Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by NYSE Amex LLC Amending NYSE Amex Equities Rule 123C To Modify the Procedures for Its Closing Process and Make Conforming Changes to NYSE Amex Equities Rules 13 and Rule 15, 59308-59318 [E9-27502]

Download as PDF 59308 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices the objectives of Section 6(b)(5) of the Act,73 in particular, in that 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 rule change will facilitate the timely and efficient closing of securities on the Exchange by increasing transparency and providing market participants with an additional method of offset imbalances prior to the closing transaction that ultimately serves to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. mstockstill on DSKH9S0YB1PROD 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 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. The Exchange has requested accelerated approval of this proposed rule change prior to the 30th day after the date of publication of the notice in the Federal Register. The Commission is considering granting accelerated approval of the proposed rule change at the end of a 21-day comment period. 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: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–60973; File No. SR– NYSEAmex–2009–81] • 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–2009–111 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by NYSE Amex LLC Amending NYSE Amex Equities Rule 123C To Modify the Procedures for Its Closing Process and Make Conforming Changes to NYSE Amex Equities Rules 13 and Rule 15 November 9, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 9, 2009, NYSE Amex LLC (‘‘NYSE All submissions should refer to File Amex’’ or the ‘‘Exchange’’) filed with Number SR–NYSE–2009–111. This file the Securities and Exchange number should be included on the subject line if e-mail is used. To help the Commission (‘‘Commission’’) the proposed rule change as described in Commission process and review your Items I, II, and III below, which Items comments more efficiently, please use only one method. The Commission will have been prepared by the Exchange. post all comments on the Commission’s The Commission is publishing this notice to solicit comments on the Internet Web site (https://www.sec.gov/ proposed rule change from interested rules/sro.shtml). Copies of the persons. submission, all subsequent amendments, all written statements I. Self-Regulatory Organization’s with respect to the proposed rule Statement of the Terms of Substance of change that are filed with the the Proposed Rule Change Commission, and all written The Exchange proposes amendments communications relating to the to NYSE Amex Equities Rule 123C proposed rule change between the Commission and any person, other than (Market On The Close Policy And Expiration Procedures) to modify the those that may be withheld from the procedures for its closing process; and public in accordance with the make conforming changes to NYSE provisions of 5 U.S.C. 552, will be Amex Equities Rule 13 (‘‘Definitions of available for inspection and copying in Orders’’) and Rule 15. The text of the the Commission’s Public Reference Room, on official business days between proposed rule change is available at the Exchange, the Commission’s Public the hours of 10 a.m. and 3 p.m. Copies Reference Room, and https:// of the filing also will be available for www.nyse.com. inspection and copying at the principal office of the Exchange. All comments II. Self-Regulatory Organization’s received will be posted without change; Statement of the Purpose of, and the Commission does not edit personal Statutory Basis for, the Proposed Rule identifying information from Change submissions. You should submit only information that you wish to make In its filing with the Commission, the available publicly. All submissions self-regulatory organization included should refer to File Number SR–NYSE– statements concerning the purpose of, 2009–111 and should be submitted on and basis for, the proposed rule change or before December 8, 2009. and discussed any comments it received on the proposed rule change. The text For the Commission, by the Division of of those statements may be examined at Trading and Markets, pursuant to delegated the places specified in Item IV below. authority.74 The Exchange has prepared summaries, Florence E. Harmon, set forth in sections A, B, and C below, Deputy Secretary. of the most significant parts of such [FR Doc. E9–27503 Filed 11–16–09; 8:45 am] statements. BILLING CODE 8011–01–P 1 15 73 15 U.S.C. 78f(b)(5). VerDate Nov<24>2008 20:50 Nov 16, 2009 74 17 Jkt 220001 PO 00000 CFR 200.30–3(a)(12). Frm 00196 Fmt 4703 Sfmt 4703 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose mstockstill on DSKH9S0YB1PROD with NOTICES In October 2008, NYSE Amex implemented sweeping changes to its market rules and execution technology that were designed to improve execution quality on the Exchange. Among the elements of the enhanced Exchange market model, NYSE Amex eliminated the function of specialists on the Exchange by creating a new category of market participant, the Designated Market Maker or DMM. The DMMs, like specialists, have affirmative obligations to make an orderly market in assigned securities, including continuous quoting requirements and obligations to re-enter the market when reaching across to execute against trading interest. NYSE Amex also recognized that in view of the NYSE’s electronic execution functionality, the DMM, unlike the specialist, would no longer be deemed the agent for every incoming order. NYSE Amex also responded to customer demand and created new order types to represent additional undisplayed reserve interest. NYSE Amex has also focused on streamlining and improving efficiency of its closing process by implementing a single print close,3 activating systemic compliance filters for market at-theclose (‘‘MOC’’) and limit at-the-close (‘‘LOC’’) orders and enhancing the transparency of its informational data feed for imbalances by including dQuotes 4 and all other e-Quotes 5 containing pegging instructions eligible to participate in the closing transaction in the NYSE Amex Order Imbalance Information datafeed.6 In continuing the enhancements to the Exchange’s market model, the Exchange seeks to amend NYSE Amex Equities Rule 123C to streamline the closing process, enhance transparency on the close 7 and allow for greater customer participation when there is an imbalance in a security prior to the closing transaction. Specifically, the Exchange proposes to amend NYSE Amex Equities Rule 123C to: (i) Extend the time for the entry of MOC and LOC 3 See Securities Exchange [sic] Release No. 59360 (February 4, 2009), 74 FR 6936 (February, 2009) (SR–NYSEALTR–2009–06). 4 See NYSE Amex Equities Rule 70, Supplementary Material .25. 5 See NYSE Amex Equities Rule 70(a). 6 See Securities Exchange [sic] Release No. 59743 (April 9, 2009), 74 FR 17699 (April 16, 2009) (SR– NYSE Amex–2009–11). 7 Conforming changes related to the information disseminated prior to the opening transaction are also proposed in this filing. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 orders 8 from 3:40 p.m. to 3:45 p.m.; (ii) amend the procedures for the entry of MOC/LOC orders in response to imbalance publications and regulatory trading halts; (iii) change the cancellation time for MOC/LOC orders to 3:58 p.m.; (iv) require only one mandatory imbalance publication; (v) rescind the provisions governing Expiration Friday Auxiliary Procedures for the Opening and Due Diligence Requirements; (vi) modify the dissemination of Order Imbalance Information pursuant to NYSE Rule 123C(6) to commence at 3:45 p.m.; (vii) include additional information in both the pre-opening and pre-closing Order Imbalance Information data feeds; (viii) amend NYSE Rule 13 to create a conditional-instruction limit order type called the Closing Offset Order (‘‘CO order’’), which may only be used to offset an existing imbalance of orders on the close; (ix) delete the ‘‘At the Close’’ order type from NYSE Rule 13 and replace it with the specific definitions of MOC and LOC orders; and (x) codify the hierarchy of allocation of interest in the closing transaction in NYSE Rule 123(C). The Exchange notes that similar changes are proposed to the rules of its affiliate, New York Stock Exchange LLC (‘‘NYSE’’).9 Current Closing Procedures NYSE Amex Equities Rule 123C prescribes, inter alia, the procedure for the entry and execution of MOC and marketable LOC orders and the determination of the closing print(s) to be reported to the Consolidated Tape for each security at the close of trading. Pursuant to NYSE Amex Equities Rule 123C market participants may enter an MOC order for execution as part of the closing transaction at the price of the close.10 Similar to a market order, an MOC order is to be executed in its entirety at the closing price; however, if the order is not executed as a result of a trading halt or because of its terms (e.g., buy minus or sell plus), the MOC order is cancelled.11 Market participants that seek to have their orders executed on the close but are sensitive to price, may pursuant to NYSE Amex Equities Rule 123C, enter LOC orders that will be eligible for execution in the closing transaction, provided that the closing price is at or 8 In the NYSE Amex Equities Rules and for the purposes of this discussion, the terms ‘‘market-onclose’’ and ‘‘limit-on-close’’ are used interchangeably with ‘‘market-at-the-close’’ and ‘‘limit-at-the-close’’. 9 See SR–NYSE–2009–111. 10 See NYSE Amex Equities Rule 123C(1). 11 See Id. PO 00000 Frm 00197 Fmt 4703 Sfmt 4703 59309 within the limit specified.12 An LOC order is not guaranteed an execution in the closing transaction; rather, only an LOC order with a limit price that is better 13 than the closing price is guaranteed an execution.14 An LOC order limited at the closing price is sequenced with other LOC orders on the Display Book® 15 (‘‘Display Book’’) in time priority of receipt in Exchange systems and is available for execution after all other orders on the Display Book at the closing price are executed, regardless of when such other orders are received.16 NYSE Amex Equities Rule 123C(1) and (2) require that all MOC/LOC orders be entered by 3:40 p.m. in any stock on any trading day, unless entered to offset a published imbalance, or on either side of the market if a regulatory halt is in effect at 3:40 p.m. or occurs after that time. Pursuant to NYSE Amex Equities Rule 123C, between 3:40 and 3:50 p.m., MOC/LOC orders are irrevocable, except to correct a legitimate error (e.g., side, size, symbol, price, or duplication of an order) or when a regulatory trading halt is in effect 17 at or after 3:40 p.m. During normal trading conditions, cancellations or reductions in the size of a MOC/LOC orders after 3:50 p.m. are not permitted for any reason, even in the case of legitimate error, except as provided in NYSE Amex Equities Rule 123C(8)(a)(2). Currently, NYSE Amex Equities Rule 123C(8) allows the Exchange to temporarily suspend certain requirements related to the closing of securities, provided certain conditions are met.18 If a suspension is invoked in 12 See NYSE Amex Equities Rule 123C(2). used herein, ‘‘better priced than the closing price’’ means an order that is lower than the closing price in the case of an order to sell or higher than the closing price in the case of an order to buy. 14 It should be noted that orders are cancelled if there is a trading halt in the security that is not lifted prior to the close of trading. 15 The Display Book system is an order management and execution facility. The Display Book system receives and displays orders to the DMM, contains order information, and provides a mechanism to execute and report transactions and publish 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. 16 See NYSE Amex Equities Rule 123C(2). 17 In the case of a regulatory halt, MOC orders may be entered until 3:50 p.m. or until the stock reopens, whichever occurs first, even if an imbalance publication occurred prior to the regulatory halt. 18 See Securities Exchange [sic] Release No. 59755 (April 13, 2009), 74 FR 18009 (April 20, 2009) (SR–NYSEALTR–2009–15) (approving the ability of the Exchange to temporarily suspend certain requirements related to the closing of securities on the Exchange with the provisions of 13 As E:\FR\FM\17NON1.SGM Continued 17NON1 59310 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES a security pursuant to NYSE Amex Equities Rule 123C(8)(a)(2), MOC/LOC interest may be cancelled or reduced after 3:50 p.m.19 Exchange systems calculate imbalance of MOC and marketable LOC orders (i.e., more shares to buy than sell or vice versa) by netting the aggregate amount of MOC shares and marketable LOC buy orders against the aggregate amount of MOC shares and marketable LOC sell orders.20 Between 3 p.m. and 3:40 p.m., if there is an imbalance of MOC/LOC orders, a DMM who has received Floor Official approval may publish an imbalance of any size (‘‘Informational Imbalance’’). If the DMM publishes an Informational Imbalance and at 3:40 p.m. there exists an imbalance of 25,000 shares or more, or any other significant imbalance, the DMM must publish that updated imbalance information as soon as possible after 3:40 p.m. If there is neither a significant imbalance nor one of 25,000 shares or more, the DMM is required to publish a ‘‘no imbalance’’ message if an Informational Imbalance was published. If the DMM publishes a ‘‘no imbalance’’ message at 3:40 p.m. and a significant imbalance or one of 25,000 shares or more occurs between 3:40 and 3:50 p.m., then the DMM must publish the imbalance information as soon as possible after 3:50 p.m. In the absence of an Informational Imbalance publication, if at 3:40 p.m. NYSE Amex Equities Rule 123(C)(8)(a)(1) operating as a pilot scheduled to end on October 12, 2009). See also Securities Exchange [sic] Release No. 60808 (October 9, 2009), 74 FR 53539 (October 19, 2009) (SR–NYSEAmex–2009–70) (extending the Exchange ability to temporarily suspend certain requirements related to the closing of securities on the Exchange with the provisions of NYSE Amex Equities Rule 123(C)(8)(a)(1) operating as a pilot scheduled to end on December 31, 2009). Pursuant to 123C(8), to avoid closing price dislocation that may result from an order entered into Exchange systems or represented to a DMM orally at or near the close, the Exchange may temporarily suspend the hours during which the Exchange is open for the transaction of business pursuant to NYSE Amex Equities Rule 52. A determination to declare such a temporary suspension is made on a security-bysecurity basis. The determination, as well as any entry or cancellation of orders or closing of a security pursuant to NYSE Amex Equities Rule 123C(8)(a) must be supervised and approved by either an Executive Floor Governor or a qualified NYSE Euronext employee, as defined under NYSE Amex Equities Rule 46(b)(v), and supervised by a qualified Exchange Officer, as defined in NYSE Amex Equities Rule 48(d). 19 Pursuant to NYSE Amex Equities Rule 123C(8)(a)(2), with approval of an Executive Floor Governor or a qualified NYSE Euronext employee, MOC/LOC orders may be cancelled or reduced if: (i) The cancellation or reduction is necessary to correct a legitimate error; and (ii) [sic] Execution of such an MOC or LOC order would cause significant price dislocation at the close. 