Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to NYSE Rule 1500 (NYSE MatchPoint SM, 903-909 [E7-25626]
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Federal Register / Vol. 73, No. 3 / Friday, January 4, 2008 / Notices
compensation based on the REIT’s
earnings.
In a limited number of cases, a single
entity or affiliated entities may
externally manage more than one REIT.
As an incentive for all of the REITs in
such a group to list on the Exchange, the
Exchange proposes to offer a group
discount on Annual Fees when there are
at least three REITs under common
management. The Exchange believes
that this will be attractive to
management companies that externally
manage multiple REITs as it will
increase the REITs’ earnings and
therefore also increase the performancebased management fees received by the
external manager. The Exchange expects
that external managers and their board
representatives will be highly
incentivized to encourage the boards of
their managed REITs to avail themselves
of the discount and that it will therefore
motivate eligible REITs to remain listed
on the Exchange or to transfer their
listing to the Exchange.
The Exchange does not believe that
the limitation of the proposed discount
to groups of three or more REITs under
common management is unfairly
discriminatory. While the Exchange
perceives a competitive benefit to be
obtained by providing the discount, we
are also cognizant of the fact that the
discount will cause us to lose revenue.
We are concerned that the revenue loss
we could sustain over time if we
applied the discount to circumstances
where two REITs shared common
management would far exceed the
benefit in terms of retaining listings or
obtaining new listings, as the number of
eligible REITs could broaden
significantly. The small reduction in
revenue the Exchange expects as a result
of the discount will not hinder the
Exchange’s ability to fulfill its
regulatory responsibilities. The
Exchange also notes that the Annual
Fees applicable to all other REITs and
operating companies are remaining
unchanged, so no company that is not
qualified for the discount is being asked
to pay higher Annual Fees than it is
currently paying.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act 3
in general and Section 6(b)(4) 4 in
particular, in that it is designed to
provide for the equitable allocation of
reasonable dues, fees, and other charges
3 15
4 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
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among its members and other persons
using its facilities.
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
Written comments were neither
solicited nor received.
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 self-regulatory
organization consents, the Commission
will:
A. By order approve such proposed
rule change, or
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.
903
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 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 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–
2007–113 and should be submitted on
or before January 25, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.5
Nancy M. Morris,
Secretary.
[FR Doc. E7–25625 Filed 1–3–08; 8:45 am]
BILLING CODE 8011–01–P
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–NYSE–2007–113 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57058; File No. SR–NYSE–
2007–102]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Approving Proposed Rule Change, as
Modified by Amendment No. 1 Thereto,
Relating to NYSE Rule 1500 (NYSE
MatchPoint SM)
December 28, 2007.
I. Introduction
On November 8, 2007, the New York
Stock Exchange LLC (‘‘NYSE’’) filed
Paper Comments
with the Securities and Exchange
• Send paper comments in triplicate
Commission (‘‘Commission’’), pursuant
to Nancy M. Morris, Secretary,
to Section 19(b)(1) of the Securities
Securities and Exchange Commission,
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
Station Place, 100 F Street, NE.,
19b–4 thereunder,2 a proposed rule
Washington, DC 20549–1090.
change to adopt NYSE Rule 1500 to
All submissions should refer to File
establish NYSE MatchPoint SM
Number SR–NYSE–2007–113. This file
(‘‘MatchPoint’’), an electronic facility
number should be included on the
that matches aggregated orders at
subject line if e-mail is used. To help the predetermined, one-minute sessions
Commission process and review your
comments more efficiently, please use
5 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
only one method. The Commission will
2 17 CFR 240.19b–4.
post all comments on the Commission’s
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Federal Register / Vol. 73, No. 3 / Friday, January 4, 2008 / Notices
throughout regular hours and after
hours of the Exchange. The proposed
rule change was published for comment
in the Federal Register on November 23,
2007.3 On December 27, 2007, NYSE
filed Amendment No. 1 to the proposed
rule change.4 The Commission received
no comment letters on the proposed rule
change. This order approves the
proposed rule change, as modified by
Amendment No. 1 thereto.
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II. Description of the Proposal
NYSE proposes to adopt NYSE Rule
1500 to establish NYSE MatchPoint, an
electronic facility that matches
aggregated orders at seven
predetermined, one-minute matching
sessions during regular trading hours
and one matching session during the
after hours of the Exchange.5
MatchPoint will trade securities listed
on NYSE as well as securities listed on
other exchanges and admitted to
unlisted trading privileges (‘‘UTP’’) on
NYSE.6 MatchPoint is an anonymous
trading platform and no order
3 See Securities Exchange Act Release No. 56798
(November 15, 2007), 72 FR 65787 (‘‘Notice’’).
4 In Amendment No. 1, NYSE proposed technical
and clarifying amendments to the proposed rule
change. In Amendment No. 1, NYSE proposes to:
(1) Clarify that allocation of orders in the
MatchPoint system may, during regular trading
hours of the Exchange, occur some seconds before
or after the end of the one-minute matching session;
(2) clarify which securities may be traded on the
MatchPoint system and that MatchPoint will not
trade securities that are not listed on any securities
exchange; (3) clarify that for purposes of the
MatchPoint system the ‘‘primary market’’ is the
listing market and if a security is dually listed, the
‘‘primary market’’ will be the market in which the
particular security is trading the greatest volume of
shares; (4) clarify that partial round lots (i.e.,
‘‘mixed lots’’) may be entered into MatchPoint as
single orders or as part of a portfolio, but the odd
lot portion of the order will not be executed; (5)
clarify that the NYSE is requesting that the
Commission concur with the NYSE’s interpretation
that MatchPoint orders entered from off the Floor
of the Exchange comply with the provisions of Rule
11a2–2(T) of the Act; (6) represent that participation
in MatchPoint would be voluntary and open to all
eligible NYSE market participants and would not
result in any advantage to market participants that
participate in matching sessions over those that do
not participate; and (7) make conforming technical
and clarifying changes to the proposed rule text.
Because Amendment No. 1 is technical in nature,
the Commission is not publishing it for comment.
5 MatchPoint matching sessions will occur during
the Exchange trading hours at 9:45 a.m., 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. See proposed Rule 1500(a)(1). NYSE
will need to file a proposed rule change with the
Commission if it plans to alter the times of the
MatchPoint matching sessions and/or add or
eliminate matching sessions.
6 See proposed Rule 1500(b)(2)(E). Securities
admitted to unlisted trading privileges could be
listed on NYSE Arca, Inc. (‘‘NYSE Arca’’), the
NASDAQ Stock Market, Inc. (‘‘Nasdaq’’), the
American Stock Exchange (‘‘Amex’’), or other stock
exchanges. MatchPoint will not trade securities that
are not listed on any securities exchange.
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information will be displayed and
clearance and settlement of executions
will be anonymous. Trade reports will
be disseminated after each matching
session.
A. Participation Eligibility
All NYSE members, member
organizations and sponsored
participants of sponsoring member
organizations are automatically eligible
for access to MatchPoint.7 Before access
is granted to MatchPoint users, all users
must go through a connectivity
authorization process.8 Specialists on
the floor of the Exchange are not
authorized to access MatchPoint.9 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.10
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.11 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
7 In Amendment No. 1, NYSE represented that
participation in MatchPoint will be voluntary and
open to all eligible NYSE market participants, and
will not result in any advantage to market
participants that participate in matching sessions
over those market participants that do not
participate.
8 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.
9 See proposed Rule 1500(g)(4)(A).
10 The Exchange stated that, 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). The Exchange has represented that
the 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.
