Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto To Amend Exchange Rule 13 (Definitions of Orders) To Add a New Order Type To Be Known as a Reserve Order and To Amend Exchange Rule 70 (Bids and Offers), 22194-22199 [E8-8878]
Download as PDF
<![CDATA[
22194
Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Notices
across their respective marketplaces, the
Exchange is proposing to delay the
operative date for NYSE Rule 92(c)(3)
from May 14, 2008 to March 31, 2009.
Pending the harmonization of the two
rules, the Exchange will continue to
require that, as of the date each
Exchange member organization
implements its riskless principal
routing, the Exchange member
organization must have in place systems
and controls that allow it to easily
match and tie riskless principal
execution on the Exchange to the
underlying orders, and that it be able to
provide this information to the
Exchange upon request. Moreover, the
Exchange will coordinate with FINRA to
examine for compliance with the rule
requirements.
interest; (ii) does not impose any
significant burden on competition; and
(iii) does not become operative for 30
days after the date of the filing, or such
shorter time as the Commission may
designate if consistent with the
protection of investors and the public
interest, the proposed rule change has
become effective pursuant to section
19(b)(3)(A) of the Act 10 and Rule 19b–
4(f)(6) thereunder.11
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
the rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
section 6(b) of the Act,8 in general, and
furthers the objectives of section 6(b)(5)
of the Act,9 in particular, insofar as it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. The
Exchange believes the proposed
extension will provide the Exchange
and FINRA the time necessary to
develop a harmonized rule concerning
trading ahead that will enable Exchange
member organizations to participate in
the national market system without
unnecessary impediments.
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:
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.
sroberts on PROD1PC70 with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change: (i)
Does not significantly affect the
protection of investors or the public
8 15
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Aug<31>2005
16:15 Apr 23, 2008
Jkt 214001
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2008–29 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSE–2008–29. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
10 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). Pursuant to Rule 19b–
4(f)(6)(iii) under the Act, the Exchange is required
to give the Commission written notice of its intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has requested and the Commission has determined
to waive this five-day pre-filing notice requirement.
11 17
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
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 the filing also will be available for
inspection and copying at the principal
office of the Exchange. 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–
2008–29 and should be submitted on or
before May 15, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Nancy M. Morris,
Secretary.
[FR Doc. E8–8873 Filed 4–23–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57688; File No. SR–NYSE–
2008–30]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change and
Amendment No. 1 Thereto To Amend
Exchange Rule 13 (Definitions of
Orders) To Add a New Order Type To
Be Known as a Reserve Order and To
Amend Exchange Rule 70 (Bids and
Offers)
April 18, 2008.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 14,
2008, the New York Stock Exchange
LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been substantially prepared by the
NYSE. The NYSE has designated the
proposed rule change as a ‘‘noncontroversial’’ rule change pursuant to
section 19(b)(3)(A) of the Act 3 and Rule
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
1 15
E:\FR\FM\24APN1.SGM
24APN1
Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Notices
19b–4(f)(6) thereunder,4 which renders
the proposed rule change effective upon
filing with the Commission. On April
18, 2008, NYSE filed Amendment No. 1
to the proposed rule change. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to amend
NYSE Rule 13 (Definitions of Orders) to
extend to off-Floor participants the
ability to directly enter orders that use
reserve functionality (‘‘Reserve Order’’),
an ability currently available only to
Exchange Floor brokers and specialists.
The Exchange intends to institute this
new order type in 100 Exchange-listed
securities traded on the Exchange as a
pilot program that would last up to six
months beginning in the second quarter
of 2008. The Exchange also proposes to
amend NYSE Rule 70 (Bids and Offers)
to allow Floor broker agency interest
excluded from the aggregated agency
interest information available to the
specialist to participate in manual
executions. The text of the proposed
rule change is available at https://
www.nyse.com, NYSE’s principal office,
and the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
NYSE included statements concerning
the purpose of, and basis for, the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The NYSE has
prepared summaries, set forth in
sections A, B, and C below, of the most
significant aspects of such statements.
sroberts on PROD1PC70 with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In this filing, the Exchange proposes
to amend NYSE Rule 13 to adopt a new
order type available to all market
participants to be known as a Reserve
Order. The Exchange proposes to
implement this order type in a pilot
program that will be established in two
phases. The instant filing seeks to
establish Phase 1 of the Reserve Order
4 17
CFR 240.19b–4(f)(6).
VerDate Aug<31>2005
16:15 Apr 23, 2008
Jkt 214001
type. The Exchange will submit a
separate filing to the Commission at a
later date in order to establish Phase 2
of the Reserve Order. The Exchange
states that, in Phase 2, it intends to
propose to initiate a second Reserve
Order type that does not require any
displayed quantity and therefore will
not be eligible for manual executions or
have any portion of the order published
in NYSE OpenBook.5
In connection with the adoption of
the Reserve Order type, the Exchange
further proposes to amend NYSE Rule
70 6 to allow Floor broker agency
interest excluded from the aggregated
agency interest information made
available to the specialist to be able to
participate in manual executions. This
will have the effect of placing reserve
interest of Floor brokers and reserve
interest entered from off-Floor on an
equal footing.
Reserve Orders
In Phase 1, the NYSE seeks to provide
customers with the ability to directly
enter orders that use reserve
functionality, an ability currently
available only to Exchange Floor
brokers 7 and specialists.8 The Reserve
Order will allow all market participants
to maintain non-displayed liquidity on
the Exchange’s Display Book system
(‘‘Display Book’’) for execution.9 The
Exchange intends to institute this new
order type in 100 Exchange-listed
securities as a pilot to end no later than
the earlier of September 30, 2008 or
Commission approval of a proposed rule
change to make the instant pilot
permanent for all securities (‘‘Reserve
Order Pilot’’). The Exchange states that
a list of the 100 securities proposed for
participation in the pilot will be
available on the NYSE Web site
(https://www.nyse.com).
Current Ability to Use Reserve Function
Currently, Floor brokers’ interest may
be represented electronically by
including these orders in a separate file,
5 NYSE OpenBook provides aggregate limit
order volume that has been entered on the
Exchange at price points for all NYSE-traded
securities.
6 See proposed amendment to NYSE Rule
70.20(k).
7 See NYSE Rule 70.20(c)(ii).
8 See NYSE Rule 104(d)(i).
9 The Display Book system is an order
management and execution facility. The Display
Book system receives and displays orders to the
specialists, contains the Book, and provides a
mechanism to execute and report transactions and
publish the results to the Consolidated Tape. The
Display Book system is connected to a number of
other Exchange systems for the purposes of
comparison, surveillance, and reporting
information to customers and other market data and
national market systems.
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
22195
known as the Floor broker agency
interest file, within Display Book.