20 See NYSE Amex Equities Rule 116.40(B) and 123C(3)(A). VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 there is an imbalance of 25,000 shares or more of MOC/LOC orders, the DMM is required to publish the imbalance information to the Consolidated Tape in order to solicit contra-side interest.21 The published imbalance information must be updated again at 3:50 p.m. with the current numerical imbalance or a no imbalance message.22 NYSE Amex Equities Rule 123C(6) further allows Exchange systems to disseminate a data feed of real-time order imbalances that accumulate prior to the close of trading on the Exchange (‘‘Order Imbalance Information’’).23 Order Imbalance Information is supplemental information disseminated by the Exchange prior to a closing transaction.24 Specifically, Order Imbalance Information is disseminated every fifteen seconds between 3:40 p.m. and 3:50 p.m.; thereafter, it is disseminated every five seconds between 3:50 p.m. and 4 p.m. 25 The mandatory publications are included in both the Order Imbalance Information data feed and on the Consolidated Tape. In addition, commencing at 3:55 p.m., the Order Imbalance Information data feed also includes d-Quotes 26 and all other e21 See NYSE Amex Equities Rule 123C(1), (2) and (5). Imbalance publications pursuant to these provisions of the rule are interpreted as the mandatory publications. 22 At 3:50 p.m., a ‘‘no imbalance message’’ indicates that the subsequent imbalance of shares, is less than 50,000 shares and is not significant in relation to the average daily trading volume in the security. 23 See Securities Exchange [sic] Release Nos. 59743 (April 9, 2009), 74 FR 17699 (April 16, 2009) (SR–NYSEAmex–2009–11) (establishing Order Imbalance Information); 60385 (July 24, 2009), 74 FR 30184 (July 31, 2009) (SR–NYSEAmex–2009–26) (establishing fees for Order Imbalance Information); 60151 (June 19, 2009) 74 FR 30653 (June 29, 2009) (SR–NYSEAmex–2009–29) (including Floor broker agency interest containing pegging and/or discretionary instructions eligible for execution in the closing transaction in Order Imbalance Information). 24 See NYSE Amex Equities Rule 123C(6). Pursuant to NYSE Amex Equities Rule 15, the Exchange also distributes information about imbalances in real-time at specified intervals prior to the opening transaction. The pre-opening Order Imbalance Information data feed is disseminated (i) every five minutes between 8:30 a.m. and 9 a.m.; (ii) every one minute between 9 a.m. and 9:20 a.m.; and (iii) every 15 seconds between 9:20 a.m. and the opening (or 9:35 a.m. if the opening is delayed). 25 On any day that the scheduled close of trading on the Exchange is earlier than 4:00 p.m., the dissemination of Order Imbalance Information prior to the closing transaction will commence 20 minutes before the scheduled closing time. Order Imbalance Information will be disseminated every fifteen seconds for approximately 10 minutes. Thereafter, the Order Imbalance Information will be disseminated ever [sic] five seconds until the scheduled closing time. 26 This type of Floor broker agency interest contains discretionary instructions as to size and/ or price of an e-Quote. See NYSE Amex Equities Rule 70 Supplementary Material .25. PO 00000 Frm 00198 Fmt 4703 Sfmt 4703 Quotes 27 containing pegging instructions 28 eligible to participate in the closing transaction.29 The Order Imbalance Information data feed prior to the close calculates the reference price, when the last sale price does not fall within the best bid and the best offer on the Exchange at the time that the Exchange calculates a closing imbalance for a security,30 as follows: • If the last sale price is lower than the Bid price, then the Bid Price will serve as the Reference Price. • If the last sale price is higher than the Offer price, then the Offer Price will serve as the Reference Price. • If the last sale price falls within the Exchange’s best bid and offer for the 27 Floor brokers are permitted to represent orders electronically through the use of e-Quotes. See NYSE Amex Equities Rule 70(a)(i). 28 This type of Floor broker agency interest contains a distinct instruction that may be used in conjunction with an e-Quote and/or a d-Quote. See NYSE Amex Equities Rule 70, Supplementary Material .26. This type of instruction allows the Floor broker to maintain his/her interest in the Exchange Best Bid or Offer (‘‘BBO’’) if the quote moves from the orders initial quote price. Pegged interest moves with the Exchange BBO within the designated range. Any discretionary instructions associated with that interest will continue to be applied as long as it is within the Floor broker’s designated price range. Buy side e-Quotes will peg to the best bid and sell side e-Quotes will peg to the best offer. The Exchange filed a proposal with the SEC to amend NYSE Amex Equities Rule 70.25 to permit d-Quotes to be active throughout the trading day and to provide for discretionary instructions that a d-Quote will execute only if a minimum trade size requirement is met, and to amend NYSE Amex Equities Rule 70.26 to provide for e-Quotes and d-Quotes to peg to the National best bid or offer (‘‘NBBO’’) rather than the Exchange best bid or offer (‘‘BBO’’). See Securities and Exchange [sic] Release No. 60887 (October 27, 2009), 74 FR 56889 (November 3, 2009) (SR– NYSEAmex–2009–76). 29 Similarly, in the case of the pre-opening Order Imbalance Information data feed, all interest eligible to trade in the opening transaction, excluding oddlot orders and the odd-lot portion of partial roundlot orders, are included in the data feed. Floor broker interest includes all interest except nondisplayed reserve interest marked ‘‘do not display.’’ Customer interest includes all interest except for non-displayed reserve interest. DMM interest is not included in the pre-opening Order Imbalance Information data feed. 30 The reference price for the pre-opening Order Imbalance Information data feed is equal the last sale (previous closing price) or the price indication published under the Rule 15 or 123D. Therefore, when the Exchange publishes a pre-opening indication in a security pursuant to the provisions of paragraphs (a) and (b) of NYSE Amex Equities Rule 15 or NYSE Amex Equities Rule 123D, the reference price will be determined as follows: If the Bid Price from the indication (the lower price) is higher than the last sale, the Reference Price will be the Bid. If the Offer Price from the indication (the higher price) is lower than the last sale, the Reference Price will be the Offer. If the Last Sale is within the indication range, the Book will use the Last Sale as the Reference Price. If multiple indications have been published, the last indication that the Exchange makes available will be used as the Reference Price. E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices security, the last sale price will serve as the Reference Price. mstockstill on DSKH9S0YB1PROD with NOTICES Examples (1) The sale in XYZ security prior to the dissemination of the order imbalance feed was at a price of $15.00. The quote prior to the dissemination of the data feed is 100 shares bid at a price of $15.02 and 500 shares offered at a price of $15.20. The reference price for the NYSE Order Imbalance data feed in XYZ security will be $15.02. (2) The sale in XYZ security prior to the dissemination of the order imbalance feed was at a price of $15.00. The quote prior to the dissemination of the data feed is 100 shares bid at a price of $14.91 and 500 shares offered at a price of $14.99. The reference price for the NYSE Order Imbalance data feed in XYZ security will be $14.99. (3) The sale in XYZ security prior to the dissemination of the order imbalance feed was at a price of $15.00. The quote prior to the dissemination of the data feed is 100 shares bid at a price of $14.98 and 500 shares offered at a $15.02. The reference price for the NYSE Order Imbalance data feed in XYZ security will be $15.00. Only the mandatory indications published pursuant to NYSE Amex Equities Rule 123C(1) control whether a party may enter MOC/LOC interest to offset an imbalance publication. In executing the closing transaction, Exchange systems calculate the shares of MOC and marketable LOC orders on each side of the market. Where there is an imbalance, the shares constituting the imbalance are executed against the offer side (in case of a buy imbalance) or the bid side (in the case of a sell imbalance).31 The remaining MOC and marketable LOC buy and sell orders are paired off against each other at the price at which the imbalance shares were executed.32 The imbalance and the pair off transaction are reported to the Consolidated Tape as a single transaction.33 If there is no imbalance, the aggregate buy and sell MOC and marketable LOC orders are paired off at the price of the last sale on the Exchange prior to the close of trading in the security.34 This transaction is reported to the Consolidated Tape as a single transaction.35 Any stop orders that are elected by the closing price in a particular security 31 See NYSE Rules 123C(3) and 116.40(B). NYSE Rules 123C(3). 33 See NYSE Rules 123C(3) and 116.40(C). 34 See NYSE Amex Equities Rules 116.40(C) and 123C(3)(B). 35 See Id. 32 See VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 are automatically and systemically converted into market orders and are included in the total number of MOC orders to be executed at the close for that security.36 Interest executed in the closing transaction is allocated pursuant to NYSE Amex Equities Rule 72 (‘‘Priority of Bids and Offers and Allocation of Executions’’) and consistent with the hierarchy of interest which currently is only codified in the NYSE Floor Official Manual.37 In the hierarchy of allocation, better priced interest must receive an execution in whole or in part 38 (‘‘must execute interest’’) in order for the security to close. Included in this category are MOC orders without tick restrictions, MOC orders with tick restrictions that are eligible to be executed at a price better than the closing price, better priced limit orders, better priced LOC orders with or without tick restrictions that are eligible for execution at a better price than the closing price and Crowd interest.39 After the ‘‘must execute interest’’ is satisfied, then any limit orders represented in Display Book at the closing price may be used to offset the remaining imbalance. It should be noted that DMM interest, including better priced DMM interest entered into the Display Book prior to the closing transaction, eligible to participate in the closing transaction is always included in the hierarchy of execution as if it were interest equal to the price of the closing transaction. Next eligible for execution in the hierarchy of allocation for the closing transaction are LOC orders without tick restrictions limited to the closing price, then MOC orders that have tick restrictions which limit the order’s price to the price of the closing transaction,40 followed by LOC 36 See NYSE Amex Equities Rules 116.40(A) and 123C(3)(A). 37 See New York Stock Exchange Inc., Floor Official Manual, 214–215 (June 2004 Edition). The NYSE ceased publication of the Floor Official Manual after this edition. The proposed amendments herein seek to add transparency to the closing process and will incorporate the hierarchy of allocation into the proposed rule text. NYSE Amex’s equity trading systems and facilities are operated by the NYSE on behalf of the Exchange. The allocation logic for equity securities on NYSE Amex is the same as that utilized by the NYSE. See Securities Exchange Act Release No. 58673 (September 29, 2008), 73 FR 57707 (October 3, 2008) (SR–NYSE–2008–60 and SR–Amex–2008–62) (approving the Merger). 38 MOC orders must be executed in its entirety at the closing price. Marketable limit orders receive an execution subject to the availability of contra side volume. 39 As used herein, Crowd interest means verbal Floor broker interest at the market entered by the DMM to interact with orders in the Display Book. 40 For example, the last sale on the Exchange was at a price of $46.00 on a minus tick, the closing price is $46.01, all sell plus MOC orders are limited PO 00000 Frm 00199 Fmt 4703 Sfmt 4703 59311 orders limited to the price of the closing transaction that have tick restrictions and finally ‘‘G’’ orders,41 including all better priced ‘‘G’’ orders. Once the last sale in the security occurs, the DMM organizes the closing transaction by considering Crowd interest, interest available to participate on the close and his own trading interest (consistent with affirmative obligations).42 Pursuant to the DMM’s affirmative obligation, the DMM should minimize price dislocation caused by disparity between supply and demand. At that point, he or she must assess potential imbalances (if any) at various potential closing price points in order to price the close. The DMM will generally close the security by picking a price point that he or she believes is an appropriate price based on supply and demand and may insert DMM trading interest. Example of a Current Close Including the Imbalance Publications Example #1 XYZ security has an average daily trading volume of approximately 250,000 shares. At 3:10 p.m. XYZ receives a buy MOC order for 20,000 shares. Shortly thereafter, in consultation with a Floor Official, the DMM publishes an Informational Imbalance. By 3:40 p.m. the buy imbalance has increased to 100,000 shares and the DMM disseminates a mandatory imbalance publication showing the updated amount. Also at 3:40 the Order Imbalance Information data feed commences and is disseminated every 15 seconds thereafter. By 3:50 p.m. the DMM has received 50,000 shares of sell MOC interest to offset the 150,000 share buy imbalance. to the closing price of $46.01 because the closing transaction would be the next plus tick. 41 Section 11(a)(1) of the Act generally 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 any account over which it or an associated person exercises discretion. See 15 U.S.C. 78k(a)(1). Subsection (G) of Section 11(a)(1) provides an exemption allowing an exchange member to have its own Floor broker execute a proprietary transaction (‘‘G order’’). A g-Quote is an electronic method for Floor brokers to represent G orders. G orders on NYSE Amex yield priority, and parity to all other non-G orders. 42 DMMs [sic] trading interest is determined in part by risk management goals. DMMs may manage risk by trading on the same side of the imbalance if consistent with his or her affirmative obligation under NYSE Amex Equities Rule 104 and other NYSE Amex and SEC rules. If the DMM participates on the same side of an order imbalance in a security such that the price of the security moves significantly, this may raise a concern as to whether the DMM is meeting his or her affirmative obligation and other regulatory requirements. E:\FR\FM\17NON1.SGM 17NON1 mstockstill on DSKH9S0YB1PROD with NOTICES 59312 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices At 3:50 p.m. the DMM disseminates another mandatory imbalance publication updating the imbalance to a 50,000 share buy imbalance. Also at 3:50 the Order Imbalance information data feed increases the frequency of its publications to every 5 seconds. Beginning at 3:55 p.m. the Order Imbalance data feed includes dQuotes and all other e-Quotes containing pegging instructions that are eligible to participate in the closing transaction based on current execution prices. The DMM did not receive any additional offsetting interest between 3:50 and 4 p.m. (official closing time) so the imbalance remained at 50,000 shares to buy. The last bid in XYZ security prior to the closing transaction was $19.85 and the offer was $20.00. The last sale prior to 4 p.m. (official closing time) was at $19.85. The sell interest on the Display Book leading into the closing transaction consists of: 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale; 2. 5,000 shares of Crowd market interest; 3. 10,000 shares of public limit orders at $20.24; 4. 5,000 shares of tick sensitive LOC interest at $20.24; 5. 