------------------------------------------------------------------------------------------
POST MATCH WITH NET CASH CONSTRAINT
----------------------------------------------------------------------------------------------------------------
User A Portfolio:
Buy............................... ABC....................... 67,600 32.66
Buy............................... QRS....................... 82,500 23.55
Sell.............................. XYZ....................... 86,300 38.71
Sell.............................. DEF....................... 41,200 72.03
User B Portfolio:
+/-$1 Million Cash Constraint
Buy............................... ABC....................... 47,600 32.66
Buy............................... QRS....................... 98,600 23.55
Sell.............................. XYZ....................... 45,500 38.71
Sell.............................. DEF....................... 43,100 72.03
User C Portfolio:
Buy............................... XYZ....................... 131,800 38.71
Buy............................... DEF....................... 84,300 72.03
Sell.............................. ABC....................... 115,200 32.66
Sell.............................. QRS....................... 181,100 23.55
----------------------------------------------------------------------------------------------------------------
As the example shows, the allocation of shares may vary
significantly with and without the net cash constraint. User B's
portfolio executes fewer shares with a net cash constraint than without
the constraint. Users A and C, with no net cash constraints, are able
to obtain more executions and have a more competitive position than
user B when user B has a net cash constraint in place.
Below is a chart comparing the post match customer net cash
position results (i.e., total dollars raised and total dollars spent)
from the example above.
----------------------------------------------------------------------------------------------------------------
Post match 1 Post match 2 Post match 1
Net cash Net cash and 2 Cash
position position difference
----------------------------------------------------------------------------------------------------------------
Customer A................................................... $1,535,220 $2,157,618 $622,398
Customer B................................................... $2,222,139 $989,152 \12\($1,232,987
)
Customer C................................................... ($3,757,359) ($3,146,770) ($610,589)
----------------------------------------------------------------------------------------------------------------
Post Match 1 reflects the net cash position for Customers A, B and
C when their portfolios match with one another and when Customer B has
no net cash constraint. Customer A raised $1,535,220 more than he
spent; Customer B raised $2,222,139 more than he spent and Customer C
spent $3,757,359 more than she raised.
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\12\ Numbers that appear in parentheses represent expenditures.
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Post Match 2 reflects the net cash position for Customers A, B and
C when they match with one another and Customer B has a net cash
constraint of plus or minus $1,000,000 (+/-$1,000,000). Customer B
raised $989,152 more than he spent, which is within his net cash
constraint of $1,000,000, but is $1,232,987 less than what he raised in
Post Match 1 (when he had no net cash constraint). This shows the
effect of Customer B's net cash constraint on his eligible portfolio
orders, which limits the dollar amount that he can raise (or spend).
The matching algorithm honors Customer B's net cash constraint before
allocating shares.
Customer B has an additional $10,848 that he could raise up to the
$1 million constraint, but because the algorithmically calculated
percentage of the available shares would violate his constraint if
allocated, the available shares are not allocated to Customer B and he
stops raising cash. The example demonstrates how the matching algorithm
honors Customer B's net cash constraint before allocating shares.
Further, in Post Match 2, Customer A raised $2,157,618 more than he
spent and $622,398 more than he raised in Post Match 1. Customer A was
able to match more shares because of Customer B's net cash constraint,
which restricted Customer B's ability to raise or spend more than
$1,000,000. Customer C spent $3,146,770 more than she raised and spent
$610,589 less than she spent in Post Match 1. This reflects Customer
A's ability to increase the number of his executions and Customer B's
ability to limit the number of his executions through his net cash
constraint.
The above example also illustrates the following MatchPoint
principles for net cash constraints: (1) A net cash constraint placed
on a portfolio may affect the execution of other orders in the matching
session by generally allowing additional shares for such other orders
to be executed, and (2) net cash constraints will generally result in
fewer executions of a portfolio and may inhibit the maximum order
execution potential of a particular security in a particular matching
session.