11 See proposed Rule 1500(g)(4)(B).
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into MatchPoint from off the floor of the
Exchange.12
B. MatchPoint Order Parameters
MatchPoint participants (‘‘users’’)
transmit their market and limit orders,
which are undisplayed, by means of an
electronic interface. MatchPoint users
may enter, correct or cancel orders
beginning at 3:30 a.m. until 4:45 p.m.13
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’’).
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.14 A user must designate an
order for only one matching session at
a time. All MatchPoint orders, single
and portfolio, must have the following
parameters: (1) List name;15 (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.16 Additionally, a user
may include an optional constraint (i.e.,
net cash and internal match constraints)
for a MatchPoint order.17 Orders may be
either market or limit orders and must
have a minimum size of one round lot.
MatchPoint will permit odd lot and
partial round lot orders to be entered
into the system; however, odd lot orders
and the odd lot portion of partial round
lot orders will not be executed.18
Orders may not be cancelled or
replaced while a matching session is in
progress or when trading in the
12 Id.
13 See
proposed Rule 1500(d)(1).
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, will 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.
15 A portfolio must have a unique portfolio name
that is distinct from the names of other portfolios
of the same user.
16 See proposed Rule 1500(d)(2)(A).
17 Id.
18 See proposed Rule 1500(d)(2)(C).
14 If
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applicable security is halted in the
MatchPoint system.19 MatchPoint
orders will 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 20 application
and/or an Internet based order entry
system provided the orders are available
for automatic execution. The Exchange
stated that MatchPoint orders will not
trade-through a protected bid or
protected offer as defined in Regulation
NMS.21
C. MatchPoint Order Allocation
MatchPoint matching sessions occur
through an automated matching
mechanism. During the matching
sessions, the MatchPoint Reference
Price (‘‘Reference Price’’) 22 is
determined and eligible orders are
executed at the designated hour at the
randomly selected time during the
predetermined one-minute trading
session.23 The matching and execution
of orders occurs immediately after the
algorithm selects a Reference Price.24 If
19 See
proposed Rule 1500(d)(2).
Protocol is a messaging standard developed
specifically for the real-time electronic exchange of
securities transactions.
21 See 17 CFR 242.600(b)(57).
22 The Reference Price is the single trading price
at which MatchPoint orders will execute during a
predetermined one-minute ‘‘matching session.’’
During the regular hours of the Exchange, the
Reference Price will be the midpoint of the national
best bid and national best offer (‘‘NBBO’’) which is
randomly selected during a predetermined oneminute pricing period. See proposed Rule
1500(b)(2)(I). For the after hours MatchPoint
matching session, the Reference Price will be 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 price of the primary market for
a particular security. See proposed Rule
1500(c)(1)(A) and (c)(2)(A).
23 See proposed Rule 1500(c)(1)(A).
24 During the Exchange’s regular trading hours,
the allocation of orders in the matching sessions
may occur some seconds after the end of the oneminute matching session, depending on when
within the one-minute pricing window the
MatchPoint algorithm randomly selects the
Reference Price. For example, if the algorithm
selects the Reference Price (i.e., the midpoint of the
NBBO) early in the one-minute pricing window, the
algorithm has sufficient time to allocate all of the
orders before the end of the one-minute matching
session. If the algorithm selects the Reference Price
late in the one-minute pricing window, the oneminute matching session may be extended a few
seconds to allow the algorithm to allocate all
MatchPoint orders. In any case, execution takes
place immediately after the Reference Price is
randomly selected, and all orders are executed at
the same Reference Price in a given matching
session.
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20 FIX
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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.
MatchPoint orders will be allocated
on a pro rata basis.25 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.26 In this
process MatchPoint will honor all userdirected constraints. If the allocation to
an eligible order is less than the
minimum acceptable execution quantity
for that order, the order will 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.27
1. Portfolio Trading
A MatchPoint user may submit NYSE
MatchPoint Portfolios into the
MatchPoint system for execution.28 An
NYSE MatchPoint Portfolio is a group of
linked orders with user-directed
parameters and a unique, user-defined
portfolio name.29 The portfolio orders
may represent separate and distinct
broker-dealer-customer orders and
separate and distinct proprietary brokerdealer orders. A user may enter one
portfolio of buy and sell/short orders or
many portfolios of buy and sell/short
orders.
2. Internal Match Constraints
MatchPoint portfolio users may
effectuate internal matches and
simultaneously match residual shares
During the after hours matching session, the
Reference Price is the official closing price or the
last sale price of a particular security. Because this
price is static, there is no need to randomly select
a time during the one-minute pricing window to
determine the Reference Price. Therefore, the
allocation of orders in the after hours matching
session will always be completed within the oneminute matching session.
25 See proposed Rule 1500(d)(3).
26 MatchPoint will execute orders only in round
lots. The MatchPoint system will accept odd lot
orders but not execute them. Similarly, orders
containing partial round lots (i.e., ‘‘mixed lots’’)
may be entered into MatchPoint but the odd lot
portion of the order will not be executed. The
system will permit the entry of odd lot and partial
round lot orders to accommodate portfolio orders.
27 For an example of how MatchPoint allocates
shares on a pro rata basis, see Notice, supra note
3, at 65790.
28 See proposed Rule 1500(d)(2)(D).
29 See proposed Rule 1500(b)(2)(g).
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905
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 any residual orders remain
after an internal match occurs, 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 and entered
by the same user are eligible for
matching with all such orders. For
example, single orders that have an
internal match designation are capable
of matching with all other orders
entered by the same user that have an
internal match designation. 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.30
3. Net Cash Constraints
MatchPoint portfolio users may
utilize an optional ‘‘net cash’’
constraint.31 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.
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
30 For an example of how an internal match is
executed, see Notice, supra note 3, at 65791.
31 See proposed Rule 1500(b)(2)(C) and (d)(2)(D).
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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.32 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. In addition,
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.
4. Price Collar Threshold in the After
Hours Matching Session
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In the after hours matching session,
the Exchange will place parameters
called a ‘‘Price Collar Threshold’’ on the
prices of all MatchPoint eligible
securities in order to dampen volatility
and provide accurate pricing for
executions. A Price Collar Threshold is
an after hours market price beyond
which a MatchPoint order will not be
executed.33 In a situation in which the
market has moved significantly from the
official closing price of the primary
market based on information that
becomes available after the market
close, 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 two percent
(2%) initially, and may later be adjusted
by the Exchange, up to a maximum of
five percent (5%) of the MatchPoint
after hours Reference Price.34
32 For examples of (1) how portfolios, with and
without a net cash constraint, are executed in
MatchPoint and (2) a chart comparing the post
match customer net cash position results (i.e., total
dollars raised and total dollars spent), see Notice,
supra note 3, at 65791–92.
33 See proposed Rule 1500(a)(2)(J) and (c)(2)(B).
34 The Exchange has represented that it will
inform its users of any such adjustment via the
NYSE MatchPoint Web site at https://
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5. 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 will execute orders at
the locked price.35 Unexecuted
MatchPoint orders in that security will
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 will not occur.36 Unexecuted
MatchPoint orders in that security will
be cancelled back to the user
immediately upon completion of the
matching session.
D. Regulatory
1. Halting, Suspending and Closing of
MatchPoint Trading on NYSE
Trading on MatchPoint will be halted,
suspended or closed 37 when necessary
in order to maintain a fair and orderly
market, and in certain other conditions,
as described below.38 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
www.nyse.com/MatchPoint and the Member Firm
Notice, and will provide notice of such adjustments
to all users reasonably in advance of any such
adjustment. For an example of how the Price Collar
Threshold is calculated, see Notice, supra note 3,
at 65793.