Floor brokers are permitted to place the
liquidity representing customer orders
at or outside the best bid or offer on the
Exchange (‘‘Exchange BBO’’). Similarly,
specialists have the ability to place in a
separate file, known as the specialist
interest file, within Display Book their
dealer interest at prices at or outside the
Exchange BBO. Pursuant to NYSE Rules
70.20(c)(ii) and 104(d)(i), some of the
interest in either of these files that is at
the Exchange BBO may, at the choice of
the Floor broker or specialist, be nondisplayed interest. That is, the Floor
broker or specialist may decide to hold
additional interest in ‘‘reserve’’ and not
have it be part of the published bid or
offer. Both specialists and Floor brokers
are required to have a minimum of one
round lot (which for most securities
trading on the Exchange is 100 shares)
displayed (i.e., designated to be
published in the Exchange quote or
‘‘displayable’’) whenever their interest
is at the Exchange BBO. The specialist
or Floor broker may choose to display
more than the required minimum. If an
execution occurs at the Exchange BBO
that reduces the displayed amount
below the amount designated to be
displayed, the displayed interest is
automatically replenished from the
specialist’s or Floor broker’s respective
reserve interest. Reserve interest is
eligible to participate in automatic
executions on the Exchange after
displayed interest on the same side of
the market trades. Reserve Floor broker
and specialist interest participate on
parity with each other when trading
with contra-side interest.
The ability to have reserve interest
was designed, in part, to allow Floor
brokers flexibility to determine the best
way in which to represent customer
orders, especially larger customer
orders. One way in which they can do
this is to decide what portion of
customer interest should be displayed
based on the Floor broker’s sense of the
market in a particular security. The
reserve gives Floor brokers the
advantage of both auction market and
automatic execution capability, without
the risk of missing the market.
For specialists, the reserve function
allows the possibility of more liquidity
at the best bid or offer price and
facilitation of single-price executions on
behalf of customers.
The Exchange notes that other market
centers also utilize reserve order
types.10
10 See, e.g., NASDAQ Rule 4751(f)(2), and NYSE
Arca Equities Rule 7.31(h)(3).
E:\FR\FM\24APN1.SGM
24APN1
22196
Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Notices
sroberts on PROD1PC70 with NOTICES
Proposed Reserve Order
The proposed amendment to NYSE
Rule 13 will create a Reserve Order type
that is a limit order for which a portion
of the order is to be displayed and a
portion of the order, at the same price,
is in reserve.11 Market participants that
choose to enter Reserve Orders must
enter specified order information in
relation to the price and size of the
order and the amount to be displayed.
The displayable portion of a Reserve
Order will be published in NYSE
OpenBook and will be available to the
specialist on the Floor. However, both
the displayable and the non-displayable
portion will be unavailable to the
specialist’s algorithm and therefore not
eligible for price improvement by the
specialist. Such interest will be made
available to the specialist manually in
certain situations, as discussed below.
Both the displayable and the nondisplayable portions are available for
automatic execution against incoming
contra-side orders.
Interest represented through Reserve
Orders will trade according to Exchange
rules governing priority and parity.12
Under current Exchange rules, the first
bid or offer made at a particular price
is entitled to priority at that price.13
Once a trade occurs with a bid or offer
that has priority, other bids or offers at
that price representing customer orders
(DOT orders) and Floor broker agency
interest files (e-Quotes and d-Quotes)
trade on parity. Specialist interest
(s-Quotes) yields to DOT orders; once
DOT orders are satisfied, s-Quotes trade
on parity with e-Quotes and d-Quotes.
For example, assume that
immediately following a Floor clearing
event, the bid on the Exchange is $20.05
for 1,000 shares, consisting of a DOT
order of 300 shares, Floor broker agency
interest file (e-Quote) volume of 400
shares representing interest of two Floor
brokers for 200 shares each, and
specialist interest of 300 shares. This is
all displayed interest, i.e., there is no
11 The Exchange represents that this functionality
is equivalent to the functionality currently available
to Floor brokers and specialists with respect to the
entry of reserve interest. In order for Floor brokers’
reserve interest not to be visible by the specialists,
a Floor broker must designate his or her reserve
interest as ‘‘Do Not Display’’ interest. Reserve
Orders in contrast are never shown to the specialist
except when included in aggregate quantities for
manual executions.
12 Reserve Orders will also be subject to federal
securities regulations, including the order entry
requirements of Section 11(a) of the Securities
Exchange Act of 1934.
13 See NYSE Rule 72 I(a) through (g). While a
priority bid or offer may be established it is usually
broken by a ‘‘Floor clearing’’ event. ‘‘Floor clearing’’
events include a trade or an update of the NYSE
quote. After such an event, all bids and offers at the
price are on parity.
VerDate Aug<31>2005
16:15 Apr 23, 2008
Jkt 214001
reserve interest involved. There is no
priority as all bids were reentered
following the Floor clearing event. An
incoming market order to sell 400 shares
is executed against the DOT bid and the
e-Quotes since the specialist interest
(s-Quote) must yield to DOT interest. If
the incoming order had been for 800
shares, the DOT orders and Floor broker
interest would be executed in full and
the specialist would receive 100 shares.
The displayable portion of the
Reserve Order interest will be executed
first in accordance with the above rules
governing priority and parity. Once all
displayable interest, including DOT
orders, e-Quotes, d-Quotes, and sQuotes that is quoted at the Exchange
BBO has been traded, any remainder of
an incoming order will be executed
against any reserve, i.e., non-displayable
interest at the Exchange BBO. Such nondisplayable interest trades on parity
except that specialist reserve interest at
the Exchange BBO will yield to all DOT
Reserve and CAP orders. Outside the
Exchange BBO, e-Quotes and d-Quotes
will trade with all interest represented
by DOT orders, including DOT Reserve
Orders, both displayable (i.e., the
interest that will be published if such
interest becomes the Exchange best bid
or offer) and non-displayable, on parity.
Reserve interest represented by s-Quotes
outside the Exchange BBO will yield to
reserve interest represented by Reserve
Orders and CAP orders. Within DOT
orders, interest that would be
displayable will be allocated on a time
priority basis. After displayable DOT
order interest is completely executed,
any remaining shares are allocated to
eligible non-displayable Reserve Order
interest in time priority. Interest
represented by a Floor broker is
allocated equally among the Floor
broker’s customers without regard to
whether that interest was displayable or
non-displayable.
To illustrate how this will work for a
trade at the quote, assume the same
scenario as above, but in addition to the
displayed interest of 1,000 shares, there
is reserve interest for the DOT order of
600 shares, 400 for each Floor broker
(total of 800 shares) and 700 shares for
the specialist for a total of 2,100 shares
in reserve. An incoming order to sell
2,500 shares would be executed as
follows:
• 1,000 shares trade with the
displayed bid and is allocated 300
shares to the DOT order, 200 shares to
each Floor broker (400 shares total), and
300 shares to the specialist, leaving
1,500 shares to be executed.
• The 1,500 remaining shares execute
against the reserve portion of the DOT
Reserve Order (600 shares), and 400
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
shares of reserve interest for each of the
Floor brokers and 100 shares for the
specialist.