Price Collar Threshold in the After Hours Matching Session
In the after hours matching session, the Exchange will place
parameters on the prices of all MatchPoint eligible securities in order
to dampen volatility and provide accurate pricing for executions. Such
parameters will be referred to as a ``Price Collar Threshold.'' A Price
Collar Threshold is an after hours market price beyond which a
MatchPoint order will not be executed. The Price Collar Threshold will
protect against unusual occurrences when the market has moved
[[Page 65793]]
significantly from the official closing price of the primary market
based on information that becomes available after the market close. In
this situation, the Exchange will cancel the after hours MatchPoint
matching session rather than execute the matching session at a price
that no longer reflects the market accurately. All unexecuted orders
will be immediately cancelled back to the user upon completion of the
matching session.
The Price Collar Threshold will be set at a predetermined
percentage of the MatchPoint after hours Reference Price. Initially,
the Price Collar Threshold will be set at two percent (2%). Therefore,
if the difference between the Price Collar Threshold and the
consolidated last sale price of the security is two percent or more,
the matching session in that particular security will not occur. All
unexecuted orders will be cancelled back to the user upon completion of
the scheduled matching session. For example, if the Reference Price of
XYZ stock is $100, and at 4:45 p.m. the consolidated last sale price
for XYZ stock is either $98 or less or $102 or more, the Price Collar
Threshold will cause the stock to be halted in the after hours matching
session.
In the future, if the Exchange determines that the Price Collar
Threshold should be adjusted in order to protect users and provide more
accurate trades, the Exchange may make such adjustments, up to and
including five percent (5%) of the MatchPoint after hours Reference
Price. The Exchange will inform its users of such an adjustment via the
NYSE MatchPoint Web site at https://www.nyse.com/MatchPoint and the
Member Firm Notice, and notice of such adjustments will be provided to
all users reasonably in advance of any such adjustments.
Locked and Crossed Markets
If the NBBO for a particular security is locked at the time of a
MatchPoint matching session during the regular trading hours of the
Exchange, the matching session shall execute orders at the locked
price. Unexecuted MatchPoint orders in that security shall be cancelled
back to the user immediately upon completion of the matching session.
If the NBBO for a particular security is crossed at the time of a
MatchPoint matching session during the regular trading hours of the
Exchange, the matching session in that particular security shall not
occur. Unexecuted MatchPoint orders in that security shall be cancelled
back to the user immediately upon completion of the matching session.
Trading Ahead of Customer Orders
In the event a MatchPoint Order executes at the midpoint of the
NBBO resulting in a Member or Member Organization's trading ahead of a
held customer order at the same price, the Exchange believes that NYSE
Rule 92 (Limitations on Member's Trading Because of Customers' Orders)
may be implicated. NYSE Rule 92(a) generally restricts a Member or
Member Organization from entering a proprietary order while in
possession of a customer order. NYSE Rule 92(b) through (d) provides
several exceptions to the general restrictions of Rule 92(a). When
trading on the MatchPoint system, all users will be expected to comply
with Rule 92(a) unless such trading falls within an applicable
exception in NYSE Rule 92(b) through (d).
Halting, Suspending and Closing of NYSE MatchPoint Trading on the
Exchange
Trading on MatchPoint will be halted, suspended or closed \13\ when
necessary in order to maintain a fair and orderly market, and in
certain other conditions, as described below. If trading in a
particular security is halted, suspended or closed due to regulatory or
unusual market conditions at the time a matching session commences, the
matching session will not occur in that security and all unexecuted
orders will be immediately cancelled back to the user upon completion
of the matching session.
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\13\ The use of the word ``close'' in the context of this rule
refers to the intentional closing of the market due to regulatory or
other unusual circumstances as described above, and does not refer
to the predetermined ``close'' or end of the regular trading day at
4 p.m.