35 See proposed Rule 1500(c)(1)(B).
36 See proposed Rule 1500(c)(1)(C).
37 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.
38 See proposed Rule 1500(f).
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security trading on the Exchange
pursuant to UTP, 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
UTP, 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.39 No
terms or conditions specified in the
proposed rule would be interpreted to
be inconsistent with any other rules of
the Exchange.
2. 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.40 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.
MatchPoint transaction reports will
indicate the details of the transaction
but not to reveal contra party and
clearing firm identities, except under
the following circumstances: (1) In the
event the NSCC 41 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 would
have the responsibility to identify to
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.42
39 Id.
40 See
proposed Rule 1500(e)(1).
MatchPoint trades will be
submitted for clearance and settlement to National
Securities Clearing Corporation (‘‘NSCC’’), which is
a subsidiary of the Depository Trust and Clearing
Corporation.
42 See proposed Rule 1500(e)(2) and (e)(3).
41 Completed
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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.
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3. 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’’).43 Trade reports of
securities that are governed by the Joint
Self-Regulatory Organization Plan
Governing the Collection, Consolidation
and Dissemination of Quotation and
Transaction Information for NasdaqListed Securities Traded on an Unlisted
Trading Privilege Basis (‘‘UTP Plan’’)
will be disseminated pursuant to the
UTP Plan.44 All trades will indicate the
market of execution as the NYSE for
CTA and UTP purposes.
4. Member Organization and NonMember Access to MatchPoint
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.45 All members, member
organizations, and Sponsored
Participants of Sponsoring Member
Organizations must first obtain
connectivity authorization before they
can access MatchPoint.46
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
43 See
proposed Rule 1500(c)(1).
44 Id.
45 See
46 See
proposed Rule 1500(g)(1).
proposed Rule 1500(g)(2).
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must be agreed to by both the
Sponsoring Member Organization and
the Sponsored Participant and include
provisions for ‘‘Authorized Traders.’’ 47
Such written agreement must include
the Sponsoring Member’s consent to
sponsor the Sponsored Participant.48
III. Discussion and Commission
Findings
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange 49 and, in particular, the
requirements of section 6 of the Act.50
Specifically, the Commission finds that
the proposed rule change is consistent
with section 6(b)(5) of the Act,51 which
requires, among other things, that the
rules of a national securities exchange
be designed to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, and processing information
with respect to, and facilitating
transactions in securities, 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, and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
MatchPoint, via both single order and
portfolio trading, would provide market
participants and investors with an
additional mechanism for order
execution. The Commission, in relying
on NYSE’s representation that
participation in the matching session
would be voluntary and open to all
eligible NYSE market participants and
would not result in any advantage to
market participants that participate in
matching sessions over those market
participants that do not choose to
participate, believes that MatchPoint is
not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
NYSE has proposed to execute
matching session orders at a
predetermined Reference Price at a
randomly selected point in time during
47 See
proposed Rule 1500(g)(3)(D).
provisions that must be included in the
proposed sponsorship agreement are outlined in the
Notice, supra note 3. See proposed Rule
1500(g)(3)(B).
49 In approving this proposed rule change the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
50 15 U.S.C. 78f.
51 15 U.S.C. 78f(b)(5).
48 The
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907
a one-minute trading window. The
Commission notes that using the
automated and random matching
mechanism to execute a matching
session cross should minimize the
opportunity for manipulation. In
addition, the Commission notes that,
should NYSE desire to institute
additional matching sessions or to
modify the time of matching sessions in
the future, it must submit a rule change
to the Commission pursuant to 19(b) of
the Act.52
A. Trading Ahead
Because matching session orders that
are executed during the regular hours
session would be executed at the
midpoint of the NBBO, it is possible
that a NYSE member would trade ahead
of a held customer order by less than
$0.01 (i.e., $ 0.005). In the event a
MatchPoint order executes at the
midpoint of the NBBO and results in a
member or member organization’s
trading ahead of a held customer order
at the same price, NYSE Rule 92
(Limitations on Member’s Trading
Because of Customers’ Orders) may be
implicated. Rule 92(a) generally restricts
a member or member organization from
entering a proprietary order while in
possession of a customer order. Rule
92(b) through (d) provides several
exceptions to the general restrictions of
Rule 92(a). The Commission notes that
the Exchange has stated that all users
must comply with Rule 92(a) when
trading on the MatchPoint system
unless such trading falls within an
applicable exception in NYSE Rule
92(b) through (d).
B. Section 11(a) 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 discretion (‘‘Covered
Accounts’’) unless an exception
applies.53 Rule 11a2–2(T), known as the
‘‘effect versus execute’’ rule, provides
exchange members with an exemption
from the section 11(a) prohibition. To
comply with Rule 11a2–2(T)’s
conditions, a member: (1) Must transmit
the order from off the exchange floor; (2)
may not participate in the execution of
the transaction once it has been
transmitted to the member performing
the execution; (3) may not be affiliated
with the executing member; and (4)
with respect to an account over which
the member has investment discretion,
52 15
53 15
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U.S.C. 78s(b).
U.S.C. 78k(a).
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neither the member nor its associated
person may retain any compensation in
connection with effecting the
transaction without express written
consent from the person authorized to
transact business for the account in
accordance with the Rule. NYSE
requests that the Commission concur
with its interpretation that MatchPoint
orders entered from off the floor of the
Exchange comply with these provisions
of Rule 11a2–2(T).
jlentini on PROD1PC65 with NOTICES
1. Off-Floor Transmission
The requirement in Rule 11a2–2(T)
for orders to be transmitted from off the
exchange floor reflects Congress’s intent
that section 11(a) should operate to put
member money managers and nonmember money managers on the same
footing for purposes of their transactions
for covered accounts. In considering
other automated systems, the
Commission and the staff have stated
that the off-floor transmission
requirement would be met if a covered
account order is transmitted from off the
floor directly to the exchange floor by
electronic means.54 Because all orders
for Covered Accounts sent to
MatchPoint will be electronically
submitted directly to the system from
locations other than on the Exchange
floor,55 the Commission believes that
54 See Securities Exchange Act Release Nos.
54552 (September 29, 2006), 71 FR 59546 (October
10, 2006) (order approving proposed rule change of
the American Stock Exchange LLC to establish new
hybrid market); 29237 (May 31, 1991) (regarding
NYSE’s Off-Hours Trading Facility); and 15533
(January 29, 1979), 44 FR 6084 (January 31, 1979)
(regarding the Amex Post Execution Reporting
System, the Amex Switching System, the
Intermarket Trading System, the Multiple Dealer
Trading Facility of the Cincinnati Stock Exchange,
the PCX’s Communications and Execution System,
and the Phlx’s Automated Communications and
Execution System) (‘‘1979 Release’’). See also Letter
from Paula R. Jensen, Deputy Chief Counsel,
Division of Market Regulation, Commission, to
Angelo Evangelou, Senior Attorney, Chicago Board
Options Exchange (‘‘CBOE’’), dated March 31, 2003
(regarding CBOE’s CBOEdirect system)
(‘‘CBOEdirect Letter’’); Letter from Paula R. Jenson,
Deputy Chief Counsel, Division, Commission, to
Jeffrey P. Burns, Assistant General Counsel,
American Stock Exchange LLC (‘‘Amex’’), dated
July 9, 2002 (regarding Amex’s auto-ex system for
options); Letter from Paula R. Jenson, Deputy Chief
Counsel, Division, Commission, to Richard S.