A trade outside the quote will occur
when the displayed and reserve interest
volume at the Exchange BBO is not
sufficient to completely fill the
incoming contra side order. Assume the
same condition exists as in the second
example, but the incoming order to sell
is for 4,800 shares, thus out-sizing the
displayed and non-displayed interest at
the bid by 1,700 shares. At the next bid
price of 20.03, there is 400 shares of a
DOT Reserve Order, of which 100 shares
is displayable, three Floor brokers using
the reserve function bidding for 400
shares each, with 100 shares displayable
and 300 shares in reserve and 1,000
shares of specialist interest, 100 shares
displayable and 900 shares in reserve.
After the execution at the bid price of
20.05, the execution of the remaining
1,700 shares at 20.03 would be as
follows:
• 400 shares each to the DOT Reserve
Order and the Floor brokers, since they
trade on parity with each other outside
the Exchange best bid (offer) for a total
of 1,600 shares.
• 100 shares to the specialist, since
the DOT Reserve Order was executed in
full.
If there had been additional volume in
the DOT Reserve Order of 100 shares,
the specialist would not have traded at
all.
Reserve Orders will have the ability to
automatically replenish the displayable
amount of interest at the Exchange BBO
when trades reduce or exhaust such
displayable interest; however, the
Exchange proposes to allow customers
to determine the specific amount to be
included as displayable above a
minimum requirement of one round lot.
In this way customers will have the
flexibility to replenish liquidity that is
in keeping with the market need at the
specific time and at that price point.
Moreover, if customers are able to
display liquidity in keeping with the
current trading characteristics of the
security, then there is more incentive for
them to use the reserve function and
thus provide additional liquidity to the
market.
When the displayable size of a
Reserve Order is replenished from
reserve, the replenished displayable
quantity will be assigned a time
sequence based on the time it is
replenished. The remaining original
displayed quantity, if any, will retain its
original time sequence.
E:\FR\FM\24APN1.SGM
24APN1
Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Notices
sroberts on PROD1PC70 with NOTICES
Execution of Reserve Interest During a
Manual Transaction
While the majority of transactions on
the Exchange are executed
electronically, there are times when
manual execution is required. In these
situations, specialists seek information
on the available interest at various price
points to determine the appropriate
price at which to complete the manual
execution. As with reserve interest in a
Floor broker’s agency interest file,
information on reserve interest entered
directly into Exchange systems through
Reserve Orders will be made available
to the specialist only in the aggregate at
each price point for the express purpose
of the specialist effecting a manual
execution.14 The reserve interest is not
distinguished from other interest
available to be executed at a specific
price point. Rather, Exchange systems
display to the specialist the total
number of shares available for execution
at the price point and include reserve
interest in the total number. In this
manner such reserve interest will be
available for trades that take place on
the Floor of the Exchange that will not
be conducted automatically. Such trades
take place at the opening and close of
the Exchange, during the trading day in
situations involving auction market
transactions that are not automatic
trades, and in certain specific trading
situations, such as trades conducted
when a Liquidity Replenishment
Point 15 is reached after an automatic
execution or in a ‘‘gap’’ quote situation.
Similarly, today, interest in the Floor
broker agency interest file is not
publicly disseminated except for the
amount of interest designated by the
Floor broker to be displayed when the
interest is priced at or becomes the
Exchange best bid or offer. Any reserve
interest in the Floor broker agency
interest file that is priced at or becomes
the Exchange best bid or offer is
displayed to the specialist on an
aggregated basis along with any other
interest that is available at the same
price. However, pursuant to NYSE Rule
70.20(g), a Floor broker has the
discretion to exclude his or her agency
interest, including any reserve interest
at the best bid (offer), from the aggregate
information available to the specialist.
At the present time, however, Exchange
systems are not enabled to provide this
function. The Exchange represents,
14 As previously indicated, subject to Commission
approval, in Phase 2 customers will have a choice
of whether to use a zero display Reserve Order,
which will not be eligible for execution in manual
trades.
15 See NYSE Rule 1000(a)(iv) for a description of
Liquidity Replenishment Points and functionality
surrounding automatic and manual executions.
VerDate Aug<31>2005
16:15 Apr 23, 2008
Jkt 214001
however, that this functionality will be
enabled upon effectiveness of the
instant filing.
Floor broker agency interest excluded
from the aggregate information available
to the specialist would not be included
in a specialist’s response to a member’s
market probe in accordance with NYSE
Rule 115.16 Floor broker agency interest
removed from the aggregate information
is eligible to participate in automatic
executions and sweeps; however, it is
not eligible to participate in manual
executions. The Floor broker is
responsible for ensuring that agency
interest removed from the aggregate
information is properly represented
with respect to any manual trade that
may occur because the specialist will
not have any knowledge of such
interest. As a result, excluded interest
may be executed at an inferior price
because that information is not visible
to the specialist.
The Exchange has concluded that it is
not in the public interest to have agency
interest removed from the aggregate
information excluded from manual
executions. In order to provide its
customers with the best possible
execution experience, the Exchange
proposes to amend NYSE Rule 70.20(h)
to permit agency interest removed from
the aggregated agency interest
information to participate in manual
executions. As such, those orders will
no longer be at the risk of being
executed at inferior prices.
In order to permit agency interest
removed from the aggregated agency
interest information to participate in
manual executions, Exchange systems
will include excluded interest in the
aggregated agency interest displayed to
the specialist only during the execution
of the manual trade. This information is
maintained in the template used by
specialist to execute trades in the
Display Book. As such, aggregate Floor
broker agency interest visible to the
specialist will include agency interest
designated to be excluded from the
aggregate Floor broker agency interest
file.
The Exchange further proposes to
amend NYSE Rule 70.20 17 to prohibit
specialists, trading assistants and
anyone acting on their behalf from using
16 Pursuant to NYSE Rule 115(iii) a specialist may
provide information about orders contained in the
Display Book referred to also as a market probe, ‘‘to
provide information about buying or selling interest
in the market, including aggregated buying or
selling interest contained in Floor broker agency
interest files other than interest the broker has
chosen to exclude from the aggregated buying and
selling interest in response to an inquiry from a
member conducting a market probe in the normal
course of business.’’
17 See proposed NYSE Rule 70.20(h)(ii).
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
22197
the Display Book to access information
about Floor broker agency interest
excluded from the aggregated agency
interest other than in situations where
there is a reasonable expectation on the
part of such specialist, trading assistant
or other person acting on their behalf
that a transaction will take place
imminently for which such agency
interest information is necessary to
effect such transaction. A pattern and
practice of specialists accessing reserve
order information without trading may
constitute a violation of NYSE Rule
70.20.
The amendments to NYSE Rule 70.20
are proposed as permanent changes and
will not be a part of the pilot program.