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MatchPoint trading may be halted, suspended or closed when: (1) In
the exercise of its regulatory capacity, the Exchange determines such
action is necessary or appropriate to maintain a fair and orderly
market, to protect investors, or otherwise is in the public interest
due to extraordinary circumstances or unusual market conditions; (2) in
the case of a particular security whenever, for regulatory purposes,
trading in the related security has been halted, suspended or closed on
the Exchange or the primary listing exchange; (3) in the case of a
particular security trading on the Exchange pursuant to unlisted
trading privileges, whenever, for regulatory purposes, trading in that
security has been halted, suspended or closed on the primary listing
exchange; (4) with respect to a particular security trading on the
Exchange pursuant to unlisted trading privileges, if the authority
under which a security trades on the Exchange or its primary market is
revoked (i.e., because it is delisted); or (5) in the after hours
matching session, news reports and/or corporate actions are disclosed
after the close of the regular hours of the market that have a material
impact on a particular security, which may include the following
situations: (a) New corporate earnings; (b) major market index company
deletions or additions; (c) corporate takeovers; (d) other significant
corporate actions; (e) court decisions and injunctions; and (f)
governmental announcements. No terms or conditions specified in this
rule shall be interpreted to be inconsistent with any other rules of
the Exchange.
Clearance and Settlement of MatchPoint Executions
Details of each MatchPoint trade will be automatically matched and
compared by the Exchange and will be submitted to a registered clearing
agency for clearing and settlement on a locked-in basis.\14\ All
executions effected by a Member or Member Organization will be cleared
and settled using the Member's and Member Organization's account, and
all executions effected by a Sponsored Participant will be cleared and
settled using the relevant Sponsoring Member Organization's account.
---------------------------------------------------------------------------
\14\ MatchPoint executions will be compared through the Regional
Interface Organization Online process (``RIO Online''). RIO Online
is NYSE Arca's internal processing interface that sends order
execution information to the Depository Trust & Clearing Corporation
(DTCC). RIO Online gathers the trades that are executed on any given
day, places the trades into the appropriate message format and sends
them to DTCC. RIO Online provides a record of all trades that were
sent to DTCC. RIO Online is also used to manage any approved trade
corrections.
---------------------------------------------------------------------------
Because MatchPoint is an anonymous trading facility, the proposed
rule will require MatchPoint transaction reports to indicate the
details of the transaction, but not to reveal contra party and clearing
firm identities,\15\ except under the following circumstances: (1) In
the event the National Securities Clearing Corporation (``NSCC'') \16\
ceases to act for a Member or Member Organization, which is the
unidentified contra side of any such trade processing, and/or the
relevant clearing firm, the NYSE shall have the responsibility to
identify to
[[Page 65794]]
Members or Member Organizations the trades included in reports produced
by the NSCC which are with the affected Member or Member Organization,
and (2) for regulatory purposes or to comply with an order of a court
or arbitrator.
---------------------------------------------------------------------------
\15\ Post-trade anonymity described herein has been previously
approved by the Commission for other exchanges. See, e.g.,
Securities Exchange Act Release Nos. 48527 (September 23, 2003), 68
FR 56361 (September 30, 2003) (SR-NASD-2003-85); and 49786 (May 28,
2004), 69 FR 32087 (June 8, 2004) (SR-PCX-2004-40).
\16\ The Exchange will submit completed MatchPoint trades for
clearance and settlement to NSCC, which is a subsidiary of DTCC.
---------------------------------------------------------------------------
The trade reports that the NSCC will receive from MatchPoint for
anonymous trades will contain the identities of the parties to the
trade. This measure will enable the NSCC to conduct its risk management
functions and settle anonymous trades. The trade report sent to the
NSCC will contain an indicator noting that the trade is anonymous. On
the contract sheets the NSCC issues to its participants, the NSCC will
substitute ``ANON'' for the acronym of the contra-party. The purpose of
this masking is to preserve anonymity through settlement.
The Exchange states that it will be able to maintain anonymity with
respect to disputed or erroneous trades because the Exchange resolves
disputes through a centralized process and conducts the process on
behalf of its Members and Member Organizations.
Dissemination of Trading Information
The MatchPoint system will report trade information to the
Securities Information Processors for all MatchPoint eligible
securities. Trades will be reported as one print for each security with
the total volume of the transaction reported with the price. Market
data for NYSE-listed securities will be disseminated via the
consolidated tape pursuant to the Consolidated Tape Association Plan
(``CTA Plan''). Trade reports of securities that are governed by the
UTP Plan will be disseminated pursuant to the UTP Plan. All trades will
indicate the market of execution as the NYSE for CTA and UTP purposes.