5,000 shares of d-Quote interest that at its maximum discretion is $20.24; 6. 10,000 shares LOC interest at $20.25; 7. 5,000 shares of non-MOC ‘‘G’’ market orders. Given this interest available in Display Book, the DMM determines to close trading in XYZ security at a price of $20.25 and to sell 5,000 shares for the dealer account. The DMM interest is entered into the Display Book while the DMM is arranging the closing transaction which may be after 4 p.m. The DMM then executes the closing transaction in XYZ security at the price of $20.25. The closing execution logic is as follows: 43 The offsetting 50,000 shares of sell MOC interest is netted against 50,000 shares of the 100,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The remaining imbalance of 100,000 shares is offset by allocating it to the interest listed below, at the closing price 43 The execution occurs as a single transaction. The logic described in the text refers to how the Display book allocates shares, not the order of execution. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 of $20.25. As interest priced better than the closing price, numbers 1–5 below are required to be included in the closing transaction. 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale, which leaves a 45,000 share buy imbalance; 2. 5,000 shares of Crowd market interest which leaves a 40,000 share buy imbalance; 3. 10,000 shares of public limit orders at $20.24, which leaves an 30,000 share buy imbalance; and [sic] 4. 5,000 shares of tick sensitive LOC interest at $20.24 which leaves a 25,000 share buy imbalance; 5. 5,000 shares of d-Quote interest that at its maximum discretion is $20.24, which leaves a 20,000 share buy imbalance; 44 The remaining 20,000 share buy imbalance will be offset at the price of $20.25 as follows: 6. 5,000 shares of DMM interest, which leaves a 15,000 share buy imbalance; 7. 10,000 shares LOC interest at $20.25, which leaves a 5,000 share buy imbalance; and 8. 5,000 shares of non-MOC ‘‘G’’ orders. Example number 1 above is a simple closing transaction that demonstrates all interest eligible to receive an execution in the closing transaction being executed in full. In the above example, the offsetting interest was equal to the size of the actual buy imbalance; however, in the event that any one type of offsetting interest with precedence in the hierarchy is sufficient to fill the imbalance, that interest will be filled and the remaining interest lower in the hierarchy will receive a report of ‘‘nothing done.’’ Example number 2 below demonstrates this principle and further illustrates the operation of parity allocations in the closing transactions. Example #2 Assuming the same imbalance publication information and receipt of offsetting interest in Example #1. The last sale in the security is at the price of $19.85. Again, the offsetting sell MOC interest is of 50,000 shares is netted against 50,000 shares of the 100,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The sell interest on the Display Book now consists of: 44 Any super-marketable d-Quote interest that exercises its maximum discretion becomes better priced limit interest for the purposes of the hierarchy of execution and is included in the closing transaction as must execute interest. PO 00000 Frm 00200 Fmt 4703 Sfmt 4703 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale; 2. 5,000 shares of Crowd market interest; 3. 5,000 shares of tick sensitive LOC interest at $20.24; 4. 5,000 shares of d-Quote interest that at its maximum discretion is $20.24; 5. 10,000 shares e-Quote interest from a single Floor broker at $20.25; 6. 20,000 shares of public limit orders at $20.25; 7. 20,000 shares LOC interest at $20.25; 8. 10,000 shares of non-MOC ‘‘G’’ market orders. Given this interest available in Display Book, the DMM determines to close trading in XYZ security at a price of $20.25 and to sell 20,000 shares for the dealer account. The DMM interest is entered into the Display Book while the DMM is arranging the closing transaction which may be after 4 p.m. The DMM then executes the closing transaction in XYZ security at the price of $20.25. The closing execution logic is as follows: The offsetting 50,000 shares of sell MOC interest is netted against 50,000 shares of the 100,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The remaining imbalance of 50,000 shares is offset by allocating it to the interest listed below, at the closing price of $20.25. As interest priced better than the closing price, numbers 1–4 below are required to be included in the closing transaction. 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale, which leaves a 45,000 share buy imbalance; 2. 5,000 shares of Crowd market interest, which leaves a 40,000 share buy imbalance; 3. 5,000 shares of tick sensitive LOC interest at $20.24, which leaves an 35,000 share buy imbalance; 4. 10,000 shares of d-Quote interest that at its maximum discretion is $20.2424, which leaves a 30,000 shares buy imbalance; The remaining 30,000 shares of the buy imbalance will be offset at the price of $20.25 as follows: 5. 10,000 shares of e-Quote interest at $20.25, which leaves a 20,000 share buy imbalance; 6. 10,000 shares of at-priced DMM interest, which leaves a 10,000 shares buy imbalance; 7. 10,000 shares of public limit orders at $20.25, which fills the remaining 10,000 shares of the imbalance. E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices The remaining 10,000 shares of atpriced DMM interest and the 10,000 shares of public limit orders at $20.25 will not be executed.45 Additionally, the 20,000 shares LOC interest priced at $20.25 and 10,000 shares of ‘‘G’’ orders will also remain unexecuted and receive reports of ‘‘nothing done.’’ 46 Example #3 mstockstill on DSKH9S0YB1PROD with NOTICES Example #3 further illustrates a DMMM [sic] facilitation of the closing transaction and demonstrates that the DMM may enter his or her interest on the same side of the MOC/LOC imbalance when effecting the closing transaction. Assuming the same imbalance publication information and receipt of offsetting interest in Example #1. The last sale in the security in this Example #3 is at the price of $20.23. Again, the offsetting sell MOC interest is of 50,000 shares is netted against 50,000 shares of the 100,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The sell interest on the Display Book now consists of: 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale; 2. 5,000 shares of Crowd market interest; 3. 10,000 shares of tick sensitive LOC interest at $20.24; 4. 10,000 shares of public limit orders at $20.25; 5. 10,000 shares of d-Quote interest that at its maximum discretion is $20.24; 6. 10,000 shares of LOC interest at $20.25. In addition, while arranging the closing transaction after 4:00 p.m. the DMM enters 20,000 shares of DMM interest to buy for the dealer account.47 45 Interest represented in numbers 5–7 received an allocation of shares that is less than their full quantity consistent with NYSE Amex Equities Rule 72 which requires the shares to be allocated on a parity basis. Specifically, DMM interests, individual e-Quotes interests and public limit order interests each represent a distinct parity group which and the available shares are divided among the parity groups. 46 DMM interest is considered at price interest and is therefore higher in the hierarchy of execution than at priced LOC interest which are not guaranteed an execution pursuant to the provisions of 123C(2). It should be noted that DMM interest participating in the closing transaction is executed as if it were priced equal to the closing transaction. This includes DMM interest entered in Display Book prior to the closing transaction at better price points that are eligible to participate in the closing transaction. 47 See supra note 42. As previously noted DMM trading must be consistent with his or her affirmative obligation under NYSE Amex Equities Rule 104 and other NYSE Amex Equities Rules and SEC rules particularly in this example where the VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 There is additional sell interest on the Display Book that would accommodate the DMM’s additional interest as follows: 7. 10,000 shares of public limit orders to sell at $20.26; 8. 10,000 shares of public limit orders to sell at $20.27; Based on the interest available in Display Book on both sides of the market, the DMM has determined to close trading in XYZ security at a price of $20.27. The offsetting 50,000 shares of sell MOC interest is netted against 50,000 shares of the current 100,000 shares of the buy imbalance at a price of $20.27, leaving a buy imbalance of 120,000 shares (including DMM interest). The remaining imbalance of 120,000 shares is offset by allocating it to the interest listed below, at the closing price of $20.27. As interest priced better than the closing price, numbers 1–7 below are required to be included in the closing transaction. 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale, which leaves a 115,000 share buy imbalance; 2. 5,000 shares of Crowd Market interest, which leaves a 110,000 share buy imbalance; 3. 10,000 shares of tick sensitive LOC interest at $20.24, which leaves an 100,000 share buy imbalance; 4. 50,000 shares of public limit orders at $20.25, which leaves a 50,000 share buy imbalance; 5. 10,000 shares of d-Quote interest that at its maximum discretion is $20.24, which leaves a 40,000 share buy imbalance; 6. 20,000 shares LOC interest at $20.25, which leaves a 20,000 share buy imbalance; 7. 10,000 shares of public limit orders at $20.26, which leaves a 10,000 share buy imbalance; and 8. 10,000 shares of public limit orders at $20.27 are executed against the remaining 10,000 share buy imbalance. Additional Procedures Governed by NYSE Amex Equities Rule 123C In addition to current Market on the Close procedures, NYSE Amex Equities Rule 123C prescribes the Expiration Friday 48 Auxiliary Procedures for the DMM is participating on the same side of the imbalance. 48 An expiration day is a trading day prior to the expiration of index-related derivative products (futures, options or options on futures), whose settlement pricing is based upon opening or closing prices on the Exchange, as identified by a qualified clearing corporation (e.g., the Options Clearing Corporation). The twelve expiration days are ‘‘expiration Fridays’’ which fall on the third Friday in every month. If that Friday is an Exchange PO 00000 Frm 00201 Fmt 4703 Sfmt 4703 59313 Opening. The provisions of the rule govern the time of entry and the marking of orders related to expiring index contracts.49 Proposed New Closing Procedures The Exchange seeks to build on the changes NYSE Amex began this year as noted above, to simplify its closing procedures in order to provide customers with a more efficient closing process. The closing transaction on the Exchange continues to be a manual auction in order to facilitate greater price discovery and allow for the maximum interaction between market participants. While the Exchange currently provides DMM units with tools to facilitate an efficient closing process, the Exchange believes that changes proposed herein will maximize the use of those electronic tools and allow for an even more efficient closing process. Order Entry, Cancellation, Mandatory MOC/LOC Imbalance and Informational Imbalance Publications In order to optimize the efficient operation of the closing process, the Exchange proposes to amend NYSE Amex Equities Rule 123C to require electronic entry of all MOC and LOC orders, including those entered to offset imbalances.50 The Exchange believes that the electronic entry of MOC and LOC orders will allow the DMM to maximize the Display Book capability to continuously update and provide the DMM and trading community with imbalance information, thus enhancing the DMM’s ability to efficiently manage the closing process and customers with the ability to interact appropriately. The electronic entry of MOC and LOC interest will obviate the need to have an imbalance publication at 3:40 p.m. and 3:50 p.m. because the DMM will not have to manually keep track of the MOC/LOC interest; rather, Exchange systems will track the electronically holiday, there will be an expiration Thursday in such a month. 49 NYSE Amex Equities Rule 123C(7) requires, among other things, that orders related to index contracts whose settlement pricing is based upon the ‘‘Expiration Friday’’ opening prices must be received by 9:00 a.m. Orders not related to index contracts whose settlement is not based on opening prices may be received before or after 9:00 a.m. It further requires orders relating to opening-price settling contracts be identified ‘‘OPG’’ and sets forth procedures for firms that are unable to comply with the marking requirement. 50 In the event a Floor broker’s handheld device malfunctions, the DMM should assist the Floor broker by entering or cancelling MOC/LOC orders on the Floor broker’s behalf. DMMs perform this administrative function on a best efforts basis. See NYSE Information Memos 09–26 (June 18, 2009); NYSE Member Education Bulletin 05–24 (December 9, 2005) incorporated pursuant to the Merger. E:\FR\FM\17NON1.SGM 17NON1 59314 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES entered MOC/LOC interest. Exchange systems will therefore be able to provide more accurate and timely imbalance information to all market participants systemically. The Exchange’s customers have expressed that in the current more electronic environment two imbalance publications ten minutes apart are not useful. Accordingly, the Exchange proposes to modify the order information available prior to the closing transaction as described more fully below and amend NYSE Rule 123C to provide for a single imbalance publication as soon as practicable after 3:45 p.m., to be referred to as the ‘‘Mandatory MOC/LOC Imbalance Publication,’’ (herein ‘‘Mandatory MOC/ LOC Imbalance’’) when there is an imbalance: (i) of 50,000 shares or more; or (ii) of less than 50,000 shares that is deemed to be ‘‘significant’’ 51 (i.e., significant in relation to the average daily volume of the security).52 The last sale price at 3:45 p.m. will serve as the basis for the Mandatory MOC/LOC Imbalance. The Exchange intends to retain the current ability to publish an Informational Imbalance of any size. The Exchange seeks to extend the time for the publication of such imbalance from 3:40 p.m. until 3:45 p.m. in order to provide a mechanism for an imbalance publication prior to any Mandatory MOC/LOC Imbalance if the DMM in consultation with a Floor Official or qualified NYSE Amex Euronext employee as defined in Supplementary Material .10 of NYSE Amex Equities Rule 46 deem that such imbalance publication is warranted for the security. In extending the time to 3:45 p.m., the proposed rule will provide that a Mandatory MOC/LOC Imbalance or ‘‘no imbalance’’ notice must occur as soon as possible after 3:45 p.m.53 The proposed new rule will further explicitly state that the entry of MOC/ LOC orders in response to a Mandatory MOC/LOC Imbalance after 3:45 p.m. may be entered only to offset the 51 Mandatory MOC/LOC Imbalance publications for less than 50,000 shares may only be published with the prior approval of a Floor Official or qualified NYSE Euronext employee as defined in Supplementary Material .10 of NYSE Rule 46. 52 See proposed NYSE Rule 123C paragraphs (1)(d) (Definition: Mandatory MOC/LOC Imbalance) and (4) Calculation of MOC Imbalances. 53 See proposed NYSE Amex Equities Rule 123C paragraphs (1)(b) (Definition: Informational Imbalance) and (4) Calculation and Publication of MOC Imbalances) [sic]. In the event that an Informational Imbalance is disseminated prior to 3:45 and thereafter there is no Mandatory MOC/ LOC Imbalance, the DMM will be required to manual [sic] disseminate a ‘‘no imbalance’’ notification. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 published imbalance.54 In the case of a ‘‘no imbalance’’ notification, no offsetting MOC/LOC interest may be entered at all after 3:45 p.m.55 Given that MOC/LOC orders will be entered electronically, Exchange systems will keep track of the available interest thus making it more readily available for the DMM. The Exchange therefore further proposes to allow customers to cancel or reduce MOC/ LOC orders in the case of legitimate errors 56 between 3:45 p.m. and 3:58 p.m.57 Systemic tracking of MOC/LOC interest makes it entirely feasible for the DMM to review in two minutes the interest eligible to participate in the closing transaction and facilitate the execution of the closing transaction. After 3:58 p.m., cancellations or reduction in the size of MOC/LOC orders, even in the event of legitimate error, will not be permitted.58 The Exchange further proposes to provide all market participants an additional method to offset a published imbalance and proposes to create a conditional-instruction limit-type order that will be eligible to participate in the closing transaction to offset an order imbalance at the close, the CO order. The CO order will not be guaranteed to participate in the closing transaction. CO orders will be eligible to participate in the closing transaction when there is an imbalance of orders to be executed on the opposite side of the market from the CO order and there is no other interest remaining to trade at the closing price. This order type must yield to all other eligible interest. Unlike MOC/LOC orders, CO orders may be entered on any side of the market at anytime prior to the close.59 54 See proposed NYSE Amex Equities Rule 123C paragraphs (2)(b)(i) (Order entry). 55 See proposed NYSE Amex Equities Rule 123C paragraphs (2)(b)(ii) (Order entry). 56 Through the instant filing, the Exchange seeks to clarify what is meant by legitimate error as it applies to the closing process. The Exchange proposes to define a legitimate error in the proposed definition section of 123C. Specifically, a [sic] pursuant to proposed NYSE Rule 123C(1)(c), a legitimate error means an error in any term of an MOC or LOC order, such as price, number of shares, side of the transaction (buy or sell) or identification of the security. 57 See proposed NYSE Rule 123C(3) (Cancellation of MOC and LOC orders). The Exchange anticipates that DMMs will have sufficient time to perform the requisite calculations for the closing transaction while affording customers the ability to cancel or reduce in size an MOC/LOC order until 3:58 p.m. 58 Current NYSE Amex Equities Rule 123C(8)(a)(2) permits the Exchange to temporarily suspend the prohibitions on canceling or reducing an MOC or LOC order if there is an extreme order imbalance at or near the close. This filing would renumber that rule as proposed NYSE Amex Equities Rule 123C(9). 59 See proposed NYSE Amex Equities Rule 123C(2)(b)(iv). PO 00000 Frm 00202 Fmt 4703 Sfmt 4703 CO orders will not be included in the calculation of the Mandatory MOC/LOC Imbalance and Informational Imbalance. The Exchange proposes that the time periods to cancel a CO order be consistent with the cancellation requirements for MOC and LOC orders. As such, proposed NYSE Amex Equities Rule 123(C)(3) will provide that up to 3:45 p.m., a CO order may be canceled or reduced for any reason. Between 3:45 p.m. and 3:58 p.m., a CO order may be canceled or reduced only in the case of a legitimate error as that term is defined by proposed NYSE Amex Equities Rule 123C(1)(c). After 3:58 p.m., a CO order, like MOC/LOC orders, may not be cancelled for any reason. CO orders will be eligible to participate in the closing transaction only to offset an imbalance and do not add to or flip the imbalance. If there is an imbalance at the close and the price of the closing transaction is at or within the limit of the CO order, the CO order will be eligible to participate in the closing transaction, subject to strict time priority of receipt in Exchange systems among such eligible CO orders and after yielding to all other interest in the closing execution, including MOCs, marketable LOCs, ‘‘G’’ orders, DMM interest, and at-priced LOCs. CO orders deemed eligible to participate in the close will be executed at the price of the closing transaction. If the number of shares represented by CO orders is larger than the number of shares required to offset the imbalance, Exchange systems will execute only those shares of CO orders required to complete the execution of the imbalance in full based on the time priority of receipt in Exchange systems of the CO orders. CO orders therefore will not be allowed to swing an imbalance to the opposite side of the market. Accordingly, if there is a 50,000 share buy imbalance and 100,000 shares of CO orders eligible to sell at the closing price, the first 50,000 shares of CO orders that were entered into Exchange systems throughout the trading day will participate in the closing transaction. The remaining 50,000 shares of CO orders will not participate and will be cancelled. Modifications to Order Imbalance Information Data Feed Prior to the Closing and Opening Transaction The Exchange further proposes to modify the Order Imbalance data feed prior to closing transaction to commence at 3:45 p.m., the same time as the Mandatory MOC/LOC Imbalance. Pursuant to proposed NYSE Amex Equities Rule 123C(6)(a)(iii), the Order Imbalance data feed will be disseminated approximately every five E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES seconds between 3:45 p.m. and 4:00 p.m. Moreover, to increase transparency of order information prior to the execution of the closing transaction, the Exchange proposes to expand the order information included in the Order Imbalance Information data feed. Currently the pre-closing Order Imbalance Information data feed includes the: (i) Reference price; (ii) MOC/LOC imbalance and the side of the market; (iii) d-Quotes and all other eQuotes containing pegging instructions eligible to participate in the closing transaction; and (iv) MOC/LOC paired quantity at reference price. The proposed new data feed will continue to provide that information but also additionally include (i) CO orders on the opposite side 60 of the imbalance and (ii) at-priced LOC interest eligible to offset the imbalance. The proposed Order Imbalance Information data feed prior to the closing transaction will also make available two new data fields. The proposed new data fields will provide subscribers with a snap shot of the prices at which interest eligible to participate in the closing transaction would be executed in full against each other at the time data feed is disseminated. It will also provide subscribers with the price at which closing-only interest (i.e., MOC orders, marketable LOC orders, and CO orders on the opposite side of the imbalance) may be executed in full and the price at which orders in the Display Book (e.g., Minimum Display Reserve Orders, Floor broker reserve e-Quotes not designated to be excluded from the aggregated agency interest information available to the DMM (‘‘do not display’’), d-Quotes pegged e-Quotes, 61 and Stop orders) will be executed in full. Only those CO orders on the opposite side of the imbalance will be included in the calculation of the new data fields. In order to avoid compromising the reserve interest at price points between the quote, if the price at which all closing orders in the Display Book may be executed in full is at or between the quote, then both data fields indicating imbalance information will publish the price at which the closing-only interest 60 In the case of a buy imbalance, CO orders to sell at a price equal to or lower than the reference price are to be included in the imbalance. In the case of a sell imbalance, CO orders to buy at a price equal to or higher than the reference price are to be included in the imbalance. 61 d-Quotes and pegged e-Quotes included in this new data field of the Order Imbalance Information data feed are included at the price indicated on the order as the base price to be used to calculate the range of discretion and not at prices within their discretionary pricing instructions. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 (i.e., MOC orders, marketable LOC orders, and CO orders) may be executed in full. Similarly the Exchange proposes to conform the pre-opening Order Imbalance Information data feed to provide its market participants with more information prior to the opening transaction. As such, the pre-opening Order Imbalance Information data feed will include the price at which all the interest eligible to participate in the opening transaction may be executed in full.62 The Exchange does not propose to modify the time periods pursuant to NYSE Amex Equities Rule 15 when the pre-opening Order Imbalance data feed is disseminated. Moreover, the calculation of the reference price will also remain the same. Execution of the Closing Transaction The Exchange proposes to maintain its current execution logic and codify the hierarchy of allocation logic applied to interest participating in the closing transaction. Proposed NYSE Amex Equities Rule 123C(7) will list all the interest that must be executed or cancelled as part of the closing transaction and the hierarchy of the interest that may be used to offset the closing imbalance. Moreover, proposed NYSE Amex Equities Rule 123C(7) will add the CO order as the last interest eligible to participate in the closing transaction to offset an imbalance. The codification of hierarchy of allocation logic applied to interest participating in the closing transaction pursuant to proposed NYSE Amex Equities Rule 123C(7) will only slightly modify the execution of a closing transaction on the Exchange because it will now incorporate the new proposed CO order type into the closing transaction where it is eligible to participate. Example of a Close Including the Imbalance Publications Pursuant to Proposed NYSE Amex Equities Rule 123C 63 Example #4 XYZ security has an average daily trading volume of approximately 250,000 shares. At 3:10 p.m. XYZ receives a buy MOC order for 20,000 shares. Shortly thereafter, in consultation with a Floor Official, the DMM publishes an Informational Imbalance. By 3:45 p.m. the buy 62 See Proposed NYSE Amex Equities Rule 15. numbers 4–6 mirror example numbers 1–3 above in that all the examples illustrate the execution of the closing transaction based on the principles explained above; however, example numbers 4–6 also incorporate the proposed new CO order type. 63 Example PO 00000 Frm 00203 Fmt 4703 Sfmt 4703 59315 imbalance has increased to 100,000 shares and the DMM disseminates a mandatory imbalance publication showing the updated amount. Also at 3:45 the Order Imbalance Information data feed commences and is disseminated every 5 seconds thereafter. Beginning at 3:55 p.m. the Order Imbalance data feed includes d-Quotes and all other e-Quotes containing pegging instructions that are eligible to participate in the closing transaction based on current execution prices. The DMM received offsetting interest between 3:50 and 4 p.m. (official closing time) reducing the buy imbalance to 50,000 shares. The last bid in XYZ security prior to the closing transaction was $19.85 and the offer was $20.00. The last sale prior to 4 p.m. (official closing time) was at $19.85. The sell interest on the Display Book leading into the closing transaction consists of: 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale; 2. 5,000 shares of Crowd market interest; 3. 10,000 shares of public limit orders at $20.24; 4. 5,000 shares of tick sensitive LOC interest at $20.24; 5. 5,000 shares of d-Quote interest at its maximum discretion of $20.24; 6. 5, 000 shares LOC interest at $20.25; 7. 5,000 shares of non-MOC ‘‘G’’ market orders; and 8. 5,000 shares of CO orders. Given this interest available in Display Book on both sides of the market, the DMM determines to close trading in XYZ security at a price of $20.25 and to sell 10,000 shares for the dealer account. The DMM interest is entered into the Display Book while the DMM is arranging the closing transaction which may be after after 4 p.m. The DMM then executes the closing transaction in XYZ security at the price of $20.25. The closing execution logic is as follows: The offsetting 50,000 shares of sell MOC interest is netted against 50,000 shares of the 150,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The remaining imbalance of 50,000 shares is offset by allocating it to the interest listed below, at the closing price of $20.25. As interest priced better than the closing price, numbers 1–5 above are required to be included in the closing transaction. 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price E:\FR\FM\17NON1.SGM 17NON1 59316 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices better than the last sale, which leaves a 45,000 share buy imbalance; 2. 5,000 shares of Crowd market interest which leaves a 40,000 share buy imbalance; 3. 10,000 shares of public limit orders at $20.24, which leaves a 30,000 share buy imbalance; and [sic] 4. 5,000 shares of tick sensitive LOC interest at $20.24 which leaves a 25,000 share buy imbalance; 5. 5,000 shares of d-Quote interest that at its maximum discretion is $20.24; which leaves a 20,000 share buy imbalance; 64 The remaining 20,000 share buy imbalance will be offset at the price of $20.25 as follows: 6. 5,000 shares of DMM interest, which leaves a 15,000 share buy imbalance; 7. 5,000 shares LOC interest at $20.25, which leaves a 10,000 share buy imbalance; 8. 5,000 shares of non-MOC ‘‘G’’ orders which leaves a 5,000 share buy imbalance; and 9. 5,000 shares of CO orders fill the 5,000 shares remaining of the buy imbalance. In the above example, the offsetting interest was equal to the size of the actual buy imbalance; however, in the event that any one type of offsetting interest with precedence in the hierarchy is sufficient to fill the imbalance that interest will be filled and the remaining interest lower in the hierarchy will receive a report of ‘‘nothing done.’’ mstockstill on DSKH9S0YB1PROD with NOTICES Example #5 Assuming the same imbalance publication information and receipt of offsetting interest in Example #4. The last sale in the security is at the price of $19.85. Again, the offsetting sell MOC interest of 50,000 shares is netted against 50,000 shares of the 100,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The sell interest on the Display Book now consists of: 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale; 2. 5,000 shares of Crowd market interest; 3. 5,000 shares of tick sensitive LOC interest at $20.24; 4. 5,000 shares of d-Quote interest that at its maximum discretion is $20.24; 5. 10,000 shares of e-Quote interest from a single Floor broker at $20.25; 6. 20,000 shares of public limit orders at $20.25; 7. 20,000 shares LOC interest at $20.25; 8. 10,000 shares of non-MOC ‘‘G’’ market orders; 9. 10,000 shares of CO orders. Given this interest available in Display Book, the DMM determines to close trading in XYZ security at a price of $20.25 and to sell 50,000 shares for the dealer account. The DMM interest is entered into the Display Book while the DMM is arranging the closing transaction which may be after 4 p.m. The DMM then executes the closing transaction in XYZ security at the price of $20.25. The closing execution logic is as follows: The offsetting 50,000 shares of sell MOC interest is netted against 50,000 shares of the 100,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The remaining imbalance of 50,000 shares is offset by allocating it to the interest listed below, at the closing price of $20.25. As interest priced better than the closing price, numbers 1–4 below are required to be included in the closing transaction. 