Rudolph, Counsel, Philadelphia Stock Exchange,
Inc. (‘‘Phlx’’), dated April 15, 2002 (regarding Phlx’s
AUTOM System and its automatic execution feature
AUTO–X); Letter from Paula R. Jenson, Deputy
Chief Counsel, Division, Commission, to Kathryn L.
Beck, Senior Vice President, Special Counsel and
Antitrust Compliance Officer, Pacific Exchange, Inc.
(‘‘PCX’’), dated October 25, 2001 (regarding
Archipelago Exchange (‘‘ArcaEx’’)) (‘‘ArcaEx
Letter’’); and Letter from Brandon Becker, Director,
Division, Commission, to George T. Simon, Foley &
Lardner, dated November 30, 1994 (regarding
Chicago Match) (‘‘Chicago Match Letter’’).
55 The Commission notes that NYSE Rule
1500(g)(4)(B) will prohibit members from entering
orders into the MatchPoint system from the floor of
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orders transmitted for execution on
MatchPoint satisfy the off-floor
transmission requirement.
2. Non-Participation in Order Execution
Rule 11a2–2(T) further provides that
the exchange member and its associated
persons may not participate in the
execution of the transaction once the
order has been transmitted to the
exchange floor.56 This requirement was
included to prevent members with their
own brokers on the exchange floor from
using those persons to influence or
guide their orders’ execution. This
requirement does not preclude members
from canceling or modifying orders, or
from modifying the instructions for
executing orders, after they have been
transmitted to the floor. Such
cancellations or modifications, however,
also must be transmitted from off the
exchange floor.57
The Commission has stated that the
non-participation requirement is
satisfied by automated systems when
the member’s use of such a system
entails relinquishing the ability to
influence or guide the execution of a
covered account order once transmitted
into the system.58 In MatchPoint,
matching sessions commence
automatically at a predetermined time.
Matching, trading and pricing of orders
is effectuated through a fixed algorithm,
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. Further, the rule
also prohibits members from having such orders
entered into MatchPoint by sending them to an offfloor facility for entry. Members with authorized
access to MatchPoint may only enter customer
orders into the MatchPoint system from the floor of
the Exchange.
56 See Securities Exchange Act Release No. 44983
(October 25, 2001), 66 FR 55225 (November 1, 2001)
(Order approving ArcaEx as the equities trading
facility of PCX Equities Inc.); 1979 Release, supra
note 54. See also CBOEdirect Letter, supra note 54;
Letter from Larry E. Bergmann, Senior Associate
Director, Division, Commission, to Edith Hallahan,
Associate General Counsel, Phlx, dated March 24,
1999 (regarding Phlx’s VWAP Trading System);
Letter from Catherine McGuire, Chief Counsel,
Division, to David E. Rosedahl, PCX dated
November 30, 1998 (regarding OptiMark); Chicago
Match Letter, supra note 54.
57 See Securities Exchange Act Release No. 14563
(March 14, 1978), 43 FR 11542 (March 17, 1978);
see also Securities Exchange Act Release No. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006)
(order approving Nasdaq Stock Market LLC’s
registration as a national securities exchange)
(‘‘Nasdaq Exchange Order’’).
58 See 1979 Release, supra note 54; see also, e.g.,
Securities Exchange Act Release Nos. 54422
(September 11, 2006), 71 FR 54537 (September 15,
2006) (order approving proposed rule change of
CBOE to establish a screen based trading system for
non-option securities) (‘‘CBOE STOC Order’’);
51666 (May 9, 2005), 70 FR 25631, 25633 (May 13,
2005) (order approving proposed rule change by
International Securities Exchange, Inc. to establish
facilitation, block order and solicited order
mechanism).
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which does not permit entry, correction
or cancellation of orders during the
matching session. Once a member
submits an order to the MatchPoint
system, the order will be executed
pursuant to the MatchPoint algorithm
and in accordance with Exchange rules.
Although a member will still have the
ability to modify or cancel an order
entered into the MatchPoint system
(prior to the commencement of the
matching session), they will not
otherwise have control over their order.
Because MatchPoint users will
relinquish control of their orders upon
transmission to the MatchPoint system,
and will not be able to influence or
guide the execution of their orders, the
Commission believes that the nonparticipation requirement is met with
respect to orders that are executed
automatically in MatchPoint.
3. Execution Through Unaffiliated
Member
Although Rule 11a2–2(T)
contemplates having an order executed
by an exchange member who is
unaffiliated with the member initiating
the order, the Commission has
recognized that the requirement is not
applicable when automated exchange
facilities are used, if the execution of the
order is automatic once it has been
transmitted into the system, and if the
design of the system ensures that
members do not possess any special or
unique trading advantages in handling
their orders after transmitting them to
the system.59 In such instances, the
Commission has stated that executions
obtained through these systems satisfy
the independent execution requirement
of Rule 11a2–2(T).60 The Commission
notes that NYSE has represented that
the MatchPoint system is designed to
ensure that members using MatchPoint
59 In considering the operation of automated
execution systems operated by an exchange, the
Commission has noted that while there is no
independent executing exchange member, the
execution of an order is automatic once it has been
transmitted into the system. Because the design of
these systems ensures that members do not possess
any special or unique trading advantages in
handling their orders after transmitting them to the
exchange, the Commission has stated that
executions obtained through these systems satisfy
the independent execution requirement of Rule
11a2–2(T). See 1979 Release, supra note 54; see
also, e.g., Securities Exchange Act Release No.
54365 (August 25, 2006), 71 FR 52192 (September
1, 2006) (order approving initial phase of the Boston
Stock Exchange, Inc.’s proposed rule change to
establish Boston Equities Exchange Trading System)
(‘‘BeX Phase I Order’’); CBOE STOC Order, supra
note 58.
60 See 1979 Release, supra note 54; see also, e.g.,
Securities Exchange Act Release No. 54238 (July 28,
2005), 71 FR 44758 (August 7, 2006) (order
approving proposed rule change of NYSE Arca, Inc.
to establish the OX trading platform); Nasdaq
Exchange Order, supra note 57.
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will not possess any special or unique
trading advantages in the handling of
their orders after transmitting them to
the MatchPoint system.
4. Non-Retention of Compensation for
Discretionary Accounts
The Commission notes that
MatchPoint users who intend to rely on
Rule 11a2–2(T) in connection with
transactions using the MatchPoint
system must comply with the
requirements of Section (a)(2)(iv) of the
Rule.
In reliance on NYSE’s representations
and for the reasons set forth above, the
Commission believes that members
entering orders into the MatchPoint
system would satisfy the requirements
of Rule 11a2–2(T) under the Act.
C. Surveillance
The Commission notes that NYSE
Regulation has represented that it has
appropriate policies and procedures in
place to adequately and effectively
regulate the MatchPoint system, and
that a surveillance plan will be
implemented prior to any trading to
monitor the operation of MatchPoint.
Also, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), as agent for
NYSE Group, will perform examinations
of specialist firms that trade on
MatchPoint.61
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,62 that the
proposed rule change (File No. SR–
NYSE–2007–102), as modified by
Amendment No. 1 thereto, be, and it
hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.63
Nancy M. Morris,
Secretary.
[FR Doc. E7–25626 Filed 1–3–08; 8:45 am]
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BILLING CODE 8011–01–P
61 As stated in the Notice, supra note 3, 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.
62 15 U.S.C. 78s(b)(2).
63 17 CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57059; File No. SR–
NYSEArca–2006–76]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and Order
Granting Accelerated Approval of
Proposed Rule Change as Modified by
Amendment Nos. 1, 2 and 3 Thereto,
Relating to Trading Shares of the
Nuveen Commodities Income and
Growth Fund Pursuant to Unlisted
Trading Privileges
December 28, 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 October
27, 2006, NYSE Arca, Inc. (the
‘‘Exchange’’), through its wholly owned
subsidiary, NYSE Arca Equities, Inc.