Reserve Order Pilot
As previously stated above, the
Exchange intends to initiate use of the
Reserve Order type for the off-Floor
participants as a pilot program in
approximately 100 Exchange-listed
securities. This will allow the Exchange
to test its viability from a business and
technological viewpoint. The Exchange
will announce to its membership the
100 securities that will be in the pilot
program. The Exchange proposes to
expand the Reserve Order function to
additional securities during the pilot
period, based on how successful the
results of the pilot are. The Exchange
proposes that the pilot program operate
until September 30, 2008, or such
earlier time that the Exchange
determines that the pilot is operating
successfully and files with the
Commission to have it extended to all
securities trading on the NYSE.
Execution Logic Amendments Prior to
Completion of the Reserve Order Pilot
The Exchange represents that it
intends to submit a formal proposal
prior to the completion of the Reserve
Order Pilot to modify how interest is
allocated during an execution outside
the Exchange BBO to provide for the
allocation of shares to displayable
quantities of interest, including the
displayable portion of a Reserve Order
and displayable reserve order interest
represented by Floor brokers, prior to
any share allocation to the nondisplayable portion thereof.18
Specifically, Reserve Order interest
and the portion of reserve interest
represented by Floor brokers that is
designated to be displayed, (i.e.,
designated to be published in the
Exchange quote or ‘‘displayable’’) will
be executed first on parity. The
18 See email from Deanna Logan, Associate
General Counsel, NYSE, to David Liu, Assistant
Director, Division of Trading and Markets,
Commission, on April 18, 2008.
E:\FR\FM\24APN1.SGM
24APN1
22198
Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Notices
incoming order will be divided equally
among each participant’s (e.g., DOT
orders and each Floor broker)
displayable interest at that price point
on parity. Once all displayable interest
has been completely executed, any
remainder of an incoming order will be
executed against any reserve, i.e., nondisplayable, interest at that price point.
Such non-displayable interest will also
be executed on parity.19
To illustrate how this will work for a
trade, assume that the bid on the
Exchange is $20.05 for 1,000 shares,
consisting of a DOT order of 600 shares
and Floor broker agency interest file (eQuote) volume of 400 shares
representing interest of two Floor
brokers for 200 shares each. There is no
interest at $20.04, but at $20.03 the
same amount of displayable interest of
1,000 shares exists and there is reserve
interest for the DOT order of 600 shares
and 600 for each Floor broker (total of
1,200 shares) for a total of 1,800 shares
in reserve. An incoming order to sell
2,800 shares would be executed as
follows:
• 1,000 shares trade with the
displayed bid of $20.05 and is allocated
600 shares to the DOT order and 200
shares to each Floor broker (400 shares
total), leaving 1,800 shares to be
executed.
• There is no interest at $20.04. The
1,800 shares remaining will be executed
first against the 1,000 shares that has
been designated as displayable interest
at the price of $20.03, leaving 800 shares
to be executed.
• Then the reserve portion of the DOT
Reserve Order receives an allocation of
300 shares, 300 shares of interest is
allocated to the reserve interest of the
Floor broker who was next in line and
200 shares to the reserve interest of the
other Floor broker for a total of 800
shares, completing the incoming order.
sroberts on PROD1PC70 with NOTICES
Conclusion
The Exchange believes that by
providing all market participants with
the ability to maintain non-displayed
liquidity on the Display Book, market
participants will be encouraged to post
liquidity and thus offer Exchange
customers additional opportunities for
price improvement by expanding the
interest available to execute against
incoming orders at a single price. The
Exchange further believes that the
amendment of NYSE Rule 70.20 will
result in a better execution experience
for its customers by allowing them to
participate in manual executions.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the requirement under section 6(b)(5) 20
of the Act that an Exchange have rules
that are designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Exchange also
believes that the proposed rule change
also is designed to support the
principles of section 11A(a)(1) 21 in that
it seeks to assure economically efficient
execution of securities transactions, fair
competition among brokers and dealers,
among exchange markets, and between
exchange markets and markets other
than exchange markets, and provide an
opportunity for investors’ orders to be
executed without the participation of a
dealer. The Exchange believes that the
instant proposal is in keeping with these
objectives in that extending reserve
order functionality will provide an
opportunity for all market participants
to receive efficient, low cost executions
available through the use of this order
type, and promote fair competition
among markets which already provide
for entry of Reserve Orders by all market
participants.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change: (1) Does not significantly affect
the protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
20 15
19 Id.
VerDate Aug<31>2005
21 15
16:15 Apr 23, 2008
Jkt 214001
PO 00000
U.S.C. 78f(b)(5).
U.S.C. 78k–1(a)(1).
Frm 00074
Fmt 4703
Sfmt 4703
section 19(b)(3)(A) 22 of the Act and
Rule 19b–4(f)(6) thereunder.23 As
required under Rule 19b–4(f)(6)(iii),24
the Exchange provided the Commission
with written notice of its intent to file
the proposed rule change, along with a
brief description and text of the
proposed rule change, at least five
business days prior to the date of the
filing of the proposed rule change.
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days after the
date of filing. However, Rule 19b–
4(f)(6)(iii) permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
NYSE requests that the Commission
waive the 30-day operative delay, as
specified in Rule 19b–4(f)(6)(iii), which
would make the rule change operative
upon filing. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest
because such waiver would
immediately allow off-Floor participants
to directly enter orders that use reserve
functionality that is currently available
to Floor brokers and specialists. In
addition, the proposed reserve
functionality is currently available on
other exchanges.25 The Commission
also believes that the proposed
amendment to NYSE Rule 70.20(h) to
allow participation by Floor broker
interest in manual executions should
provide investors with the opportunity
to receive economically efficient
executions of their securities
transactions. Accordingly, the
Commission designates the proposed
rule change to be operative upon filing
with the Commission.
At any time within 60 days of the
filing of such proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.26
22 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
24 17 CFR 240.19b–4(f)(6)(iii).
25 See, e.g., Nasdaq Rule 4751(f)(2); Securities
Exchange Act Release No. 54155 (July 14, 2006), 71
FR 41291 (July 20, 2006) (NASDAQ–2006–001).
26 For purposes of calculating the 60-day period
within which the Commission may summarily
abrogate the proposed rule change under Section
19(b)(3)(C) of the Act, the Commission considers
the period to commence on April 18, 2008, the date
on which the NYSE submitted Amendment No. 1.
See 15 U.S.C. 78s(b)(3)(C).
23 17
E:\FR\FM\24APN1.SGM
24APN1
Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Notices
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Nancy M. Morris,
Secretary.
[FR Doc. E8–8878 Filed 4–23–08; 8:45 am]
BILLING CODE 8010–01–P
22199
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
SECURITIES AND EXCHANGE
COMMISSION
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2008–30 on the
subject line.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–57683; File No. SR–Phlx–
2008–27]
1. Purpose
Paper Comments
April 18, 2008.
Electronic Comments
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing of Proposed Rule
Change Relating to Access to XLE on
Phlx’s Options Floor
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 April 11,
2008, the Philadelphia Stock Exchange,
Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
All submissions should refer to File
Commission (‘‘Commission’’) the
Number SR–NYSE–2008–30. This file
proposed rule change as described in
number should be included on the
subject line if e-mail is used. To help the Items I, II, and III, below, which Items
have been substantially prepared by the
Commission process and review your
Phlx. The Commission is publishing
comments more efficiently, please use
only one method. The Commission will this notice to solicit comments on the
post all comments on the Commission’s proposed rule change from interested
persons.