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale, which leaves a 45,000 share buy imbalance; 2. 5,000 shares of Crowd market interest, which leaves a 40,000 share buy imbalance; 3. 5,000 shares of tick sensitive LOC interest at $20.24, which leaves a 35,000 share buy imbalance; 4. 10,000 shares of d-Quote interest that at its maximum discretion is $20.24, which leaves a 30,000 shares buy imbalance; The remaining 30,000 shares of the buy imbalance will be offset at the price of $20.25 as follows: 5. 10,000 shares of e-Quote interest at $20.25, which leaves a 20,000 share buy imbalance; 6. 10,000 shares of at-priced DMM interest, which leaves a 10,000 shares buy imbalance; 7. 10,000 shares of public limit orders at $20.25, which fills the remaining 10,000 shares of the imbalance. The remaining 10,000 shares of atpriced DMM interest and the 10,000 shares of public limit orders at $20.25 will not be executed.65 Additionally, the 20,000 shares LOC interest priced at $20.25, 10,000 shares of ‘‘G’’ orders and 10,000 shares of CO orders will also remain unexecuted and receive reports of ‘‘nothing done.’’66 65 See 64 See supra text accompanying note 44. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 66 See PO 00000 supra text accompanying note 45. supra text accompanying note 46. Frm 00204 Fmt 4703 Sfmt 4703 Example #6 Assuming the same imbalance publication information and receipt of offsetting interest in Example #4. The last sale in the security in this Example #6 is at the price of $20.23. Again, the offsetting sell MOC interest is of 50,000 shares is netted against 50,000 shares of the 100,000 shares of the buy imbalance at a price of $20.25, leaving a buy imbalance of 50,000 shares. The sell interest on the Display Book now consists of: 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale; 2. 5,000 shares of Crowd market interest; 3. 10,000 shares of tick sensitive LOC interest at $20.24; 4. 10,000 shares of public limit orders at $20.25; 5. 10,000 shares of d-Quote interest that at its maximum discretion is $20.24; 6. 5,000 shares of LOC interest at $20.25 7. 5,000 shares of CO orders. In addition, while arranging the closing transaction after 4:00 p.m. the DMM enters 20,000 shares of DMM interest to buy for the dealer account.67 There is additional sell interest on the Display Book that would accommodate the DMM’s additional interest as follows: 8. 10,000 shares of public limit orders to sell at $20.26; 9. 10,000 shares of public limit orders to sell at $20.27. Based on the interest available in Display Book on both sides of the market, the DMM has determined to close trading in XYZ security at a price of $20.27. The offsetting 50,000 shares of sell MOC interest is netted against 50,000 shares of the current 120,000 shares of the buy imbalance at a price of $20.27, leaving a buy imbalance of 70,000 shares (including DMM interest). The remaining imbalance of 70,000 shares is offset by allocating it to the interest listed below, at the closing price of $20.27. As interest priced better than the closing price, numbers 1–7 below are required to be included in the closing transaction. 1. 5,000 shares of tick sensitive MOC orders eligible to execute at a price better than the last sale, which leaves a 65,000 share buy imbalance; 2. 5,000 shares of Crowd market interest, which leaves a 60,000 share buy imbalance; 67 See E:\FR\FM\17NON1.SGM supra text accompanying note 47. 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES 3. 10,000 shares of tick sensitive LOC interest at $20.24, which leaves a 50,000 share buy imbalance; 4. 10,000 shares of public limit orders at $20.25, which leaves a 40,000 share buy imbalance; 5. 10,000 shares of d-Quote interest that at its maximum discretion is $20.24, which leaves a 30,000 share buy imbalance; 6. 5,000 shares LOC interest at $20.25, which leaves a 25,000 share buy imbalance; 7. 10,000 shares of public limit orders at $20.26, which leaves a 15,000 share buy imbalance; 8. 10,000 shares of public limit orders at $20.27, which leaves a 5,000 share buy imbalance; 9. 5,000 shares of CO orders fill the remaining 10,000 shares of the buy imbalance. Trading Halts The Exchange further proposes to amend NYSE Amex Equities Rule 123C to make ‘‘trading halt’’ a defined term whose meaning is consistent with a halt in trading in any security pursuant to the provisions of NYSE Amex Equities Rule 123D (‘‘Trading Halt’’).68 Further, pursuant to the proposed rule, where a Trading Halt is in effect at 3:45 p.m., a Mandatory MOC/LOC Imbalance will be published as close to the resumption of trading as possible if the Trading Halt is lifted prior to the close of trading. In this event, MOC/LOC orders may be entered to offset the published imbalance. If the Trading Halt is not lifted, the entry of MOC/LOC interest, including offsetting interest, is prohibited. Where a Trading Halt occurs in a security after a Mandatory MOC/LOC Imbalance is published (i.e., after 3:45 p.m.), MOC/LOC orders may be entered to offset the published imbalance.69 Where a Trading Halt occurs after 3:45 p.m. and there is no Mandatory MOC/ LOC Imbalance in the security, the entry of MOC/LOC interest will not be allowed.70 Unlike MOC/LOC orders, the entry of CO orders on both sides of the market will be permitted when a Trading Halt occurs in a security, but is lifted prior to the close of trading in the security. Because CO orders are the interest of last resort in the closing transaction, entry of such orders is not restricted to offsetting the Mandatory MOC/LOC Imbalance. 68 See proposed NYSE Amex Equities Rule 123C(1)(f). 69 See proposed NYSE Amex Equities Rule 123C(2)(c)(i). 70 See proposed NYSE Amex Equities Rule 123C(2)(c)(iii). VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 59317 Rescission of Expiration Friday Auxiliary Procedures for the Opening and Due Diligence Requirements allowing them to make better informed trading decisions. The Exchange further proposes to amend NYSE Amex Equities Rule 123C to rescind the provisions governing ‘‘Expiration Friday Auxiliary Procedures for the Opening’’. The provisions governing Expiration Friday are vestigial in that they were created to facilitate a fair and orderly opening transaction in light of the additional order flow on Expiration Fridays. Today, modifications to Exchange systems allow the DMM to accommodate for such fluctuation in volume, thus rendering the provisions of this section unnecessary. Moreover, the order marking provisions (i.e., appending the indicator ‘‘OPG’’) were an accommodation to member organizations whose systems were unable to electronically affix the OPG designation. Today, all Exchange member organizations are capable of affixing appropriate order designations rendering these provisions unwarranted. For these reasons the Exchange believes that the rescission of the Expiration Friday Auxiliary Procedures for the Opening is appropriate. In keeping with the above amendments, the Exchange further seeks to make the provisions of NYSE Amex Equities Rule 123C govern solely Market and Limit ‘‘on the Close’’ Policy. Therefore, the Exchange proposes to delete the ‘‘Due Diligence Requirements’’ from this rule as they are redundant provisions that are codified in NYSE Amex Equities Rule 405 (‘‘Diligence as to Accounts’’). The Exchange believes that its proposal is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),71 in general, and furthers the objectives of Section 6(b)(5) of the Act,72 in particular, in that 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 rule change will facilitate the timely and efficient closing of securities on the Exchange by increasing transparency and providing market participants with an additional method of offset imbalances prior to the closing transaction that ultimately serves to protect investors and the public interest. Conclusion The Exchange believes that requiring MOC/LOC interest to be electronically entered will increase the efficiency at the point of sale. It will provide accurate information faster to market participants and allow the DMM greater control in active trading crowds. Furthermore, the Exchange believes that moving the cutoff time for the entry of MOC/LOC orders from 3:40 p.m. to 3:45 p.m. will allow Exchange participants greater control of the handling of their orders to be executed in the closing transaction and greater participation in active markets. The Exchange further believes that the proposed amendments to create the CO order will add greater efficiency to the closing process by providing an additional source of liquidity to offset an imbalance going into the closing transaction. The proposed modifications will provide investors with a more accurate depiction of the market interest prior to the closing transaction thereby PO 00000 Frm 00205 Fmt 4703 Sfmt 4703 2. Statutory Basis 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 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 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. The Exchange has requested accelerated approval of this proposed rule change prior to the 30th day after the date of publication of the notice in the Federal Register. The Commission 71 15 72 15 E:\FR\FM\17NON1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 17NON1 59318 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices is considering granting accelerated approval of the proposed rule change at the end of a 21-day comment period. 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 Number SR–NYSEAmex-2009–81 on the subject line. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.73 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–27502 Filed 11–16–09; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60968; File No. SR– NYSEAmex–2009–63] Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Permitting Affiliation with NYFIX Millennium L.L.C. and NYFIX Securities Corporation November 9, 2009. I. Introduction On September 22, 2009, NYSE Amex • Send paper comments in triplicate LLC (‘‘NYSE Amex’’ or ‘‘Exchange’’) to Elizabeth M. Murphy, Secretary, filed with the Securities and Exchange Securities and Exchange Commission, Commission (‘‘Commission’’ or ‘‘SEC’’) 100 F Street, NE., Washington, DC a proposed rule change, pursuant to 20549–1090. Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule All submissions should refer to File 19b–4 thereunder,2 proposing that the Number SR–NYSEAmex-2009–81. This Exchange be affiliated with two file number should be included on the registered broker-dealer subsidiaries of subject line if e-mail is used. To help the NYFIX, Inc. (‘‘NYFIX’’), NYFIX Commission process and review your Millennium L.L.C. (‘‘NYFIX comments more efficiently, please use Millennium’’) and NYFIX Securities only one method. The Commission will Corporation (‘‘NYFIX Securities’’), for a post all comments on the Commission’s period not to exceed six months and Internet Web site (https://www.sec.gov/ subject to certain limitations and rules/sro.shtml). Copies of the obligations. The proposed rule change submission, all subsequent was published for comment in the amendments, all written statements Federal Register on October 5, 2009.3 with respect to the proposed rule On November 6, 2009, NYSE Amex filed change that are filed with the Amendment No. 1 to the proposed rule Commission, and all written change.4 The Commission received no communications relating to the comments on the proposal. This order proposed rule change between the approves the proposed rule change as Commission and any person, other than modified by Amendment No. 1. those that may be withheld from the II. Overview public in accordance with the provisions of 5 U.S.C. 552, will be On August 26, 2009, NYSE available for inspection and copying in Technologies entered into an Agreement the Commission’s Public Reference and Plan of Merger (‘‘Merger Room, on official business days between Agreement’’) with NYFIX and CBR the hours of 10 a.m. and 3 p.m. Copies Acquisition Corp., a Delaware of the filing also will be available for corporation and a wholly owned inspection and copying at the principal office of the Exchange. All comments 73 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). received will be posted without change; 2 17 CFR 240.19b–4. the Commission does not edit personal 3 Securities Exchange Act Release No. 60739 identifying information from (September 29, 2009), 74 FR 51203 (‘‘Notice’’). submissions. You should submit only 4 In Amendment No. 1, the Exchange clarified information that you wish to make that, with respect to the conditions on the available publicly. All submissions Exchange’s affiliation with NYFIX Millennium and NYFIX Securities, references to NYFIX also refer to should refer to File Number SR– its subsidiaries, NYFIX Millennium and NYFIX NYSEAmex-2009–81 and should be Securities. This technical amendment does not submitted on or before December 8, require notice and comment, as it did not materially 2009. affect the substance of the rule filing. mstockstill on DSKH9S0YB1PROD with NOTICES Paper Comments VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 PO 00000 Frm 00206 Fmt 4703 Sfmt 4703 subsidiary of NYSE Technologies. Under the terms of the Merger Agreement, CBR Acquisition Corp. will merge with and into NYFIX, with NYFIX surviving the merger as a direct wholly owned subsidiary of NYSE Technologies (‘‘Merger’’). Following the Merger, both the Exchange and NYFIX will be indirect wholly owned subsidiaries of NYSE Euronext. Consequently, NYFIX, and its subsidiaries NYFIX Millennium and NYFIX Securities, will be affiliates of the Exchange. As a result of the Merger, NYSE Technologies will acquire, among other things, NYFIX’s Transaction Services Division. In the U.S., the Transaction Services Division is currently composed of two U.S. registered broker-dealer subsidiaries: NYFIX Millennium, which is also an alternative trading system registered under Regulation ATS under the Act; 5 and, NYFIX Securities. In addition to other services provided by NYFIX Millennium and NYFIX Securities, (1) NYFIX Millennium provides routing of orders that are not matched within the NYFIX Millennium matching system to marketplaces such as exchanges, electronic communication networks, and ATSs, which are not operated by NYFIX; and (2) NYFIX Securities provides direct electronic market access and algorithmic trading products (together, ‘‘Routing Services’’). The Exchange proposes to be affiliated with NYFIX Millennium and NYFIX Securities for a period not to exceed six months and subject to certain terms and conditions that the Exchange believes effectively address concerns regarding the (1) the potential for conflicts of interest where an exchange is affiliated with a broker-dealer conducting an order routing business that may interact with the Exchange itself, and (2) the potential for informational advantages that could place such an affiliated broker-dealer at a competitive advantage in comparison with other non-affiliated broker-dealers. III. Discussion and Commission Findings After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.6 In particular, the Commission finds that the proposed rule change is consistent 5 17 CFR 242.300–303. approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 6 In E:\FR\FM\17NON1.SGM 17NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 220 (Tuesday, November 17, 2009)]
[Notices]
[Pages 59308-59318]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-27502]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60973; File No. SR-NYSEAmex-2009-81]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NYSE Amex LLC Amending NYSE Amex Equities Rule 123C To Modify 
the Procedures for Its Closing Process and Make Conforming Changes to 
NYSE Amex Equities Rules 13 and Rule 15