(‘‘NYSE Arca Equities’’), 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.
On March 8, 2007, May 4, 2007, and
June 12, 2007, NYSE Arca submitted
Amendment Nos. 1, 2 and 3,
respectively, to the proposed rule
change. This order provides notice of
the proposed rule change as modified by
Amendment Nos. 1, 2, and 3, and
approves the proposal, as amended, on
an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to add new
NYSE Arca Equities Rule 8.500 to
permit the listing and trading of units of
a trust or other similar entity (‘‘Trust
Units’’) that invests in the assets of a
trust, partnership, limited liability
company, corporation or other similar
entity constituted as a commodity pool
that holds investments comprising or
otherwise based on futures contracts,
options on futures contracts, forward
contracts, commodities and high credit
quality short-term fixed income
securities or other securities. Pursuant
to proposed new NYSE Arca Equities
Rule 8.500, the Exchange seeks to trade
Trust Units 3 of the Nuveen
Commodities Income and Growth Fund
(‘‘Trust’’ or ‘‘Fund’’) pursuant to
unlisted trading privileges (‘‘UTP’’). The
text of the proposed rule change is
available at the Exchange’s principal
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Trust Units of the Fund are referred to
herein as the ‘‘Shares.’’
2 17
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909
office, the Commission’s Public
Reference Room, and https://
www.nyse.com.
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 III below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to add new
NYSE Arca Equities Rule 8.500 in order
to permit trading, either by listing or
pursuant to UTP, of Trust Units. When
the Exchange is the listing market for
the Trust Units, the Trust Units will be
subject to the continued listing and
trading criteria under proposed new
NYSE Arca Equities Rule 8.500(d). In
such an event, the Exchange would file
a Form 19b–4 to list such Trust Units.
Pursuant to proposed NYSE Arca
Equities Rule 8.500, the Exchange
proposes to trade pursuant to UTP the
Shares, which represent beneficial
ownership interests in the assets of the
Fund, consisting solely of units
(‘‘Master Fund Units’’) of the Nuveen
Commodities Income and Growth
Master Fund, LLC (the ‘‘Master Fund’’).4
The Commission has approved the
listing and trading of such Shares on the
American Stock Exchange, LLC
(‘‘Amex’’).5
The Fund’s primary investment
objective is to seek total return through
broad exposure to the commodities
markets. The Fund’s secondary
objective is to provide investors with
monthly income and capital
4 The Fund and the Master Fund are commodity
pools. The Master Fund is managed by Nuveen
Commodities Asset Management, LLC (the
‘‘Manager’’). The Manager is registered as a
commodity pool operator (the ‘‘CPO’’) and a
commodity trading advisor (the ‘‘CTA’’) with the
Commodity Futures Trading Commission (‘‘CFTC’’)
and is a member of the National Futures
Association (‘‘NFA’’).
5 See Securities Exchange Release No. 56880
(December 3, 2007), 72 FR 69259 (December 7,
2007) (‘‘Amex Approval Order’’). See also
Securities Exchange Release No. 56465 (September
19, 2007), 72 FR 54489 (‘‘Notice’’).
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]]>Agencies
[Federal Register Volume 73, Number 3 (Friday, January 4, 2008)]
[Notices]
[Pages 903-909]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-25626]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57058; File No. SR-NYSE-2007-102]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto,
Relating to NYSE Rule 1500 (NYSE MatchPoint \SM\)
December 28, 2007.
I. Introduction
On November 8, 2007, the New York Stock Exchange LLC (``NYSE'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
adopt NYSE Rule 1500 to establish NYSE MatchPoint \SM\
(``MatchPoint''), an electronic facility that matches aggregated orders
at predetermined, one-minute sessions
[[Page 904]]
throughout regular hours and after hours of the Exchange. The proposed
rule change was published for comment in the Federal Register on
November 23, 2007.\3\ On December 27, 2007, NYSE filed Amendment No. 1
to the proposed rule change.\4\ The Commission received no comment
letters on the proposed rule change. This order approves the proposed
rule change, as modified by Amendment No. 1 thereto.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 56798 (November 15,
2007), 72 FR 65787 (``Notice'').
\4\ In Amendment No. 1, NYSE proposed technical and clarifying
amendments to the proposed rule change. In Amendment No. 1, NYSE
proposes to: (1) Clarify that allocation of orders in the MatchPoint
system may, during regular trading hours of the Exchange, occur some
seconds before or after the end of the one-minute matching session;
(2) clarify which securities may be traded on the MatchPoint system
and that MatchPoint will not trade securities that are not listed on
any securities exchange; (3) clarify that for purposes of the
MatchPoint system the ``primary market'' is the listing market and
if a security is dually listed, the ``primary market'' will be the
market in which the particular security is trading the greatest
volume of shares; (4) clarify that partial round lots (i.e., ``mixed
lots'') may be entered into MatchPoint as single orders or as part
of a portfolio, but the odd lot portion of the order will not be
executed; (5) clarify that the NYSE is requesting that the
Commission concur with the NYSE's interpretation that MatchPoint
orders entered from off the Floor of the Exchange comply with the
provisions of Rule 11a2-2(T) of the Act; (6) represent that
participation in MatchPoint would be voluntary and open to all
eligible NYSE market participants and would not result in any
advantage to market participants that participate in matching
sessions over those that do not participate; and (7) make conforming
technical and clarifying changes to the proposed rule text. Because
Amendment No. 1 is technical in nature, the Commission is not
publishing it for comment.
---------------------------------------------------------------------------
II. Description of the Proposal
NYSE proposes to adopt NYSE Rule 1500 to establish NYSE MatchPoint,
an electronic facility that matches aggregated orders at seven
predetermined, one-minute matching sessions during regular trading
hours and one matching session during the after hours of the
Exchange.\5\ MatchPoint will trade securities listed on NYSE as well as
securities listed on other exchanges and admitted to unlisted trading
privileges (``UTP'') on NYSE.\6\ MatchPoint is an anonymous trading
platform and no order information will be displayed and clearance and
settlement of executions will be anonymous. Trade reports will be
disseminated after each matching session.
---------------------------------------------------------------------------
\5\ MatchPoint matching sessions will occur during the Exchange
trading hours at 9:45 a.m., 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. See proposed Rule 1500(a)(1). NYSE will need to file a
proposed rule change with the Commission if it plans to alter the
times of the MatchPoint matching sessions and/or add or eliminate
matching sessions.
\6\ See proposed Rule 1500(b)(2)(E). Securities admitted to
unlisted trading privileges could be listed on NYSE Arca, Inc.
(``NYSE Arca''), the NASDAQ Stock Market, Inc. (``Nasdaq''), the
American Stock Exchange (``Amex''), or other stock exchanges.
MatchPoint will not trade securities that are not listed on any
securities exchange.
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A. Participation Eligibility
All NYSE members, member organizations and sponsored participants
of sponsoring member organizations are automatically eligible for
access to MatchPoint.\7\ Before access is granted to MatchPoint users,
all users must go through a connectivity authorization process.\8\
Specialists on the floor of the Exchange are not authorized to access
MatchPoint.\9\ 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.\10\
---------------------------------------------------------------------------
\7\ In Amendment No. 1, NYSE represented that participation in
MatchPoint will be voluntary and open to all eligible NYSE market
participants, and will not result in any advantage to market
participants that participate in matching sessions over those market
participants that do not participate.