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
I. Self-Regulatory Organization’s
submission, all subsequent
Statement of the Terms of Substance of
amendments, all written statements
the Proposed Rule Change
with respect to the proposed rule
The Exchange proposes to delete Phlx
change that are filed with the
Rule 1014(e)(iii), which limits the
Commission, and all written
actions of Registered Options Traders
communications relating to the
(‘‘ROTs’’) related to trading in Phlx’s
proposed rule change between the
equity market in certain situations, and
Commission and any person, other than adopt Phlx Rule 175 prohibiting an XLE
those that may be withheld from the
Market Maker from acting as an options
public in accordance with the
specialist or option market maker in
provisions of 5 U.S.C. 552, will be
options overlying the securities in
available for inspection and copying in
which the XLE Market Maker is
registered.
the Commission’s Public Reference
The text of the proposed rule change
Room, 100 F Street, NE., Washington,
is available at the Exchange, the
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m. Commission’s Public Reference Room,
and https://www.phlx.com.
Copies of such filing also will be
available for inspection and copying at
II. Self-Regulatory Organization’s
the principal office of the NYSE. All
Statement of the Purpose of, and
comments received will be posted
Statutory Basis for, the Proposed Rule
without change; the Commission does
Change
not edit personal identifying
In its filing with the Commission, the
information from submissions. You
Exchange included statements
should submit only information that
concerning the purpose of and basis for
you wish to make available publicly. All the proposed rule change and discussed
submissions should refer to File
any comments it received on the
Number SR–NYSE–2008–30 and should
27 17 CFR 200.30–3(a)(12).
be submitted on or before May 15, 2008.
sroberts on PROD1PC70 with NOTICES
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
1 15
2 17
VerDate Aug<31>2005
16:15 Apr 23, 2008
Jkt 214001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00075
Fmt 4703
Sfmt 4703
The purpose of the proposed rule
change is to clarify that members and
member organizations on the Phlx
options floor are permitted to have
connectivity to XLE, Phlx’s electronic
equity trading system. XLE provides to
those Phlx member organizations and
their Sponsored Participants authorized
to enter orders on the system (‘‘XLE
Participants’’) a system for the entry and
execution of NMS Stock orders. XLE is
the sole means on Phlx to enter and
execute NMS Stock orders; the physical
equity trading floor has been
discontinued.3 The Exchange states that,
in the past, Phlx’s physical equity and
options floor were separated by a wall,
which required a member to leave one
floor and walk to the other floor in order
to participate on the other floor. In
addition, the wall prevented any line of
sight or line of hearing between the two
floors. Specifically, the wall helped to
prevent someone on one floor from
using information gained there on the
other floor without first physically
leaving the one floor and walking to the
other, thereby mitigating the ‘‘time and
place’’ advantage gained from being on
that floor.4
When XLE started, the trading of NMS
Stocks on Phlx ceased to take place on
a physical floor and, instead, now takes
place electronically according to the
algorithms programmed in the software
that operates XLE.5 XLE Participants
cannot alter these algorithms, nor does
the identity of a XLE Participant affect
the execution of the order. Access to
XLE is available to XLE Participants
through an Exchange electronic
interface by means of their own
communication lines or through lines
established by service providers in the
business of maintaining connectivity in
the securities marketplace. In addition,
XLE Participants may access XLE for the
entry of two-sided orders through
3 See
Phlx Rule 160.
Rule 606 regulates the use of electronic and
telephonic means of communication on the floor.
5 See Securities Exchange Act Release No. 54538
(September 28, 2006), 71 FR 59184 (October 6,
2006).
4 Phlx
E:\FR\FM\24APN1.SGM
24APN1
]]>Agencies
[Federal Register Volume 73, Number 80 (Thursday, April 24, 2008)]
[Notices]
[Pages 22194-22199]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-8878]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57688; File No. SR-NYSE-2008-30]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
and Amendment No. 1 Thereto To Amend Exchange Rule 13 (Definitions of
Orders) To Add a New Order Type To Be Known as a Reserve Order and To
Amend Exchange Rule 70 (Bids and Offers)
April 18, 2008.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 14, 2008, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the NYSE. The
NYSE has designated the proposed rule change as a ``non-controversial''
rule change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule
[[Page 22195]]
19b-4(f)(6) thereunder,\4\ which renders the proposed rule change
effective upon filing with the Commission. On April 18, 2008, NYSE
filed Amendment No. 1 to the proposed rule change. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend NYSE Rule 13 (Definitions of
Orders) to extend to off-Floor participants the ability to directly
enter orders that use reserve functionality (``Reserve Order''), an
ability currently available only to Exchange Floor brokers and
specialists. The Exchange intends to institute this new order type in
100 Exchange-listed securities traded on the Exchange as a pilot
program that would last up to six months beginning in the second
quarter of 2008. The Exchange also proposes to amend NYSE Rule 70 (Bids
and Offers) to allow Floor broker agency interest excluded from the
aggregated agency interest information available to the specialist to
participate in manual executions. The text of the proposed rule change
is available at https://www.nyse.com, NYSE's principal office, and the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NYSE included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NYSE has prepared summaries, set forth in sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In this filing, the Exchange proposes to amend NYSE Rule 13 to
adopt a new order type available to all market participants to be known
as a Reserve Order. The Exchange proposes to implement this order type
in a pilot program that will be established in two phases. The instant
filing seeks to establish Phase 1 of the Reserve Order type. The
Exchange will submit a separate filing to the Commission at a later
date in order to establish Phase 2 of the Reserve Order. The Exchange
states that, in Phase 2, it intends to propose to initiate a second
Reserve Order type that does not require any displayed quantity and
therefore will not be eligible for manual executions or have any
portion of the order published in NYSE OpenBook[supreg].\5\
---------------------------------------------------------------------------
\5\ NYSE OpenBook[supreg] provides aggregate limit order volume
that has been entered on the Exchange at price points for all NYSE-
traded securities.
---------------------------------------------------------------------------
In connection with the adoption of the Reserve Order type, the
Exchange further proposes to amend NYSE Rule 70 \6\ to allow Floor
broker agency interest excluded from the aggregated agency interest
information made available to the specialist to be able to participate
in manual executions. This will have the effect of placing reserve
interest of Floor brokers and reserve interest entered from off-Floor
on an equal footing.
---------------------------------------------------------------------------
\6\ See proposed amendment to NYSE Rule 70.20(k).