November 9, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 9, 2009, NYSE Amex LLC (``NYSE Amex'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes amendments to NYSE Amex Equities Rule 123C 
(Market On The Close Policy And Expiration Procedures) to modify the 
procedures for its closing process; and make conforming changes to NYSE 
Amex Equities Rule 13 (``Definitions of Orders'') and Rule 15. The text 
of the proposed rule change is available at the Exchange, 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 self-regulatory organization 
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 those 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 parts of such statements.

[[Page 59309]]

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

1. Purpose
    In October 2008, NYSE Amex implemented sweeping changes to its 
market rules and execution technology that were designed to improve 
execution quality on the Exchange. Among the elements of the enhanced 
Exchange market model, NYSE Amex eliminated the function of specialists 
on the Exchange by creating a new category of market participant, the 
Designated Market Maker or DMM. The DMMs, like specialists, have 
affirmative obligations to make an orderly market in assigned 
securities, including continuous quoting requirements and obligations 
to re-enter the market when reaching across to execute against trading 
interest. NYSE Amex also recognized that in view of the NYSE's 
electronic execution functionality, the DMM, unlike the specialist, 
would no longer be deemed the agent for every incoming order. NYSE Amex 
also responded to customer demand and created new order types to 
represent additional undisplayed reserve interest.
    NYSE Amex has also focused on streamlining and improving efficiency 
of its closing process by implementing a single print close,\3\ 
activating systemic compliance filters for market at-the-close 
(``MOC'') and limit at-the-close (``LOC'') orders and enhancing the 
transparency of its informational data feed for imbalances by including 
d-Quotes \4\ and all other e-Quotes \5\ containing pegging instructions 
eligible to participate in the closing transaction in the NYSE Amex 
Order Imbalance Information datafeed.\6\ In continuing the enhancements 
to the Exchange's market model, the Exchange seeks to amend NYSE Amex 
Equities Rule 123C to streamline the closing process, enhance 
transparency on the close \7\ and allow for greater customer 
participation when there is an imbalance in a security prior to the 
closing transaction. Specifically, the Exchange proposes to amend NYSE 
Amex Equities Rule 123C to: (i) Extend the time for the entry of MOC 
and LOC orders \8\ from 3:40 p.m. to 3:45 p.m.; (ii) amend the 
procedures for the entry of MOC/LOC orders in response to imbalance 
publications and regulatory trading halts; (iii) change the 
cancellation time for MOC/LOC orders to 3:58 p.m.; (iv) require only 
one mandatory imbalance publication; (v) rescind the provisions 
governing Expiration Friday Auxiliary Procedures for the Opening and 
Due Diligence Requirements; (vi) modify the dissemination of Order 
Imbalance Information pursuant to NYSE Rule 123C(6) to commence at 3:45 
p.m.; (vii) include additional information in both the pre-opening and 
pre-closing Order Imbalance Information data feeds; (viii) amend NYSE 
Rule 13 to create a conditional-instruction limit order type called the 
Closing Offset Order (``CO order''), which may only be used to offset 
an existing imbalance of orders on the close; (ix) delete the ``At the 
Close'' order type from NYSE Rule 13 and replace it with the specific 
definitions of MOC and LOC orders; and (x) codify the hierarchy of 
allocation of interest in the closing transaction in NYSE Rule 123(C).
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    \3\ See Securities Exchange [sic] Release No. 59360 (February 4, 
2009), 74 FR 6936 (February, 2009) (SR-NYSEALTR-2009-06).
    \4\ See NYSE Amex Equities Rule 70, Supplementary Material .25.
    \5\ See NYSE Amex Equities Rule 70(a).
    \6\ See Securities Exchange [sic] Release No. 59743 (April 9, 
2009), 74 FR 17699 (April 16, 2009) (SR-NYSE Amex-2009-11).
    \7\ Conforming changes related to the information disseminated 
prior to the opening transaction are also proposed in this filing.
    \8\ In the NYSE Amex Equities Rules and for the purposes of this 
discussion, the terms ``market-on-close'' and ``limit-on-close'' are 
used interchangeably with ``market-at-the-close'' and ``limit-at-
the-close''.
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    The Exchange notes that similar changes are proposed to the rules 
of its affiliate, New York Stock Exchange LLC (``NYSE'').\9\
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    \9\ See SR-NYSE-2009-111.
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Current Closing Procedures
    NYSE Amex Equities Rule 123C prescribes, inter alia, the procedure 
for the entry and execution of MOC and marketable LOC orders and the 
determination of the closing print(s) to be reported to the 
Consolidated Tape for each security at the close of trading.
    Pursuant to NYSE Amex Equities Rule 123C market participants may 
enter an MOC order for execution as part of the closing transaction at 
the price of the close.\10\ Similar to a market order, an MOC order is 
to be executed in its entirety at the closing price; however, if the 
order is not executed as a result of a trading halt or because of its 
terms (e.g., buy minus or sell plus), the MOC order is cancelled.\11\
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    \10\ See NYSE Amex Equities Rule 123C(1).
    \11\ See Id.
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    Market participants that seek to have their orders executed on the 
close but are sensitive to price, may pursuant to NYSE Amex Equities 
Rule 123C, enter LOC orders that will be eligible for execution in the 
closing transaction, provided that the closing price is at or within 
the limit specified.\12\ An LOC order is not guaranteed an execution in 
the closing transaction; rather, only an LOC order with a limit price 
that is better \13\ than the closing price is guaranteed an 
execution.\14\ An LOC order limited at the closing price is sequenced 
with other LOC orders on the Display Book[supreg] \15\ (``Display 
Book'') in time priority of receipt in Exchange systems and is 
available for execution after all other orders on the Display Book at 
the closing price are executed, regardless of when such other orders 
are received.\16\
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    \12\ See NYSE Amex Equities Rule 123C(2).
    \13\ As used herein, ``better priced than the closing price'' 
means an order that is lower than the closing price in the case of 
an order to sell or higher than the closing price in the case of an 
order to buy.
    \14\ It should be noted that orders are cancelled if there is a 
trading halt in the security that is not lifted prior to the close 
of trading.
    \15\ The Display Book system is an order management and 
execution facility. The Display Book system receives and displays 
orders to the DMM, contains order information, and provides a 
mechanism to execute and report transactions and publish 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.
    \16\ See NYSE Amex Equities Rule 123C(2).
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    NYSE Amex Equities Rule 123C(1) and (2) require that all MOC/LOC 
orders be entered by 3:40 p.m. in any stock on any trading day, unless 
entered to offset a published imbalance, or on either side of the 
market if a regulatory halt is in effect at 3:40 p.m. or occurs after 
that time. Pursuant to NYSE Amex Equities Rule 123C, between 3:40 and 
3:50 p.m., MOC/LOC orders are irrevocable, except to correct a 
legitimate error (e.g., side, size, symbol, price, or duplication of an 
order) or when a regulatory trading halt is in effect \17\ at or after 
3:40 p.m. During normal trading conditions, cancellations or reductions 
in the size of a MOC/LOC orders after 3:50 p.m. are not permitted for 
any reason, even in the case of legitimate error, except as provided in 
NYSE Amex Equities Rule 123C(8)(a)(2). Currently, NYSE Amex Equities 
Rule 123C(8) allows the Exchange to temporarily suspend certain 
requirements related to the closing of securities, provided certain 
conditions are met.\18\ If a suspension is invoked in

[[Page 59310]]

a security pursuant to NYSE Amex Equities Rule 123C(8)(a)(2), MOC/LOC 
interest may be cancelled or reduced after 3:50 p.m.\19\
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    \17\ In the case of a regulatory halt, MOC orders may be entered 
until 3:50 p.m. or until the stock reopens, whichever occurs first, 
even if an imbalance publication occurred prior to the regulatory 
halt.
    \18\ See Securities Exchange [sic] Release No. 59755 (April 13, 
2009), 74 FR 18009 (April 20, 2009) (SR-NYSEALTR-2009-15) (approving 
the ability of the Exchange to temporarily suspend certain 
requirements related to the closing of securities on the Exchange 
with the provisions of NYSE Amex Equities Rule 123(C)(8)(a)(1) 
operating as a pilot scheduled to end on October 12, 2009). See also 
Securities Exchange [sic] Release No. 60808 (October 9, 2009), 74 FR 
53539 (October 19, 2009) (SR-NYSEAmex-2009-70) (extending the 
Exchange ability to temporarily suspend certain requirements related 
to the closing of securities on the Exchange with the provisions of 
NYSE Amex Equities Rule 123(C)(8)(a)(1) operating as a pilot 
scheduled to end on December 31, 2009). Pursuant to 123C(8), to 
avoid closing price dislocation that may result from an order 
entered into Exchange systems or represented to a DMM orally at or 
near the close, the Exchange may temporarily suspend the hours 
during which the Exchange is open for the transaction of business 
pursuant to NYSE Amex Equities Rule 52. A determination to declare 
such a temporary suspension is made on a security-by-security basis. 
The determination, as well as any entry or cancellation of orders or 
closing of a security pursuant to NYSE Amex Equities Rule 123C(8)(a) 
must be supervised and approved by either an Executive Floor 
Governor or a qualified NYSE Euronext employee, as defined under 
NYSE Amex Equities Rule 46(b)(v), and supervised by a qualified 
Exchange Officer, as defined in NYSE Amex Equities Rule 48(d).
    \19\ Pursuant to NYSE Amex Equities Rule 123C(8)(a)(2), with 
approval of an Executive Floor Governor or a qualified NYSE Euronext 
employee, MOC/LOC orders may be cancelled or reduced if:
    (i) The cancellation or reduction is necessary to correct a 
legitimate error; and
    (ii) [sic] Execution of such an MOC or LOC order would cause 
significant price dislocation at the close.
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    Exchange systems calculate imbalance of MOC and marketable LOC 
orders (i.e., more shares to buy than sell or vice versa) by netting 
the aggregate amount of MOC shares and marketable LOC buy orders 
against the aggregate amount of MOC shares and marketable LOC sell 
orders.\20\
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    \20\ See NYSE Amex Equities Rule 116.40(B) and 123C(3)(A).
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    Between 3 p.m. and 3:40 p.m., if there is an imbalance of MOC/LOC 
orders, a DMM who has received Floor Official approval may publish an 
imbalance of any size (``Informational Imbalance''). If the DMM 
publishes an Informational Imbalance and at 3:40 p.m. there exists an 
imbalance of 25,000 shares or more, or any other significant imbalance, 
the DMM must publish that updated imbalance information as soon as 
possible after 3:40 p.m. If there is neither a significant imbalance 
nor one of 25,000 shares or more, the DMM is required to publish a ``no 
imbalance'' message if an Informational Imbalance was published. If the 
DMM publishes a ``no imbalance'' message at 3:40 p.m. and a significant 
imbalance or one of 25,000 shares or more occurs between 3:40 and 3:50 
p.m., then the DMM must publish the imbalance information as soon as 
possible after 3:50 p.m.
    In the absence of an Informational Imbalance publication, if at 
3:40 p.m. there is an imbalance of 25,000 shares or more of MOC/LOC 
orders, the DMM is required to publish the imbalance information to the 
Consolidated Tape in order to solicit contra-side interest.\21\ The 
published imbalance information must be updated again at 3:50 p.m. with 
the current numerical imbalance or a no imbalance message.\22\
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    \21\ See NYSE Amex Equities Rule 123C(1), (2) and (5). Imbalance 
publications pursuant to these provisions of the rule are 
interpreted as the mandatory publications.
    \22\ At 3:50 p.m., a ``no imbalance message'' indicates that the 
subsequent imbalance of shares, is less than 50,000 shares and is 
not significant in relation to the average daily trading volume in 
the security.
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    NYSE Amex Equities Rule 123C(6) further allows Exchange systems to 
disseminate a data feed of real-time order imbalances that accumulate 
prior to the close of trading on the Exchange (``Order Imbalance 
Information'').\23\ Order Imbalance Information is supplemental 
information disseminated by the Exchange prior to a closing 
transaction.\24\ Specifically, Order Imbalance Information is 
disseminated every fifteen seconds between 3:40 p.m. and 3:50 p.m.; 
thereafter, it is disseminated every five seconds between 3:50 p.m. and 
4 p.m. \25\
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    \23\ See Securities Exchange [sic] Release Nos. 59743 (April 9, 
2009), 74 FR 17699 (April 16, 2009) (SR-NYSEAmex-2009-11) 
(establishing Order Imbalance Information); 60385 (July 24, 2009), 
74 FR 30184 (July 31, 2009) (SR-NYSEAmex-2009-26) (establishing fees 
for Order Imbalance Information); 60151 (June 19, 2009) 74 FR 30653 
(June 29, 2009) (SR-NYSEAmex-2009-29) (including Floor broker agency 
interest containing pegging and/or discretionary instructions 
eligible for execution in the closing transaction in Order Imbalance 
Information).
    \24\ See NYSE Amex Equities Rule 123C(6). Pursuant to NYSE Amex 
Equities Rule 15, the Exchange also distributes information about 
imbalances in real-time at specified intervals prior to the opening 
transaction. The pre-opening Order Imbalance Information data feed 
is disseminated (i) every five minutes between 8:30 a.m. and 9 a.m.; 
(ii) every one minute between 9 a.m. and 9:20 a.m.; and (iii) every 
15 seconds between 9:20 a.m. and the opening (or 9:35 a.m. if the 
opening is delayed).
    \25\ On any day that the scheduled close of trading on the 
Exchange is earlier than 4:00 p.m., the dissemination of Order 
Imbalance Information prior to the closing transaction will commence 
20 minutes before the scheduled closing time. Order Imbalance 
Information will be disseminated every fifteen seconds for 
approximately 10 minutes. Thereafter, the Order Imbalance 
Information will be disseminated ever [sic] five seconds until the 
scheduled closing time.
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    The mandatory publications are included in both the Order Imbalance 
Information data feed and on the Consolidated Tape. In addition, 
commencing at 3:55 p.m., the Order Imbalance Information data feed also 
includes d-Quotes \26\ and all other e-Quotes \27\ containing pegging 
instructions \28\ eligible to participate in the closing 
transaction.\29\
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    \26\ This type of Floor broker agency interest contains 
discretionary instructions as to size and/or price of an e-Quote. 
See NYSE Amex Equities Rule 70 Supplementary Material .25.
    \27\ Floor brokers are permitted to represent orders 
electronically through the use of e-Quotes. See NYSE Amex Equities 
Rule 70(a)(i).
    \28\ This type of Floor broker agency interest contains a 
distinct instruction that may be used in conjunction with an e-Quote 
and/or a d-Quote. See NYSE Amex Equities Rule 70, Supplementary 
Material .26. This type of instruction allows the Floor broker to 
maintain his/her interest in the Exchange Best Bid or Offer 
(``BBO'') if the quote moves from the orders initial quote price. 
Pegged interest moves with the Exchange BBO within the designated 
range. Any discretionary instructions associated with that interest 
will continue to be applied as long as it is within the Floor 
broker's designated price range. Buy side e-Quotes will peg to the 
best bid and sell side e-Quotes will peg to the best offer. The 
Exchange filed a proposal with the SEC to amend NYSE Amex Equities 
Rule 70.25 to permit d-Quotes to be active throughout the trading 
day and to provide for discretionary instructions that a d-Quote 
will execute only if a minimum trade size requirement is met, and to 
amend NYSE Amex Equities Rule 70.26 to provide for e-Quotes and d-
Quotes to peg to the National best bid or offer (``NBBO'') rather 
than the Exchange best bid or offer (``BBO''). See Securities and 
Exchange [sic] Release No. 60887 (October 27, 2009), 74 FR 56889 
(November 3, 2009) (SR-NYSEAmex-2009-76).
    \29\ Similarly, in the case of the pre-opening Order Imbalance 
Information data feed, all interest eligible to trade in the opening 
transaction, excluding odd-lot orders and the odd-lot portion of 
partial round-lot orders, are included in the data feed. Floor 
broker interest includes all interest except non-displayed reserve 
interest marked ``do not display.'' Customer interest includes all 
interest except for non-displayed reserve interest. DMM interest is 
not included in the pre-opening Order Imbalance Information data 
feed.
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    The Order Imbalance Information data feed prior to the close 
calculates the reference price, when the last sale price does not fall 
within the best bid and the best offer on the Exchange at the time that 
the Exchange calculates a closing imbalance for a security,\30\ as 
follows:
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    \30\ The reference price for the pre-opening Order Imbalance 
Information data feed is equal the last sale (previous closing 
price) or the price indication published under the Rule 15 or 123D. 
Therefore, when the Exchange publishes a pre-opening indication in a 
security pursuant to the provisions of paragraphs (a) and (b) of 
NYSE Amex Equities Rule 15 or NYSE Amex Equities Rule 123D, the 
reference price will be determined as follows:
    If the Bid Price from the indication (the lower price) is higher 
than the last sale, the Reference Price will be the Bid.
    If the Offer Price from the indication (the higher price) is 
lower than the last sale, the Reference Price will be the Offer.
    If the Last Sale is within the indication range, the Book will 
use the Last Sale as the Reference Price.
    If multiple indications have been published, the last indication 
that the Exchange makes available will be used as the Reference 
Price.
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     If the last sale price is lower than the Bid price, then 
the Bid Price will serve as the Reference Price.
     If the last sale price is higher than the Offer price, 
then the Offer Price will serve as the Reference Price.
     If the last sale price falls within the Exchange's best 
bid and offer for the