\8\ 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. 8
\9\ See proposed Rule 1500(g)(4)(A).
\10\ The Exchange stated that, 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). The Exchange has
represented that the 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.
---------------------------------------------------------------------------
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.\11\ 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.\12\
---------------------------------------------------------------------------
\11\ See proposed Rule 1500(g)(4)(B).
\12\ Id.
---------------------------------------------------------------------------
B. MatchPoint Order Parameters
MatchPoint participants (``users'') transmit their market and limit
orders, which are undisplayed, by means of an electronic interface.
MatchPoint users may enter, correct or cancel orders beginning at 3:30
a.m. until 4:45 p.m.\13\ 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'').
---------------------------------------------------------------------------
\13\ See proposed Rule 1500(d)(1).
---------------------------------------------------------------------------
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.\14\ A user must designate an order for only one
matching session at a time. All MatchPoint orders, single and
portfolio, must have the following parameters: (1) List name;\15\ (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.\16\ Additionally, a
user may include an optional constraint (i.e., net cash and internal
match constraints) for a MatchPoint order.\17\ Orders may be either
market or limit orders and must have a minimum size of one round lot.
MatchPoint will permit odd lot and partial round lot orders to be
entered into the system; however, odd lot orders and the odd lot
portion of partial round lot orders will not be executed.\18\
---------------------------------------------------------------------------
\14\ 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, will 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.
\15\ A portfolio must have a unique portfolio name that is
distinct from the names of other portfolios of the same user.
\16\ See proposed Rule 1500(d)(2)(A).
\17\ Id.
\18\ See proposed Rule 1500(d)(2)(C).
---------------------------------------------------------------------------
Orders may not be cancelled or replaced while a matching session is
in progress or when trading in the
[[Page 905]]
applicable security is halted in the MatchPoint system.\19\ MatchPoint
orders will 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 \20\ application and/or an Internet based
order entry system provided the orders are available for automatic
execution. The Exchange stated that MatchPoint orders will not trade-
through a protected bid or protected offer as defined in Regulation
NMS.\21\
---------------------------------------------------------------------------
\19\ See proposed Rule 1500(d)(2).
\20\ FIX Protocol is a messaging standard developed specifically
for the real-time electronic exchange of securities transactions.
\21\ See 17 CFR 242.600(b)(57).
---------------------------------------------------------------------------
C. MatchPoint Order Allocation
MatchPoint matching sessions occur through an automated matching
mechanism. During the matching sessions, the MatchPoint Reference Price
(``Reference Price'') \22\ is determined and eligible orders are
executed at the designated hour at the randomly selected time during
the predetermined one-minute trading session.\23\ The matching and
execution of orders occurs immediately after the algorithm selects a
Reference Price.\24\ 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.
---------------------------------------------------------------------------
\22\ The Reference Price is the single trading price at which
MatchPoint orders will execute during a predetermined one-minute
``matching session.'' During the regular hours of the Exchange, the
Reference Price will be the midpoint of the national best bid and
national best offer (``NBBO'') which is randomly selected during a
predetermined one-minute pricing period. See proposed Rule
1500(b)(2)(I). For the after hours MatchPoint matching session, the
Reference Price will be 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 price of the primary market
for a particular security. See proposed Rule 1500(c)(1)(A) and
(c)(2)(A).
\23\ See proposed Rule 1500(c)(1)(A).
\24\ During the Exchange's regular trading hours, the allocation
of orders in the matching sessions may occur some seconds after the
end of the one-minute matching session, depending on when within the
one-minute pricing window the MatchPoint algorithm randomly selects
the Reference Price. For example, if the algorithm selects the
Reference Price (i.e., the midpoint of the NBBO) early in the one-
minute pricing window, the algorithm has sufficient time to allocate
all of the orders before the end of the one-minute matching session.
If the algorithm selects the Reference Price late in the one-minute
pricing window, the one-minute matching session may be extended a
few seconds to allow the algorithm to allocate all MatchPoint
orders. In any case, execution takes place immediately after the
Reference Price is randomly selected, and all orders are executed at
the same Reference Price in a given matching session.
During the after hours matching session, the Reference Price is
the official closing price or the last sale price of a particular
security. Because this price is static, there is no need to randomly
select a time during the one-minute pricing window to determine the
Reference Price. Therefore, the allocation of orders in the after
hours matching session will always be completed within the one-
minute matching session.
---------------------------------------------------------------------------
MatchPoint orders will be allocated on a pro rata basis.\25\ 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.\26\ 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 will
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.\27\
---------------------------------------------------------------------------
\25\ See proposed Rule 1500(d)(3).
\26\ MatchPoint will execute orders only in round lots. The
MatchPoint system will accept odd lot orders but not execute them.
Similarly, orders containing partial round lots (i.e., ``mixed
lots'') may be entered into MatchPoint but the odd lot portion of
the order will not be executed. The system will permit the entry of
odd lot and partial round lot orders to accommodate portfolio
orders.
\27\ For an example of how MatchPoint allocates shares on a pro
rata basis, see Notice, supra note 3, at 65790.
---------------------------------------------------------------------------
1. Portfolio Trading
A MatchPoint user may submit NYSE MatchPoint Portfolios into the
MatchPoint system for execution.\28\ An NYSE MatchPoint Portfolio is a
group of linked orders with user-directed parameters and a unique,
user-defined portfolio name.\29\ 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.
---------------------------------------------------------------------------
\28\ See proposed Rule 1500(d)(2)(D).
\29\ See proposed Rule 1500(b)(2)(g).
---------------------------------------------------------------------------
2. 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 any residual
orders remain after an internal match occurs, 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
and entered by the same user are eligible for matching with all such
orders. For example, single orders that have an internal match
designation are capable of matching with all other orders entered by
the same user that have an internal match designation. 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.\30\
---------------------------------------------------------------------------
\30\ For an example of how an internal match is executed, see
Notice, supra note 3, at 65791.
---------------------------------------------------------------------------
3. Net Cash Constraints
MatchPoint portfolio users may utilize an optional ``net cash''
constraint.\31\ 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.
---------------------------------------------------------------------------
\31\ See proposed Rule 1500(b)(2)(C) and (d)(2)(D).
---------------------------------------------------------------------------
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
[[Page 906]]
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.\32\ 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. In addition, 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.
---------------------------------------------------------------------------
\32\ For examples of (1) how portfolios, with and without a net
cash constraint, are executed in MatchPoint and (2) a chart
comparing the post match customer net cash position results (i.e.,
total dollars raised and total dollars spent), see Notice, supra
note 3, at 65791-92.
---------------------------------------------------------------------------
4. Price Collar Threshold in the After Hours Matching Session
In the after hours matching session, the Exchange will place
parameters called a ``Price Collar Threshold'' on the prices of all
MatchPoint eligible securities in order to dampen volatility and
provide accurate pricing for executions. A Price Collar Threshold is an
after hours market price beyond which a MatchPoint order will not be
executed.\33\ In a situation in which the market has moved
significantly from the official closing price of the primary market
based on information that becomes available after the market close, 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 two percent (2%) initially, and
may later be adjusted by the Exchange, up to a maximum of five percent
(5%) of the MatchPoint after hours Reference Price.\34\
---------------------------------------------------------------------------
\33\ See proposed Rule 1500(a)(2)(J) and (c)(2)(B).
\34\ The Exchange has represented that it will inform its users
of any such adjustment via the NYSE MatchPoint Web site at https://
www.nyse.com/MatchPoint and the Member Firm Notice, and will provide
notice of such adjustments to all users reasonably in advance of any
such adjustment. For an example of how the Price Collar Threshold is
calculated, see Notice, supra note 3, at 65793.