Member Organization and Non-Member Access to the NYSE MatchPoint System
Members and Member Organizations of the Exchange are automatically
eligible for access to MatchPoint by their membership on the Exchange.
A non-member who wishes to trade securities on MatchPoint may do so as
a ``Sponsored Participant'' of a Member Organization, i.e.,
``Sponsoring Member Organization,'' and must enter into a written
agreement with the Sponsoring Member Organization and with the
Exchange. As previously explained, all Members, Member Organizations
and Sponsored Participants of Sponsoring Member Organizations must
first obtain connectivity authorization before they can access
MatchPoint.
The proposed rule requires the Sponsoring Member Organization and
the Sponsored Participant to enter into a sponsorship arrangement and
maintain a written ``sponsorship agreement.'' The sponsorship agreement
must be agreed to by both the Sponsoring Member Organization and the
Sponsored Participant and include provisions for Authorized Traders.
Such written agreement must include the Sponsoring Member's consent to
sponsor the Sponsored Participant. The proposed sponsorship agreement
must also include the following provisions:
Sponsorship Provisions
(A) Sponsored Participant and its Sponsoring Member Organization
must have entered into and maintained a written agreement with the
Exchange. The Sponsoring Member Organization must designate the
Sponsored Participant by name in its written agreement as such.
(B) Sponsoring Member Organization acknowledges and agrees that:
(i) All orders entered by the Sponsored Participants and any person
acting on behalf of or in the name of such Sponsored Participant and
any executions occurring as a result of such orders are binding in all
respects on the Sponsoring Member Organization and
(ii) Sponsoring Member Organization is responsible for any and all
actions taken by such Sponsored Participant and any person acting on
behalf of or in the name of such Sponsored Participant.
(C) Sponsoring Member Organization shall comply with the rules of
the Exchange, the rules and procedures with regard to MatchPoint and
Sponsored Participant shall comply with the rules of the Exchange and
the rules and procedures with regard to MatchPoint, as if Sponsored
Participant were a Sponsoring Member Organization.
(D) Sponsored Participant shall maintain, keep current and provide
to the Sponsoring Member Organization a list of Authorized Traders who
may obtain access to the MatchPoint on behalf of the Sponsored
Participant.
(E) Sponsored Participant shall familiarize its Authorized Traders
with all of the Sponsored Participant's obligations under this Rule and
will assure that they receive appropriate training prior to any use or
access to MatchPoint.
(F) Sponsored Participant may not permit anyone other than
Authorized Traders to use or obtain access to MatchPoint.
(G) Sponsored Participant shall take reasonable security
precautions to prevent unauthorized use or access to MatchPoint,
including unauthorized entry of information into MatchPoint, or the
information and data made available therein. Sponsored Participant
understands and agrees that Sponsored Participant is responsible for
any and all orders, trades and other messages and instructions entered,
transmitted or received under identifiers, passwords and security codes
of Authorized Traders, and for the trading and other consequences
thereof.
(H) Sponsored Participant acknowledges its responsibility to
establish adequate procedures and controls that permit it to
effectively monitor its employees, agents and customers' use and access
to MatchPoint for compliance with the terms of this agreement.
(I) Sponsored Participant shall pay when due all amounts, if any,
payable to Sponsoring Member Organization, MatchPoint or any other
third parties that arise from the Sponsored Participants access to and
use of MatchPoint. Such amounts include, but are not limited to
applicable exchange and regulatory fees.
(J) Sponsored Participant shall maintain and keep current all
records and documents relating to its trading activities on MatchPoint,
and shall provide all such records and documents to the Sponsoring
Member Organization upon request.
Notice of Consent to the Exchange
(A) The Sponsoring Member Organization must provide the Exchange
with a notice of consent acknowledging its responsibility for the
orders, executions and actions of its Sponsored Participant at issue
prior to providing the Sponsored Participant with authorized access to
MatchPoint.