[[Page 59311]]

security, the last sale price will serve as the Reference Price.
Examples
    (1) The sale in XYZ security prior to the dissemination of the 
order imbalance feed was at a price of $15.00. The quote prior to the 
dissemination of the data feed is 100 shares bid at a price of $15.02 
and 500 shares offered at a price of $15.20. The reference price for 
the NYSE Order Imbalance data feed in XYZ security will be $15.02.
    (2) The sale in XYZ security prior to the dissemination of the 
order imbalance feed was at a price of $15.00. The quote prior to the 
dissemination of the data feed is 100 shares bid at a price of $14.91 
and 500 shares offered at a price of $14.99. The reference price for 
the NYSE Order Imbalance data feed in XYZ security will be $14.99.
    (3) The sale in XYZ security prior to the dissemination of the 
order imbalance feed was at a price of $15.00. The quote prior to the 
dissemination of the data feed is 100 shares bid at a price of $14.98 
and 500 shares offered at a $15.02. The reference price for the NYSE 
Order Imbalance data feed in XYZ security will be $15.00.
    Only the mandatory indications published pursuant to NYSE Amex 
Equities Rule 123C(1) control whether a party may enter MOC/LOC 
interest to offset an imbalance publication.
    In executing the closing transaction, Exchange systems calculate 
the shares of MOC and marketable LOC orders on each side of the market. 
Where there is an imbalance, the shares constituting the imbalance are 
executed against the offer side (in case of a buy imbalance) or the bid 
side (in the case of a sell imbalance).\31\ The remaining MOC and 
marketable LOC buy and sell orders are paired off against each other at 
the price at which the imbalance shares were executed.\32\ The 
imbalance and the pair off transaction are reported to the Consolidated 
Tape as a single transaction.\33\
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    \31\ See NYSE Rules 123C(3) and 116.40(B).
    \32\ See NYSE Rules 123C(3).
    \33\ See NYSE Rules 123C(3) and 116.40(C).
---------------------------------------------------------------------------

    If there is no imbalance, the aggregate buy and sell MOC and 
marketable LOC orders are paired off at the price of the last sale on 
the Exchange prior to the close of trading in the security.\34\ This 
transaction is reported to the Consolidated Tape as a single 
transaction.\35\
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    \34\ See NYSE Amex Equities Rules 116.40(C) and 123C(3)(B).
    \35\ See Id.
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    Any stop orders that are elected by the closing price in a 
particular security are automatically and systemically converted into 
market orders and are included in the total number of MOC orders to be 
executed at the close for that security.\36\
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    \36\ See NYSE Amex Equities Rules 116.40(A) and 123C(3)(A).
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    Interest executed in the closing transaction is allocated pursuant 
to NYSE Amex Equities Rule 72 (``Priority of Bids and Offers and 
Allocation of Executions'') and consistent with the hierarchy of 
interest which currently is only codified in the NYSE Floor Official 
Manual.\37\ In the hierarchy of allocation, better priced interest must 
receive an execution in whole or in part \38\ (``must execute 
interest'') in order for the security to close. Included in this 
category are MOC orders without tick restrictions, MOC orders with tick 
restrictions that are eligible to be executed at a price better than 
the closing price, better priced limit orders, better priced LOC orders 
with or without tick restrictions that are eligible for execution at a 
better price than the closing price and Crowd interest.\39\ After the 
``must execute interest'' is satisfied, then any limit orders 
represented in Display Book at the closing price may be used to offset 
the remaining imbalance. It should be noted that DMM interest, 
including better priced DMM interest entered into the Display Book 
prior to the closing transaction, eligible to participate in the 
closing transaction is always included in the hierarchy of execution as 
if it were interest equal to the price of the closing transaction. Next 
eligible for execution in the hierarchy of allocation for the closing 
transaction are LOC orders without tick restrictions limited to the 
closing price, then MOC orders that have tick restrictions which limit 
the order's price to the price of the closing transaction,\40\ followed 
by LOC orders limited to the price of the closing transaction that have 
tick restrictions and finally ``G'' orders,\41\ including all better 
priced ``G'' orders.
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    \37\ See New York Stock Exchange Inc., Floor Official Manual, 
214-215 (June 2004 Edition). The NYSE ceased publication of the 
Floor Official Manual after this edition. The proposed amendments 
herein seek to add transparency to the closing process and will 
incorporate the hierarchy of allocation into the proposed rule text. 
NYSE Amex's equity trading systems and facilities are operated by 
the NYSE on behalf of the Exchange. The allocation logic for equity 
securities on NYSE Amex is the same as that utilized by the NYSE. 
See Securities Exchange Act Release No. 58673 (September 29, 2008), 
73 FR 57707 (October 3, 2008) (SR-NYSE-2008-60 and SR-Amex-2008-62) 
(approving the Merger).
    \38\ MOC orders must be executed in its entirety at the closing 
price. Marketable limit orders receive an execution subject to the 
availability of contra side volume.
    \39\ As used herein, Crowd interest means verbal Floor broker 
interest at the market entered by the DMM to interact with orders in 
the Display Book.
    \40\ For example, the last sale on the Exchange was at a price 
of $46.00 on a minus tick, the closing price is $46.01, all sell 
plus MOC orders are limited to the closing price of $46.01 because 
the closing transaction would be the next plus tick.
    \41\ Section 11(a)(1) of the Act generally 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 any account over which it or an associated person exercises 
discretion. See 15 U.S.C. 78k(a)(1). Subsection (G) of Section 
11(a)(1) provides an exemption allowing an exchange member to have 
its own Floor broker execute a proprietary transaction (``G 
order''). A g-Quote is an electronic method for Floor brokers to 
represent G orders. G orders on NYSE Amex yield priority, and parity 
to all other non-G orders.
---------------------------------------------------------------------------

    Once the last sale in the security occurs, the DMM organizes the 
closing transaction by considering Crowd interest, interest available 
to participate on the close and his own trading interest (consistent 
with affirmative obligations).\42\ Pursuant to the DMM's affirmative 
obligation, the DMM should minimize price dislocation caused by 
disparity between supply and demand. At that point, he or she must 
assess potential imbalances (if any) at various potential closing price 
points in order to price the close. The DMM will generally close the 
security by picking a price point that he or she believes is an 
appropriate price based on supply and demand and may insert DMM trading 
interest.
---------------------------------------------------------------------------

    \42\ DMMs [sic] trading interest is determined in part by risk 
management goals. DMMs may manage risk by trading on the same side 
of the imbalance if consistent with his or her affirmative 
obligation under NYSE Amex Equities Rule 104 and other NYSE Amex and 
SEC rules. If the DMM participates on the same side of an order 
imbalance in a security such that the price of the security moves 
significantly, this may raise a concern as to whether the DMM is 
meeting his or her affirmative obligation and other regulatory 
requirements.
---------------------------------------------------------------------------

Example of a Current Close Including the Imbalance Publications
Example 1
    XYZ security has an average daily trading volume of approximately 
250,000 shares. At 3:10 p.m. XYZ receives a buy MOC order for 20,000 
shares. Shortly thereafter, in consultation with a Floor Official, the 
DMM publishes an Informational Imbalance. By 3:40 p.m. the buy 
imbalance has increased to 100,000 shares and the DMM disseminates a 
mandatory imbalance publication showing the updated amount. Also at 
3:40 the Order Imbalance Information data feed commences and is 
disseminated every 15 seconds thereafter.
    By 3:50 p.m. the DMM has received 50,000 shares of sell MOC 
interest to offset the 150,000 share buy imbalance.

[[Page 59312]]

At 3:50 p.m. the DMM disseminates another mandatory imbalance 
publication updating the imbalance to a 50,000 share buy imbalance.
    Also at 3:50 the Order Imbalance information data feed increases 
the frequency of its publications to every 5 seconds. Beginning at 3:55 
p.m. the Order Imbalance data feed includes d-Quotes and all other e-
Quotes containing pegging instructions that are eligible to participate 
in the closing transaction based on current execution prices.
    The DMM did not receive any additional offsetting interest between 
3:50 and 4 p.m. (official closing time) so the imbalance remained at 
50,000 shares to buy.
    The last bid in XYZ security prior to the closing transaction was 
$19.85 and the offer was $20.00. The last sale prior to 4 p.m. 
(official closing time) was at $19.85.
    The sell interest on the Display Book leading into the closing 
transaction consists of:
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price better than the last sale;
    2. 5,000 shares of Crowd market interest;
    3. 10,000 shares of public limit orders at $20.24;
    4. 5,000 shares of tick sensitive LOC interest at $20.24;
    5. 5,000 shares of d-Quote interest that at its maximum discretion 
is $20.24;
    6. 10,000 shares LOC interest at $20.25;
    7. 5,000 shares of non-MOC ``G'' market orders.
    Given this interest available in Display Book, the DMM determines 
to close trading in XYZ security at a price of $20.25 and to sell 5,000 
shares for the dealer account. The DMM interest is entered into the 
Display Book while the DMM is arranging the closing transaction which 
may be after 4 p.m. The DMM then executes the closing transaction in 
XYZ security at the price of $20.25.
    The closing execution logic is as follows: \43\
---------------------------------------------------------------------------

    \43\ The execution occurs as a single transaction. The logic 
described in the text refers to how the Display book allocates 
shares, not the order of execution.
---------------------------------------------------------------------------

    The offsetting 50,000 shares of sell MOC interest is netted against 
50,000 shares of the 100,000 shares of the buy imbalance at a price of 
$20.25, leaving a buy imbalance of 50,000 shares.
    The remaining imbalance of 100,000 shares is offset by allocating 
it to the interest listed below, at the closing price of $20.25. As 
interest priced better than the closing price, numbers 1-5 below are 
required to be included in the closing transaction.
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price better than the last sale, which leaves a 45,000 share buy 
imbalance;
    2. 5,000 shares of Crowd market interest which leaves a 40,000 
share buy imbalance;
    3. 10,000 shares of public limit orders at $20.24, which leaves an 
30,000 share buy imbalance; and [sic]
    4. 5,000 shares of tick sensitive LOC interest at $20.24 which 
leaves a 25,000 share buy imbalance;
    5. 5,000 shares of d-Quote interest that at its maximum discretion 
is $20.24, which leaves a 20,000 share buy imbalance; \44\
---------------------------------------------------------------------------

    \44\ Any super-marketable d-Quote interest that exercises its 
maximum discretion becomes better priced limit interest for the 
purposes of the hierarchy of execution and is included in the 
closing transaction as must execute interest.
---------------------------------------------------------------------------

    The remaining 20,000 share buy imbalance will be offset at the 
price of $20.25 as follows:
    6. 5,000 shares of DMM interest, which leaves a 15,000 share buy 
imbalance;
    7. 10,000 shares LOC interest at $20.25, which leaves a 5,000 share 
buy imbalance; and
    8. 5,000 shares of non-MOC ``G'' orders.
    Example number 1 above is a simple closing transaction that 
demonstrates all interest eligible to receive an execution in the 
closing transaction being executed in full. In the above example, the 
offsetting interest was equal to the size of the actual buy imbalance; 
however, in the event that any one type of offsetting interest with 
precedence in the hierarchy is sufficient to fill the imbalance, that 
interest will be filled and the remaining interest lower in the 
hierarchy will receive a report of ``nothing done.'' Example number 2 
below demonstrates this principle and further illustrates the operation 
of parity allocations in the closing transactions.
Example 2
    Assuming the same imbalance publication information and receipt of 
offsetting interest in Example 1. The last sale in the 
security is at the price of $19.85. Again, the offsetting sell MOC 
interest is of 50,000 shares is netted against 50,000 shares of the 
100,000 shares of the buy imbalance at a price of $20.25, leaving a buy 
imbalance of 50,000 shares. The sell interest on the Display Book now 
consists of:
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price better than the last sale;
    2. 5,000 shares of Crowd market interest;
    3. 5,000 shares of tick sensitive LOC interest at $20.24;
    4. 5,000 shares of d-Quote interest that at its maximum discretion 
is $20.24;
    5. 10,000 shares e-Quote interest from a single Floor broker at 
$20.25;
    6. 20,000 shares of public limit orders at $20.25;
    7. 20,000 shares LOC interest at $20.25;
    8. 10,000 shares of non-MOC ``G'' market orders.
    Given this interest available in Display Book, the DMM determines 
to close trading in XYZ security at a price of $20.25 and to sell 
20,000 shares for the dealer account. The DMM interest is entered into 
the Display Book while the DMM is arranging the closing transaction 
which may be after 4 p.m. The DMM then executes the closing transaction 
in XYZ security at the price of $20.25.
    The closing execution logic is as follows:
    The offsetting 50,000 shares of sell MOC interest is netted against 
50,000 shares of the 100,000 shares of the buy imbalance at a price of 
$20.25, leaving a buy imbalance of 50,000 shares.
    The remaining imbalance of 50,000 shares is offset by allocating it 
to the interest listed below, at the closing price of $20.25. As 
interest priced better than the closing price, numbers 1-4 below are 
required to be included in the closing transaction.
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price better than the last sale, which leaves a 45,000 share buy 
imbalance;
    2. 5,000 shares of Crowd market interest, which leaves a 40,000 
share buy imbalance;
    3. 5,000 shares of tick sensitive LOC interest at $20.24, which 
leaves an 35,000 share buy imbalance;
    4. 10,000 shares of d-Quote interest that at its maximum discretion 
is $20.2424, which leaves a 30,000 shares buy imbalance;
    The remaining 30,000 shares of the buy imbalance will be offset at 
the price of $20.25 as follows:
    5. 10,000 shares of e-Quote interest at $20.25, which leaves a 
20,000 share buy imbalance;
    6. 10,000 shares of at-priced DMM interest, which leaves a 10,000 
shares buy imbalance;
    7. 10,000 shares of public limit orders at $20.25, which fills the 
remaining 10,000 shares of the imbalance.