---------------------------------------------------------------------------
5. 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 will execute orders at the locked
price.\35\ Unexecuted MatchPoint orders in that security will be
cancelled back to the user immediately upon completion of the matching
session.
---------------------------------------------------------------------------
\35\ See proposed Rule 1500(c)(1)(B).
---------------------------------------------------------------------------
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 will not
occur.\36\ Unexecuted MatchPoint orders in that security will be
cancelled back to the user immediately upon completion of the matching
session.
---------------------------------------------------------------------------
\36\ See proposed Rule 1500(c)(1)(C).
---------------------------------------------------------------------------
D. Regulatory
1. Halting, Suspending and Closing of MatchPoint Trading on NYSE
Trading on MatchPoint will be halted, suspended or closed \37\ when
necessary in order to maintain a fair and orderly market, and in
certain other conditions, as described below.\38\ 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.
---------------------------------------------------------------------------
\37\ 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.
\38\ See proposed Rule 1500(f).
---------------------------------------------------------------------------
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 UTP, 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 UTP, 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.\39\ No terms or
conditions specified in the proposed rule would be interpreted to be
inconsistent with any other rules of the Exchange.
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
2. 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.\40\ 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.
---------------------------------------------------------------------------
\40\ See proposed Rule 1500(e)(1).
---------------------------------------------------------------------------
MatchPoint transaction reports will indicate the details of the
transaction but not to reveal contra party and clearing firm
identities, except under the following circumstances: (1) In the event
the NSCC \41\ 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 would have the responsibility to
identify to 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.\42\
---------------------------------------------------------------------------
\41\ Completed MatchPoint trades will be submitted for clearance
and settlement to National Securities Clearing Corporation
(``NSCC''), which is a subsidiary of the Depository Trust and
Clearing Corporation.
\42\ See proposed Rule 1500(e)(2) and (e)(3).
---------------------------------------------------------------------------
[[Page 907]]
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.
3. 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'').\43\ Trade reports of securities that are governed by
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'') will be disseminated pursuant to the UTP
Plan.\44\ All trades will indicate the market of execution as the NYSE
for CTA and UTP purposes.
---------------------------------------------------------------------------
\43\ See proposed Rule 1500(c)(1).
\44\ Id.
---------------------------------------------------------------------------
4. Member Organization and Non-Member Access to MatchPoint
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.\45\ All members, member organizations, and Sponsored
Participants of Sponsoring Member Organizations must first obtain
connectivity authorization before they can access MatchPoint.\46\
---------------------------------------------------------------------------
\45\ See proposed Rule 1500(g)(1).
\46\ See proposed Rule 1500(g)(2).
---------------------------------------------------------------------------
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.'' \47\ Such written agreement must include the Sponsoring
Member's consent to sponsor the Sponsored Participant.\48\
---------------------------------------------------------------------------
\47\ See proposed Rule 1500(g)(3)(D).
\48\ The provisions that must be included in the proposed
sponsorship agreement are outlined in the Notice, supra note 3. See
proposed Rule 1500(g)(3)(B).
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange \49\ and, in particular, the requirements of
section 6 of the Act.\50\ Specifically, the Commission finds that the
proposed rule change is consistent with section 6(b)(5) of the Act,\51\
which requires, among other things, that the rules of a national
securities exchange be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, and processing
information with respect to, and facilitating transactions in
securities, 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, and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. MatchPoint, via both single order and portfolio trading, would
provide market participants and investors with an additional mechanism
for order execution. The Commission, in relying on NYSE's
representation that participation in the matching session would be
voluntary and open to all eligible NYSE market participants and would
not result in any advantage to market participants that participate in
matching sessions over those market participants that do not choose to
participate, believes that MatchPoint is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\49\ In approving this proposed rule change the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\50\ 15 U.S.C. 78f.
\51\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
NYSE has proposed to execute matching session orders at a
predetermined Reference Price at a randomly selected point in time
during a one-minute trading window. The Commission notes that using the
automated and random matching mechanism to execute a matching session
cross should minimize the opportunity for manipulation. In addition,
the Commission notes that, should NYSE desire to institute additional
matching sessions or to modify the time of matching sessions in the
future, it must submit a rule change to the Commission pursuant to
19(b) of the Act.\52\
---------------------------------------------------------------------------
\52\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------
A. Trading Ahead
Because matching session orders that are executed during the
regular hours session would be executed at the midpoint of the NBBO, it
is possible that a NYSE member would trade ahead of a held customer
order by less than $0.01 (i.e., $ 0.005). In the event a MatchPoint
order executes at the midpoint of the NBBO and results in a member or
member organization's trading ahead of a held customer order at the
same price, NYSE Rule 92 (Limitations on Member's Trading Because of
Customers' Orders) may be implicated. Rule 92(a) generally restricts a
member or member organization from entering a proprietary order while
in possession of a customer order. Rule 92(b) through (d) provides
several exceptions to the general restrictions of Rule 92(a). The
Commission notes that the Exchange has stated that all users must
comply with Rule 92(a) when trading on the MatchPoint system unless
such trading falls within an applicable exception in NYSE Rule 92(b)
through (d).
B. Section 11(a) 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 discretion (``Covered
Accounts'') unless an exception applies.\53\ Rule 11a2-2(T), known as
the ``effect versus execute'' rule, provides exchange members with an
exemption from the section 11(a) prohibition. To comply with Rule 11a2-
2(T)'s conditions, a member: (1) Must transmit the order from off the
exchange floor; (2) may not participate in the execution of the
transaction once it has been transmitted to the member performing the
execution; (3) may not be affiliated with the executing member; and (4)
with respect to an account over which the member has investment
discretion,
[[Page 908]]
neither the member nor its associated person may retain any
compensation in connection with effecting the transaction without
express written consent from the person authorized to transact business
for the account in accordance with the Rule. NYSE requests that the
Commission concur with its interpretation that MatchPoint orders
entered from off the floor of the Exchange comply with these provisions
of Rule 11a2-2(T).
---------------------------------------------------------------------------
\53\ 15 U.S.C. 78k(a).
---------------------------------------------------------------------------
1. Off-Floor Transmission
The requirement in Rule 11a2-2(T) for orders to be transmitted from
off the exchange floor reflects Congress's intent that section 11(a)
should operate to put member money managers and non-member money
managers on the same footing for purposes of their transactions for
covered accounts. In considering other automated systems, the
Commission and the staff have stated that the off-floor transmission
requirement would be met if a covered account order is transmitted from
off the floor directly to the exchange floor by electronic means.\54\
Because all orders for Covered Accounts sent to MatchPoint will be
electronically submitted directly to the system from locations other
than on the Exchange floor,\55\ the Commission believes that orders
transmitted for execution on MatchPoint satisfy the off-floor
transmission requirement.