---------------------------------------------------------------------------
Reserve Orders
In Phase 1, the NYSE seeks to provide customers with the ability to
directly enter orders that use reserve functionality, an ability
currently available only to Exchange Floor brokers \7\ and
specialists.\8\ The Reserve Order will allow all market participants to
maintain non-displayed liquidity on the Exchange's Display Book
system[supreg] (``Display Book'') for execution.\9\ The Exchange
intends to institute this new order type in 100 Exchange-listed
securities as a pilot to end no later than the earlier of September 30,
2008 or Commission approval of a proposed rule change to make the
instant pilot permanent for all securities (``Reserve Order Pilot'').
The Exchange states that a list of the 100 securities proposed for
participation in the pilot will be available on the NYSE Web site
(https://www.nyse.com).
---------------------------------------------------------------------------
\7\ See NYSE Rule 70.20(c)(ii).
\8\ See NYSE Rule 104(d)(i).
\9\ The Display Book[supreg] system is an order management and
execution facility. The Display Book system receives and displays
orders to the specialists, contains the Book, and provides a
mechanism to execute and report transactions and publish the results
to the Consolidated Tape. The Display Book system is connected to a
number of other Exchange systems for the purposes of comparison,
surveillance, and reporting information to customers and other
market data and national market systems.
---------------------------------------------------------------------------
Current Ability to Use Reserve Function
Currently, Floor brokers' interest may be represented
electronically by including these orders in a separate file, known as
the Floor broker agency interest file, within Display Book[supreg].
Floor brokers are permitted to place the liquidity representing
customer orders at or outside the best bid or offer on the Exchange
(``Exchange BBO''). Similarly, specialists have the ability to place in
a separate file, known as the specialist interest file, within Display
Book[supreg] their dealer interest at prices at or outside the Exchange
BBO. Pursuant to NYSE Rules 70.20(c)(ii) and 104(d)(i), some of the
interest in either of these files that is at the Exchange BBO may, at
the choice of the Floor broker or specialist, be non-displayed
interest. That is, the Floor broker or specialist may decide to hold
additional interest in ``reserve'' and not have it be part of the
published bid or offer. Both specialists and Floor brokers are required
to have a minimum of one round lot (which for most securities trading
on the Exchange is 100 shares) displayed (i.e., designated to be
published in the Exchange quote or ``displayable'') whenever their
interest is at the Exchange BBO. The specialist or Floor broker may
choose to display more than the required minimum. If an execution
occurs at the Exchange BBO that reduces the displayed amount below the
amount designated to be displayed, the displayed interest is
automatically replenished from the specialist's or Floor broker's
respective reserve interest. Reserve interest is eligible to
participate in automatic executions on the Exchange after displayed
interest on the same side of the market trades. Reserve Floor broker
and specialist interest participate on parity with each other when
trading with contra-side interest.
The ability to have reserve interest was designed, in part, to
allow Floor brokers flexibility to determine the best way in which to
represent customer orders, especially larger customer orders. One way
in which they can do this is to decide what portion of customer
interest should be displayed based on the Floor broker's sense of the
market in a particular security. The reserve gives Floor brokers the
advantage of both auction market and automatic execution capability,
without the risk of missing the market.
For specialists, the reserve function allows the possibility of
more liquidity at the best bid or offer price and facilitation of
single-price executions on behalf of customers.
The Exchange notes that other market centers also utilize reserve
order types.\10\
---------------------------------------------------------------------------
\10\ See, e.g., NASDAQ Rule 4751(f)(2), and NYSE Arca Equities
Rule 7.31(h)(3).
---------------------------------------------------------------------------
[[Page 22196]]
Proposed Reserve Order
The proposed amendment to NYSE Rule 13 will create a Reserve Order
type that is a limit order for which a portion of the order is to be
displayed and a portion of the order, at the same price, is in
reserve.\11\ Market participants that choose to enter Reserve Orders
must enter specified order information in relation to the price and
size of the order and the amount to be displayed. The displayable
portion of a Reserve Order will be published in NYSE OpenBook[supreg]
and will be available to the specialist on the Floor. However, both the
displayable and the non-displayable portion will be unavailable to the
specialist's algorithm and therefore not eligible for price improvement
by the specialist. Such interest will be made available to the
specialist manually in certain situations, as discussed below. Both the
displayable and the non-displayable portions are available for
automatic execution against incoming contra-side orders.
---------------------------------------------------------------------------
\11\ The Exchange represents that this functionality is
equivalent to the functionality currently available to Floor brokers
and specialists with respect to the entry of reserve interest. In
order for Floor brokers' reserve interest not to be visible by the
specialists, a Floor broker must designate his or her reserve
interest as ``Do Not Display'' interest. Reserve Orders in contrast
are never shown to the specialist except when included in aggregate
quantities for manual executions.
---------------------------------------------------------------------------
Interest represented through Reserve Orders will trade according to
Exchange rules governing priority and parity.\12\ Under current
Exchange rules, the first bid or offer made at a particular price is
entitled to priority at that price.\13\ Once a trade occurs with a bid
or offer that has priority, other bids or offers at that price
representing customer orders (DOT orders) and Floor broker agency
interest files (e-Quotes and d-Quotes) trade on parity. Specialist
interest (s-Quotes) yields to DOT orders; once DOT orders are
satisfied, s-Quotes trade on parity with e-Quotes and d-Quotes.
---------------------------------------------------------------------------
\12\ Reserve Orders will also be subject to federal securities
regulations, including the order entry requirements of Section 11(a)
of the Securities Exchange Act of 1934.
\13\ See NYSE Rule 72 I(a) through (g). While a priority bid or
offer may be established it is usually broken by a ``Floor
clearing'' event. ``Floor clearing'' events include a trade or an
update of the NYSE quote. After such an event, all bids and offers
at the price are on parity.
---------------------------------------------------------------------------
For example, assume that immediately following a Floor clearing
event, the bid on the Exchange is $20.05 for 1,000 shares, consisting
of a DOT order of 300 shares, Floor broker agency interest file (e-
Quote) volume of 400 shares representing interest of two Floor brokers
for 200 shares each, and specialist interest of 300 shares. This is all
displayed interest, i.e., there is no reserve interest involved. There
is no priority as all bids were reentered following the Floor clearing
event. An incoming market order to sell 400 shares is executed against
the DOT bid and the e-Quotes since the specialist interest (s-Quote)
must yield to DOT interest. If the incoming order had been for 800
shares, the DOT orders and Floor broker interest would be executed in
full and the specialist would receive 100 shares.
The displayable portion of the Reserve Order interest will be
executed first in accordance with the above rules governing priority
and parity. Once all displayable interest, including DOT orders, e-
Quotes, d-Quotes, and s-Quotes that is quoted at the Exchange BBO has
been traded, any remainder of an incoming order will be executed
against any reserve, i.e., non-displayable interest at the Exchange
BBO. Such non-displayable interest trades on parity except that
specialist reserve interest at the Exchange BBO will yield to all DOT
Reserve and CAP orders. Outside the Exchange BBO, e-Quotes and d-Quotes
will trade with all interest represented by DOT orders, including DOT
Reserve Orders, both displayable (i.e., the interest that will be
published if such interest becomes the Exchange best bid or offer) and
non-displayable, on parity. Reserve interest represented by s-Quotes
outside the Exchange BBO will yield to reserve interest represented by
Reserve Orders and CAP orders. Within DOT orders, interest that would
be displayable will be allocated on a time priority basis. After
displayable DOT order interest is completely executed, any remaining
shares are allocated to eligible non-displayable Reserve Order interest
in time priority. Interest represented by a Floor broker is allocated
equally among the Floor broker's customers without regard to whether
that interest was displayable or non-displayable.