Authorized Traders
(A) Sponsoring Member Organization shall maintain a list of
Authorized Traders who may obtain access to MatchPoint on behalf of the
Sponsoring Member Organization or the Sponsoring Member Organization's
Sponsored Participants. The Sponsoring Member Organization shall update
the list of Authorized Traders as necessary. Sponsoring Member
Organizations must provide the list of Authorized Traders to the
Exchange upon request.
(B) A Sponsoring Member Organization must have reasonable
procedures to ensure that all Authorized Traders comply with the
trading rules and procedures related to MatchPoint and all other rules
of the Exchange.
(C) A Sponsoring Member Organization must suspend or withdraw a
person's status as an Authorized Trader if the Exchange has determined
that the person has caused the
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Sponsoring Member Organization to fail to comply with the rules of the
Exchange and the Exchange has directed the Sponsoring Member
Organization to suspend or withdraw the person's status as an
Authorized Trader.
(D) A Sponsoring Member Organization must have reasonable
procedures to ensure that an Authorized Trader maintain the physical
security of the equipment for accessing the facilities of MatchPoint to
prevent the improper use or access to the system, including
unauthorized entry of information into the system.
Limitations on the Use of MatchPoint
(A) Specialists on the Floor of the Exchange are not authorized to
access MatchPoint. The off-Floor operations of specialist firms may
obtain authorized access to MatchPoint provided they have policies and
procedures and barriers in place that preclude improper information
sharing between the specialist firm and the firm's specialist on the
Floor of the Exchange.\17\
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\17\ Currently, all specialist organizations on the Exchange
utilize information barrier procedures pursuant to NYSE Rule 98
(Restrictions on Approved Person Associated with a Specialist's
Member Organization). Information barrier procedures that would be
utilized to block access by a specialist to any MatchPoint trading
information generated by the off-Floor personnel of the specialist
organization would be similar in design and utilization.
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(B) Members who have authorized access to MatchPoint are not
permitted to enter orders into the MatchPoint system from the Floor of
the Exchange when such orders are for their own accounts, the accounts
of associated persons, or accounts over which it or an associated
person exercises investment discretion. Similarly, Members on the Floor
may not have such orders entered into MatchPoint by sending them to an
off-Floor facility for entry. Members with authorized access to
MatchPoint may only enter customer orders into MatchPoint from the
Floor of the Exchange. Members that have authorized access to
MatchPoint may enter proprietary and customer orders into MatchPoint
from off the Floor of the Exchange.
Applicability of Section 11(a) and (b) of the Act
Section 11(a) of the Act prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises investment discretion,
unless an exception applies. The ``Effect versus Execute Rule,'' as
Rule 11a2-2(T) under the Act is known, permits an exchange member,
subject to certain conditions, to effect a transaction for such
accounts, utilizing an unaffiliated member to execute transactions on
the exchange floor. The Rule requires that: (1) The order must be
transmitted from off-floor; (2) once the order has been transmitted,
the member may not participate in the execution; (3) the transmitting
member may not be affiliated with the executing member; and (4) neither
the member or associated person may retain any compensation in
connection with effecting such transaction, respecting accounts over
which either has investment discretion, without the express written
consent of the person authorized to transact business for the account.
The Exchange requests interpretation that MatchPoint orders entered
from off-floor comply with the following provisions of the Rule:
1. Off -Floor Transmissions: Orders are electronically entered into
the MatchPoint system from on and off the Floor of the Exchange;
however, Members are not permitted to enter orders into the MatchPoint
system from the Floor of the Exchange when such orders are for their
own accounts, the accounts of associated persons, or accounts over
which it or an associated person exercises investment discretion. Also,
specialists on the Floor are not permitted to enter any orders into the
MatchPoint system and they do not have access to the MatchPoint system
from the Floor, as described in more detail below. However,
``upstairs'' specialist firms are permitted to be MatchPoint users and
may enter orders from off the Floor provided such firms have adequate
policies, procedures and ``barriers'' in place between the upstairs
firm and the Floor specialists, which will preclude improper sharing of
trading information.