---------------------------------------------------------------------------
\54\ See Securities Exchange Act Release Nos. 54552 (September
29, 2006), 71 FR 59546 (October 10, 2006) (order approving proposed
rule change of the American Stock Exchange LLC to establish new
hybrid market); 29237 (May 31, 1991) (regarding NYSE's Off-Hours
Trading Facility); and 15533 (January 29, 1979), 44 FR 6084 (January
31, 1979) (regarding the Amex Post Execution Reporting System, the
Amex Switching System, the Intermarket Trading System, the Multiple
Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX's
Communications and Execution System, and the Phlx's Automated
Communications and Execution System) (``1979 Release''). See also
Letter from Paula R. Jensen, Deputy Chief Counsel, Division of
Market Regulation, Commission, to Angelo Evangelou, Senior Attorney,
Chicago Board Options Exchange (``CBOE''), dated March 31, 2003
(regarding CBOE's CBOEdirect system) (``CBOEdirect Letter''); Letter
from Paula R. Jenson, Deputy Chief Counsel, Division, Commission, to
Jeffrey P. Burns, Assistant General Counsel, American Stock Exchange
LLC (``Amex''), dated July 9, 2002 (regarding Amex's auto-ex system
for options); Letter from Paula R. Jenson, Deputy Chief Counsel,
Division, Commission, to Richard S. Rudolph, Counsel, Philadelphia
Stock Exchange, Inc. (``Phlx''), dated April 15, 2002 (regarding
Phlx's AUTOM System and its automatic execution feature AUTO-X);
Letter from Paula R. Jenson, Deputy Chief Counsel, Division,
Commission, to Kathryn L. Beck, Senior Vice President, Special
Counsel and Antitrust Compliance Officer, Pacific Exchange, Inc.
(``PCX''), dated October 25, 2001 (regarding Archipelago Exchange
(``ArcaEx'')) (``ArcaEx Letter''); and Letter from Brandon Becker,
Director, Division, Commission, to George T. Simon, Foley & Lardner,
dated November 30, 1994 (regarding Chicago Match) (``Chicago Match
Letter'').
\55\ The Commission notes that NYSE Rule 1500(g)(4)(B) will
prohibit members from entering 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. Further,
the rule also prohibits members from having 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 the MatchPoint system from the floor of the Exchange.
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2. Non-Participation in Order Execution
Rule 11a2-2(T) further provides that the exchange member and its
associated persons may not participate in the execution of the
transaction once the order has been transmitted to the exchange
floor.\56\ This requirement was included to prevent members with their
own brokers on the exchange floor from using those persons to influence
or guide their orders' execution. This requirement does not preclude
members from canceling or modifying orders, or from modifying the
instructions for executing orders, after they have been transmitted to
the floor. Such cancellations or modifications, however, also must be
transmitted from off the exchange floor.\57\
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\56\ See Securities Exchange Act Release No. 44983 (October 25,
2001), 66 FR 55225 (November 1, 2001) (Order approving ArcaEx as the
equities trading facility of PCX Equities Inc.); 1979 Release, supra
note 54. See also CBOEdirect Letter, supra note 54; Letter from
Larry E. Bergmann, Senior Associate Director, Division, Commission,
to Edith Hallahan, Associate General Counsel, Phlx, dated March 24,
1999 (regarding Phlx's VWAP Trading System); Letter from Catherine
McGuire, Chief Counsel, Division, to David E. Rosedahl, PCX dated
November 30, 1998 (regarding OptiMark); Chicago Match Letter, supra
note 54.
\57\ See Securities Exchange Act Release No. 14563 (March 14,
1978), 43 FR 11542 (March 17, 1978); see also Securities Exchange
Act Release No. 53128 (January 13, 2006), 71 FR 3550 (January 23,
2006) (order approving Nasdaq Stock Market LLC's registration as a
national securities exchange) (``Nasdaq Exchange Order'').
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The Commission has stated that the non-participation requirement is
satisfied by automated systems when the member's use of such a system
entails relinquishing the ability to influence or guide the execution
of a covered account order once transmitted into the system.\58\ In
MatchPoint, matching sessions commence automatically at a predetermined
time. Matching, trading and pricing of orders is effectuated through a
fixed algorithm, which does not permit entry, correction or
cancellation of orders during the matching session. Once a member
submits an order to the MatchPoint system, the order will be executed
pursuant to the MatchPoint algorithm and in accordance with Exchange
rules. Although a member will still have the ability to modify or
cancel an order entered into the MatchPoint system (prior to the
commencement of the matching session), they will not otherwise have
control over their order. Because MatchPoint users will relinquish
control of their orders upon transmission to the MatchPoint system, and
will not be able to influence or guide the execution of their orders,
the Commission believes that the non-participation requirement is met
with respect to orders that are executed automatically in MatchPoint.
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\58\ See 1979 Release, supra note 54; see also, e.g., Securities
Exchange Act Release Nos. 54422 (September 11, 2006), 71 FR 54537
(September 15, 2006) (order approving proposed rule change of CBOE
to establish a screen based trading system for non-option
securities) (``CBOE STOC Order''); 51666 (May 9, 2005), 70 FR 25631,
25633 (May 13, 2005) (order approving proposed rule change by
International Securities Exchange, Inc. to establish facilitation,
block order and solicited order mechanism).
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3. Execution Through Unaffiliated Member
Although Rule 11a2-2(T) contemplates having an order executed by an
exchange member who is unaffiliated with the member initiating the
order, the Commission has recognized that the requirement is not
applicable when automated exchange facilities are used, if the
execution of the order is automatic once it has been transmitted into
the system, and if the design of the system ensures that members do not
possess any special or unique trading advantages in handling their
orders after transmitting them to the system.\59\ In such instances,
the Commission has stated that executions obtained through these
systems satisfy the independent execution requirement of Rule 11a2-
2(T).\60\ The Commission notes that NYSE has represented that the
MatchPoint system is designed to ensure that members using MatchPoint
[[Page 909]]
will not possess any special or unique trading advantages in the
handling of their orders after transmitting them to the MatchPoint
system.
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\59\ In considering the operation of automated execution systems
operated by an exchange, the Commission has noted that while there
is no independent executing exchange member, the execution of an
order is automatic once it has been transmitted into the system.
Because the design of these systems ensures that members do not
possess any special or unique trading advantages in handling their
orders after transmitting them to the exchange, the Commission has
stated that executions obtained through these systems satisfy the
independent execution requirement of Rule 11a2-2(T). See 1979
Release, supra note 54; see also, e.g., Securities Exchange Act
Release No. 54365 (August 25, 2006), 71 FR 52192 (September 1, 2006)
(order approving initial phase of the Boston Stock Exchange, Inc.'s
proposed rule change to establish Boston Equities Exchange Trading
System) (``BeX Phase I Order''); CBOE STOC Order, supra note 58.
\60\ See 1979 Release, supra note 54; see also, e.g., Securities
Exchange Act Release No. 54238 (July 28, 2005), 71 FR 44758 (August
7, 2006) (order approving proposed rule change of NYSE Arca, Inc. to
establish the OX trading platform); Nasdaq Exchange Order, supra
note 57.
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4. Non-Retention of Compensation for Discretionary Accounts
The Commission notes that MatchPoint users who intend to rely on
Rule 11a2-2(T) in connection with transactions using the MatchPoint
system must comply with the requirements of Section (a)(2)(iv) of the
Rule.
In reliance on NYSE's representations and for the reasons set forth
above, the Commission believes that members entering orders into the
MatchPoint system would satisfy the requirements of Rule 11a2-2(T)
under the Act.
C. Surveillance
The Commission notes that NYSE Regulation has represented that it
has appropriate policies and procedures in place to adequately and
effectively regulate the MatchPoint system, and that a surveillance
plan will be implemented prior to any trading to monitor the operation
of MatchPoint. Also, the Financial Industry Regulatory Authority, Inc.
(``FINRA''), as agent for NYSE Group, will perform examinations of
specialist firms that trade on MatchPoint.\61\
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\61\ As stated in the Notice, supra note 3, 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.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\62\ that the proposed rule change (File No. SR-NYSE-2007-102), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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\62\ 15 U.S.C. 78s(b)(2).
\63\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\63\
Nancy M. Morris,
Secretary.
[FR Doc. E7-25626 Filed 1-3-08; 8:45 am]
BILLING CODE 8011-01-P