To illustrate how this will work for a trade at the quote, assume
the same scenario as above, but in addition to the displayed interest
of 1,000 shares, there is reserve interest for the DOT order of 600
shares, 400 for each Floor broker (total of 800 shares) and 700 shares
for the specialist for a total of 2,100 shares in reserve. An incoming
order to sell 2,500 shares would be executed as follows:
1,000 shares trade with the displayed bid and is allocated
300 shares to the DOT order, 200 shares to each Floor broker (400
shares total), and 300 shares to the specialist, leaving 1,500 shares
to be executed.
The 1,500 remaining shares execute against the reserve
portion of the DOT Reserve Order (600 shares), and 400 shares of
reserve interest for each of the Floor brokers and 100 shares for the
specialist.
A trade outside the quote will occur when the displayed and reserve
interest volume at the Exchange BBO is not sufficient to completely
fill the incoming contra side order. Assume the same condition exists
as in the second example, but the incoming order to sell is for 4,800
shares, thus out-sizing the displayed and non-displayed interest at the
bid by 1,700 shares. At the next bid price of 20.03, there is 400
shares of a DOT Reserve Order, of which 100 shares is displayable,
three Floor brokers using the reserve function bidding for 400 shares
each, with 100 shares displayable and 300 shares in reserve and 1,000
shares of specialist interest, 100 shares displayable and 900 shares in
reserve. After the execution at the bid price of 20.05, the execution
of the remaining 1,700 shares at 20.03 would be as follows:
400 shares each to the DOT Reserve Order and the Floor
brokers, since they trade on parity with each other outside the
Exchange best bid (offer) for a total of 1,600 shares.
100 shares to the specialist, since the DOT Reserve Order
was executed in full.
If there had been additional volume in the DOT Reserve Order of 100
shares, the specialist would not have traded at all.
Reserve Orders will have the ability to automatically replenish the
displayable amount of interest at the Exchange BBO when trades reduce
or exhaust such displayable interest; however, the Exchange proposes to
allow customers to determine the specific amount to be included as
displayable above a minimum requirement of one round lot. In this way
customers will have the flexibility to replenish liquidity that is in
keeping with the market need at the specific time and at that price
point. Moreover, if customers are able to display liquidity in keeping
with the current trading characteristics of the security, then there is
more incentive for them to use the reserve function and thus provide
additional liquidity to the market.
When the displayable size of a Reserve Order is replenished from
reserve, the replenished displayable quantity will be assigned a time
sequence based on the time it is replenished. The remaining original
displayed quantity, if any, will retain its original time sequence.
[[Page 22197]]
Execution of Reserve Interest During a Manual Transaction
While the majority of transactions on the Exchange are executed
electronically, there are times when manual execution is required. In
these situations, specialists seek information on the available
interest at various price points to determine the appropriate price at
which to complete the manual execution. As with reserve interest in a
Floor broker's agency interest file, information on reserve interest
entered directly into Exchange systems through Reserve Orders will be
made available to the specialist only in the aggregate at each price
point for the express purpose of the specialist effecting a manual
execution.\14\ The reserve interest is not distinguished from other
interest available to be executed at a specific price point. Rather,
Exchange systems display to the specialist the total number of shares
available for execution at the price point and include reserve interest
in the total number. In this manner such reserve interest will be
available for trades that take place on the Floor of the Exchange that
will not be conducted automatically. Such trades take place at the
opening and close of the Exchange, during the trading day in situations
involving auction market transactions that are not automatic trades,
and in certain specific trading situations, such as trades conducted
when a Liquidity Replenishment Point \15\ is reached after an automatic
execution or in a ``gap'' quote situation.
---------------------------------------------------------------------------
\14\ As previously indicated, subject to Commission approval, in
Phase 2 customers will have a choice of whether to use a zero
display Reserve Order, which will not be eligible for execution in
manual trades.
\15\ See NYSE Rule 1000(a)(iv) for a description of Liquidity
Replenishment Points and functionality surrounding automatic and
manual executions.
---------------------------------------------------------------------------
Similarly, today, interest in the Floor broker agency interest file
is not publicly disseminated except for the amount of interest
designated by the Floor broker to be displayed when the interest is
priced at or becomes the Exchange best bid or offer. Any reserve
interest in the Floor broker agency interest file that is priced at or
becomes the Exchange best bid or offer is displayed to the specialist
on an aggregated basis along with any other interest that is available
at the same price. However, pursuant to NYSE Rule 70.20(g), a Floor
broker has the discretion to exclude his or her agency interest,
including any reserve interest at the best bid (offer), from the
aggregate information available to the specialist. At the present time,
however, Exchange systems are not enabled to provide this function. The
Exchange represents, however, that this functionality will be enabled
upon effectiveness of the instant filing.
Floor broker agency interest excluded from the aggregate
information available to the specialist would not be included in a
specialist's response to a member's market probe in accordance with
NYSE Rule 115.\16\ Floor broker agency interest removed from the
aggregate information is eligible to participate in automatic
executions and sweeps; however, it is not eligible to participate in
manual executions. The Floor broker is responsible for ensuring that
agency interest removed from the aggregate information is properly
represented with respect to any manual trade that may occur because the
specialist will not have any knowledge of such interest. As a result,
excluded interest may be executed at an inferior price because that
information is not visible to the specialist.
---------------------------------------------------------------------------
\16\ Pursuant to NYSE Rule 115(iii) a specialist may provide
information about orders contained in the Display Book referred to
also as a market probe, ``to provide information about buying or
selling interest in the market, including aggregated buying or
selling interest contained in Floor broker agency interest files
other than interest the broker has chosen to exclude from the
aggregated buying and selling interest in response to an inquiry
from a member conducting a market probe in the normal course of
business.''
---------------------------------------------------------------------------
The Exchange has concluded that it is not in the public interest to
have agency interest removed from the aggregate information excluded
from manual executions. In order to provide its customers with the best
possible execution experience, the Exchange proposes to amend NYSE Rule
70.20(h) to permit agency interest removed from the aggregated agency
interest information to participate in manual executions. As such,
those orders will no longer be at the risk of being executed at
inferior prices.
In order to permit agency interest removed from the aggregated
agency interest information to participate in manual executions,
Exchange systems will include excluded interest in the aggregated
agency interest displayed to the specialist only during the execution
of the manual trade. This information is maintained in the template
used by specialist to execute trades in the Display Book. As such,
aggregate Floor broker agency interest visible to the specialist will
include agency interest designated to be excluded from the aggregate
Floor broker agency interest file.