2. Non-Participation in Order Execution: In accordance with Rule
11a2-2(T), once orders are entered into the MatchPoint system, a member
may not participate in, guide or influence the execution of such
orders. MatchPoint orders are sent by electronic means (i.e., FIX
application or an internet-based application) to the MatchPoint trading
platform. Users may enter, correct or cancel MatchPoint orders any time
prior to the commencement of a matching session. However, once the
matching session has commenced, the system will not permit a user to
affect the order or its execution in any way. Thus, when the matching
session commences, the member relinquishes all control of MatchPoint
orders. Users have no special or unique order handling or trading
advantages when trading on MatchPoint.
3. Affiliated Executing Members: Rule 11a2-2(T) provides that the
transmitting member may not be affiliated with the executing member.
The Commission has previously recognized that this requirement may be
satisfied when automated exchange facilities are used.\18\ MatchPoint
is a fully automated, electronic trading facility. As described above,
MatchPoint orders are sent by electronic means to the MatchPoint
trading platform. Matching sessions commence automatically at a
predetermined time. Matching, trading and pricing of orders is
effectuated through an algorithm, which does not permit entry,
correction or cancellation of orders during the matching session. At
the completion of a matching session, transaction reports, including
order cancellation reports for orders that were not executed, are sent
back to the user. Reference Prices are derived from outside sources.
The intra-day Reference price is the midpoint of the NBBO, and the
after hours Reference Price is the official closing price or last sale
price of a particular security.
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\18\ In considering the operation of automated execution systems
by an exchange, the Commission has noted in the past that the
execution of an order is automatic once it has been transmitted into
a system, and therefore satisfies the independent execution
requirement of rule 11a2-2(T). See, e.g., Securities Exchange Act
Release Nos. 49068 (January 13, 2004), 69 FR 2775 (January 20, 2004)
(order approving the Boston Options Exchange as an options trading
facility of the Boston Stock Exchange); 29237 (May 24, 1991), 56 FR
24853 (May 31, 1991) (regarding NYSE's Off-Hours Trading Facility);
and 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (File
No. 10-131).
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The Exchange believes that MatchPoint complies with the
``Affiliated Executing Member'' provision of Rule 11a2-2(T) because the
automatic execution function of MatchPoint ensures that all authorized
MatchPoint users have the same abilities with respect to entering
orders, and no users can effect an order once the matching session has
commenced. The design of the MatchPoint system ensures that members do
not possess any special or unique trading advantages in the handling of
orders. Thus, the Rule's provision respecting the use of affiliated
members to execute orders is not implicated by the MatchPoint system.
4. Non-Retention of Compensation: The Exchange represents that
members that rely on Rule 11a2-2(T) for a managed account transaction
must comply with the limitations on compensation set forth in the rule.
Section 11(b) of the Act and Rule 11b-1 thereunder, which pertains
to
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specialists, are not applicable to the operation of the MatchPoint
system for several reasons. First, as stated above, specialists on the
Floor of the Exchange are not able to access MatchPoint. MatchPoint can
only be accessed through an electronic FIX application and/or an
internet based, password-protected order entry application, which are
not available to individual specialists on the Floor. Although the
upstairs firms that employ specialists are able to access MatchPoint
through these two applications, such firms must be authorized to access
MatchPoint, and the firms must have policies and procedures and
information barriers in place to preclude the improper sharing of
trading information between the specialists on the Floor and in the
upstairs firm. Further, the specialist firms will be subject to
examinations by the Financial Industry Regulatory Authority, Inc.
(``FINRA'') as agent for NYSE Group pursuant to a Regulatory Services
Agreement dated July 30, 2007, to ensure that such policies and
procedures and information barriers are in place and are adequate to
preclude improper sharing of trading information.
Specifically, FINRA examiners will perform an on-site review of the
combined specialist firm's written policies and procedures and
determine if they are adequate in relation to trading on MatchPoint. In
addition, FINRA will interview appropriate individuals both within the
affected departments as well as other areas of the specialist firm to
determine whether firm policies have been appropriately disseminated
and appear to be followed in relation to MatchPoint trading. The
examination will also determine whether there have been any apparent