The Exchange further proposes to amend NYSE Rule 70.20 \17\ to
prohibit specialists, trading assistants and anyone acting on their
behalf from using the Display Book to access information about Floor
broker agency interest excluded from the aggregated agency interest
other than in situations where there is a reasonable expectation on the
part of such specialist, trading assistant or other person acting on
their behalf that a transaction will take place imminently for which
such agency interest information is necessary to effect such
transaction. A pattern and practice of specialists accessing reserve
order information without trading may constitute a violation of NYSE
Rule 70.20.
---------------------------------------------------------------------------
\17\ See proposed NYSE Rule 70.20(h)(ii).
---------------------------------------------------------------------------
The amendments to NYSE Rule 70.20 are proposed as permanent changes
and will not be a part of the pilot program.
Reserve Order Pilot
As previously stated above, the Exchange intends to initiate use of
the Reserve Order type for the off-Floor participants as a pilot
program in approximately 100 Exchange-listed securities. This will
allow the Exchange to test its viability from a business and
technological viewpoint. The Exchange will announce to its membership
the 100 securities that will be in the pilot program. The Exchange
proposes to expand the Reserve Order function to additional securities
during the pilot period, based on how successful the results of the
pilot are. The Exchange proposes that the pilot program operate until
September 30, 2008, or such earlier time that the Exchange determines
that the pilot is operating successfully and files with the Commission
to have it extended to all securities trading on the NYSE.
Execution Logic Amendments Prior to Completion of the Reserve Order
Pilot
The Exchange represents that it intends to submit a formal proposal
prior to the completion of the Reserve Order Pilot to modify how
interest is allocated during an execution outside the Exchange BBO to
provide for the allocation of shares to displayable quantities of
interest, including the displayable portion of a Reserve Order and
displayable reserve order interest represented by Floor brokers, prior
to any share allocation to the non-displayable portion thereof.\18\
---------------------------------------------------------------------------
\18\ See email from Deanna Logan, Associate General Counsel,
NYSE, to David Liu, Assistant Director, Division of Trading and
Markets, Commission, on April 18, 2008.
---------------------------------------------------------------------------
Specifically, Reserve Order interest and the portion of reserve
interest represented by Floor brokers that is designated to be
displayed, (i.e., designated to be published in the Exchange quote or
``displayable'') will be executed first on parity. The
[[Page 22198]]
incoming order will be divided equally among each participant's (e.g.,
DOT orders and each Floor broker) displayable interest at that price
point on parity. Once all displayable interest has been completely
executed, any remainder of an incoming order will be executed against
any reserve, i.e., non-displayable, interest at that price point. Such
non-displayable interest will also be executed on parity.\19\
---------------------------------------------------------------------------
\19\ Id.
---------------------------------------------------------------------------
To illustrate how this will work for a trade, assume that the bid
on the Exchange is $20.05 for 1,000 shares, consisting of a DOT order
of 600 shares and Floor broker agency interest file (e-Quote) volume of
400 shares representing interest of two Floor brokers for 200 shares
each. There is no interest at $20.04, but at $20.03 the same amount of
displayable interest of 1,000 shares exists and there is reserve
interest for the DOT order of 600 shares and 600 for each Floor broker
(total of 1,200 shares) for a total of 1,800 shares in reserve. An
incoming order to sell 2,800 shares would be executed as follows:
1,000 shares trade with the displayed bid of $20.05 and is
allocated 600 shares to the DOT order and 200 shares to each Floor
broker (400 shares total), leaving 1,800 shares to be executed.
There is no interest at $20.04. The 1,800 shares remaining
will be executed first against the 1,000 shares that has been
designated as displayable interest at the price of $20.03, leaving 800
shares to be executed.
Then the reserve portion of the DOT Reserve Order receives
an allocation of 300 shares, 300 shares of interest is allocated to the
reserve interest of the Floor broker who was next in line and 200
shares to the reserve interest of the other Floor broker for a total of
800 shares, completing the incoming order.
Conclusion
The Exchange believes that by providing all market participants
with the ability to maintain non-displayed liquidity on the Display
Book, market participants will be encouraged to post liquidity and thus
offer Exchange customers additional opportunities for price improvement
by expanding the interest available to execute against incoming orders
at a single price. The Exchange further believes that the amendment of
NYSE Rule 70.20 will result in a better execution experience for its
customers by allowing them to participate in manual executions.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirement under section 6(b)(5) \20\ of the Act that an
Exchange have rules that are designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Exchange
also believes that the proposed rule change also is designed to support
the principles of section 11A(a)(1) \21\ in that it seeks to assure
economically efficient execution of securities transactions, fair
competition among brokers and dealers, among exchange markets, and
between exchange markets and markets other than exchange markets, and
provide an opportunity for investors' orders to be executed without the
participation of a dealer. The Exchange believes that the instant
proposal is in keeping with these objectives in that extending reserve
order functionality will provide an opportunity for all market
participants to receive efficient, low cost executions available
through the use of this order type, and promote fair competition among
markets which already provide for entry of Reserve Orders by all market
participants.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b)(5).
\21\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
section 19(b)(3)(A) \22\ of the Act and Rule 19b-4(f)(6)
thereunder.\23\ As required under Rule 19b-4(f)(6)(iii),\24\ the
Exchange provided the Commission with written notice of its intent to
file the proposed rule change, along with a brief description and text
of the proposed rule change, at least five business days prior to the
date of the filing of the proposed rule change.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6).
\24\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The NYSE requests that the Commission waive the
30-day operative delay, as specified in Rule 19b-4(f)(6)(iii), which
would make the rule change operative upon filing. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because such waiver
would immediately allow off-Floor participants to directly enter orders
that use reserve functionality that is currently available to Floor
brokers and specialists. In addition, the proposed reserve
functionality is currently available on other exchanges.\25\ The
Commission also believes that the proposed amendment to NYSE Rule
70.20(h) to allow participation by Floor broker interest in manual
executions should provide investors with the opportunity to receive
economically efficient executions of their securities transactions.
Accordingly, the Commission designates the proposed rule change to be
operative upon filing with the Commission.
---------------------------------------------------------------------------
\25\ See, e.g., Nasdaq Rule 4751(f)(2); Securities Exchange Act
Release No. 54155 (July 14, 2006), 71 FR 41291 (July 20, 2006)
(NASDAQ-2006-001).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.\26\
---------------------------------------------------------------------------
\26\ For purposes of calculating the 60-day period within which
the Commission may summarily abrogate the proposed rule change under
Section 19(b)(3)(C) of the Act, the Commission considers the period
to commence on April 18, 2008, the date on which the NYSE submitted
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
[[Page 22199]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2008-30 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2008-30. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the NYSE. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2008-30 and should be
submitted on or before May 15, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
---------------------------------------------------------------------------
\27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Nancy M. Morris,
Secretary.
[FR Doc. E8-8878 Filed 4-23-08; 8:45 am]
BILLING CODE 8010-01-P