[[Page 59313]]

    The remaining 10,000 shares of at-priced DMM interest and the 
10,000 shares of public limit orders at $20.25 will not be 
executed.\45\ Additionally, the 20,000 shares LOC interest priced at 
$20.25 and 10,000 shares of ``G'' orders will also remain unexecuted 
and receive reports of ``nothing done.'' \46\
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    \45\ Interest represented in numbers 5-7 received an allocation 
of shares that is less than their full quantity consistent with NYSE 
Amex Equities Rule 72 which requires the shares to be allocated on a 
parity basis. Specifically, DMM interests, individual e-Quotes 
interests and public limit order interests each represent a distinct 
parity group which and the available shares are divided among the 
parity groups.
    \46\ DMM interest is considered at price interest and is 
therefore higher in the hierarchy of execution than at priced LOC 
interest which are not guaranteed an execution pursuant to the 
provisions of 123C(2). It should be noted that DMM interest 
participating in the closing transaction is executed as if it were 
priced equal to the closing transaction. This includes DMM interest 
entered in Display Book prior to the closing transaction at better 
price points that are eligible to participate in the closing 
transaction.
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Example 3
    Example 3 further illustrates a DMMM [sic] facilitation of 
the closing transaction and demonstrates that the DMM may enter his or 
her interest on the same side of the MOC/LOC imbalance when effecting 
the closing transaction.
    Assuming the same imbalance publication information and receipt of 
offsetting interest in Example 1. The last sale in the 
security in this Example 3 is at the price of $20.23. Again, 
the offsetting sell MOC interest is of 50,000 shares is netted against 
50,000 shares of the 100,000 shares of the buy imbalance at a price of 
$20.25, leaving a buy imbalance of 50,000 shares. The sell interest on 
the Display Book now consists of:
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price better than the last sale;
    2. 5,000 shares of Crowd market interest;
    3. 10,000 shares of tick sensitive LOC interest at $20.24;
    4. 10,000 shares of public limit orders at $20.25;
    5. 10,000 shares of d-Quote interest that at its maximum discretion 
is $20.24;
    6. 10,000 shares of LOC interest at $20.25.
    In addition, while arranging the closing transaction after 4:00 
p.m. the DMM enters 20,000 shares of DMM interest to buy for the dealer 
account.\47\ There is additional sell interest on the Display Book that 
would accommodate the DMM's additional interest as follows:
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    \47\ See supra note 42. As previously noted DMM trading must be 
consistent with his or her affirmative obligation under NYSE Amex 
Equities Rule 104 and other NYSE Amex Equities Rules and SEC rules 
particularly in this example where the DMM is participating on the 
same side of the imbalance.
---------------------------------------------------------------------------

    7. 10,000 shares of public limit orders to sell at $20.26;
    8. 10,000 shares of public limit orders to sell at $20.27;
    Based on the interest available in Display Book on both sides of 
the market, the DMM has determined to close trading in XYZ security at 
a price of $20.27.
    The offsetting 50,000 shares of sell MOC interest is netted against 
50,000 shares of the current 100,000 shares of the buy imbalance at a 
price of $20.27, leaving a buy imbalance of 120,000 shares (including 
DMM interest).
    The remaining imbalance of 120,000 shares is offset by allocating 
it to the interest listed below, at the closing price of $20.27. As 
interest priced better than the closing price, numbers 1-7 below are 
required to be included in the closing transaction.
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price better than the last sale, which leaves a 115,000 share buy 
imbalance;
    2. 5,000 shares of Crowd Market interest, which leaves a 110,000 
share buy imbalance;
    3. 10,000 shares of tick sensitive LOC interest at $20.24, which 
leaves an 100,000 share buy imbalance;
    4. 50,000 shares of public limit orders at $20.25, which leaves a 
50,000 share buy imbalance;
    5. 10,000 shares of d-Quote interest that at its maximum discretion 
is $20.24, which leaves a 40,000 share buy imbalance;
    6. 20,000 shares LOC interest at $20.25, which leaves a 20,000 
share buy imbalance;
    7. 10,000 shares of public limit orders at $20.26, which leaves a 
10,000 share buy imbalance; and
    8. 10,000 shares of public limit orders at $20.27 are executed 
against the remaining 10,000 share buy imbalance.
Additional Procedures Governed by NYSE Amex Equities Rule 123C
    In addition to current Market on the Close procedures, NYSE Amex 
Equities Rule 123C prescribes the Expiration Friday \48\ Auxiliary 
Procedures for the Opening. The provisions of the rule govern the time 
of entry and the marking of orders related to expiring index 
contracts.\49\
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    \48\ An expiration day is a trading day prior to the expiration 
of index-related derivative products (futures, options or options on 
futures), whose settlement pricing is based upon opening or closing 
prices on the Exchange, as identified by a qualified clearing 
corporation (e.g., the Options Clearing Corporation). The twelve 
expiration days are ``expiration Fridays'' which fall on the third 
Friday in every month. If that Friday is an Exchange holiday, there 
will be an expiration Thursday in such a month.
    \49\ NYSE Amex Equities Rule 123C(7) requires, among other 
things, that orders related to index contracts whose settlement 
pricing is based upon the ``Expiration Friday'' opening prices must 
be received by 9:00 a.m. Orders not related to index contracts whose 
settlement is not based on opening prices may be received before or 
after 9:00 a.m. It further requires orders relating to opening-price 
settling contracts be identified ``OPG'' and sets forth procedures 
for firms that are unable to comply with the marking requirement.
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Proposed New Closing Procedures
    The Exchange seeks to build on the changes NYSE Amex began this 
year as noted above, to simplify its closing procedures in order to 
provide customers with a more efficient closing process. The closing 
transaction on the Exchange continues to be a manual auction in order 
to facilitate greater price discovery and allow for the maximum 
interaction between market participants. While the Exchange currently 
provides DMM units with tools to facilitate an efficient closing 
process, the Exchange believes that changes proposed herein will 
maximize the use of those electronic tools and allow for an even more 
efficient closing process.
Order Entry, Cancellation, Mandatory MOC/LOC Imbalance and 
Informational Imbalance Publications
    In order to optimize the efficient operation of the closing 
process, the Exchange proposes to amend NYSE Amex Equities Rule 123C to 
require electronic entry of all MOC and LOC orders, including those 
entered to offset imbalances.\50\ The Exchange believes that the 
electronic entry of MOC and LOC orders will allow the DMM to maximize 
the Display Book capability to continuously update and provide the DMM 
and trading community with imbalance information, thus enhancing the 
DMM's ability to efficiently manage the closing process and customers 
with the ability to interact appropriately.
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    \50\ In the event a Floor broker's handheld device malfunctions, 
the DMM should assist the Floor broker by entering or cancelling 
MOC/LOC orders on the Floor broker's behalf. DMMs perform this 
administrative function on a best efforts basis. See NYSE 
Information Memos 09-26 (June 18, 2009); NYSE Member Education 
Bulletin 05-24 (December 9, 2005) incorporated pursuant to the 
Merger.
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    The electronic entry of MOC and LOC interest will obviate the need 
to have an imbalance publication at 3:40 p.m. and 3:50 p.m. because the 
DMM will not have to manually keep track of the MOC/LOC interest; 
rather, Exchange systems will track the electronically

[[Page 59314]]

entered MOC/LOC interest. Exchange systems will therefore be able to 
provide more accurate and timely imbalance information to all market 
participants systemically. The Exchange's customers have expressed that 
in the current more electronic environment two imbalance publications 
ten minutes apart are not useful. Accordingly, the Exchange proposes to 
modify the order information available prior to the closing transaction 
as described more fully below and amend NYSE Rule 123C to provide for a 
single imbalance publication as soon as practicable after 3:45 p.m., to 
be referred to as the ``Mandatory MOC/LOC Imbalance Publication,'' 
(herein ``Mandatory MOC/LOC Imbalance'') when there is an imbalance: 
(i) of 50,000 shares or more; or (ii) of less than 50,000 shares that 
is deemed to be ``significant'' \51\ (i.e., significant in relation to 
the average daily volume of the security).\52\ The last sale price at 
3:45 p.m. will serve as the basis for the Mandatory MOC/LOC Imbalance.
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    \51\ Mandatory MOC/LOC Imbalance publications for less than 
50,000 shares may only be published with the prior approval of a 
Floor Official or qualified NYSE Euronext employee as defined in 
Supplementary Material .10 of NYSE Rule 46.
    \52\ See proposed NYSE Rule 123C paragraphs (1)(d) (Definition: 
Mandatory MOC/LOC Imbalance) and (4) Calculation of MOC Imbalances.
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    The Exchange intends to retain the current ability to publish an 
Informational Imbalance of any size. The Exchange seeks to extend the 
time for the publication of such imbalance from 3:40 p.m. until 3:45 
p.m. in order to provide a mechanism for an imbalance publication prior 
to any Mandatory MOC/LOC Imbalance if the DMM in consultation with a 
Floor Official or qualified NYSE Amex Euronext employee as defined in 
Supplementary Material .10 of NYSE Amex Equities Rule 46 deem that such 
imbalance publication is warranted for the security. In extending the 
time to 3:45 p.m., the proposed rule will provide that a Mandatory MOC/
LOC Imbalance or ``no imbalance'' notice must occur as soon as possible 
after 3:45 p.m.\53\
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    \53\ See proposed NYSE Amex Equities Rule 123C paragraphs (1)(b) 
(Definition: Informational Imbalance) and (4) Calculation and 
Publication of MOC Imbalances) [sic]. In the event that an 
Informational Imbalance is disseminated prior to 3:45 and thereafter 
there is no Mandatory MOC/LOC Imbalance, the DMM will be required to 
manual [sic] disseminate a ``no imbalance'' notification.
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    The proposed new rule will further explicitly state that the entry 
of MOC/LOC orders in response to a Mandatory MOC/LOC Imbalance after 
3:45 p.m. may be entered only to offset the published imbalance.\54\ In 
the case of a ``no imbalance'' notification, no offsetting MOC/LOC 
interest may be entered at all after 3:45 p.m.\55\
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    \54\ See proposed NYSE Amex Equities Rule 123C paragraphs 
(2)(b)(i) (Order entry).
    \55\ See proposed NYSE Amex Equities Rule 123C paragraphs 
(2)(b)(ii) (Order entry).
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    Given that MOC/LOC orders will be entered electronically, Exchange 
systems will keep track of the available interest thus making it more 
readily available for the DMM. The Exchange therefore further proposes 
to allow customers to cancel or reduce MOC/LOC orders in the case of 
legitimate errors \56\ between 3:45 p.m. and 3:58 p.m.\57\ Systemic 
tracking of MOC/LOC interest makes it entirely feasible for the DMM to 
review in two minutes the interest eligible to participate in the 
closing transaction and facilitate the execution of the closing 
transaction. After 3:58 p.m., cancellations or reduction in the size of 
MOC/LOC orders, even in the event of legitimate error, will not be 
permitted.\58\
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    \56\ Through the instant filing, the Exchange seeks to clarify 
what is meant by legitimate error as it applies to the closing 
process. The Exchange proposes to define a legitimate error in the 
proposed definition section of 123C. Specifically, a [sic] pursuant 
to proposed NYSE Rule 123C(1)(c), a legitimate error means an error 
in any term of an MOC or LOC order, such as price, number of shares, 
side of the transaction (buy or sell) or identification of the 
security.
    \57\ See proposed NYSE Rule 123C(3) (Cancellation of MOC and LOC 
orders). The Exchange anticipates that DMMs will have sufficient 
time to perform the requisite calculations for the closing 
transaction while affording customers the ability to cancel or 
reduce in size an MOC/LOC order until 3:58 p.m.
    \58\ Current NYSE Amex Equities Rule 123C(8)(a)(2) permits the 
Exchange to temporarily suspend the prohibitions on canceling or 
reducing an MOC or LOC order if there is an extreme order imbalance 
at or near the close. This filing would renumber that rule as 
proposed NYSE Amex Equities Rule 123C(9).
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    The Exchange further proposes to provide all market participants an 
additional method to offset a published imbalance and proposes to 
create a conditional-instruction limit-type order that will be eligible 
to participate in the closing transaction to offset an order imbalance 
at the close, the CO order. The CO order will not be guaranteed to 
participate in the closing transaction. CO orders will be eligible to 
participate in the closing transaction when there is an imbalance of 
orders to be executed on the opposite side of the market from the CO 
order and there is no other interest remaining to trade at the closing 
price. This order type must yield to all other eligible interest.
    Unlike MOC/LOC orders, CO orders may be entered on any side of the 
market at anytime prior to the close.\59\ CO orders will not be 
included in the calculation of the Mandatory MOC/LOC Imbalance and 
Informational Imbalance. The Exchange proposes that the time periods to 
cancel a CO order be consistent with the cancellation requirements for 
MOC and LOC orders. As such, proposed NYSE Amex Equities Rule 123(C)(3) 
will provide that up to 3:45 p.m., a CO order may be canceled or 
reduced for any reason. Between 3:45 p.m. and 3:58 p.m., a CO order may 
be canceled or reduced only in the case of a legitimate error as that 
term is defined by proposed NYSE Amex Equities Rule 123C(1)(c). After 
3:58 p.m., a CO order, like MOC/LOC orders, may not be cancelled for 
any reason.
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    \59\ See proposed NYSE Amex Equities Rule 123C(2)(b)(iv).
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    CO orders will be eligible to participate in the closing 
transaction only to offset an imbalance and do not add to or flip the 
imbalance. If there is an imbalance at the close and the price of the 
closing transaction is at or within the limit of the CO order, the CO 
order will be eligible to participate in the closing transaction, 
subject to strict time priority of receipt in Exchange systems among 
such eligible CO orders and after yielding to all other interest in the 
closing execution, including MOCs, marketable LOCs, ``G'' orders, DMM 
interest, and at-priced LOCs. CO orders deemed eligible to participate 
in the close will be executed at the price of the closing transaction. 
If the number of shares represented by CO orders is larger than the 
number of shares required to offset the imbalance, Exchange systems 
will execute only those shares of CO orders required to complete the 
execution of the imbalance in full based on the time priority of 
receipt in Exchange systems of the CO orders. CO orders therefore will 
not be allowed to swing an imbalance to the opposite side of the 
market. Accordingly, if there is a 50,000 share buy imbalance and 
100,000 shares of CO orders eligible to sell at the closing price, the 
first 50,000 shares of CO orders that were entered into Exchange 
systems throughout the trading day will participate in the closing 
transaction. The remaining 50,000 shares of CO orders will not 
participate and will be cancelled.
    Modifications to Order Imbalance Information Data Feed Prior to the 
Closing and Opening Transaction
    The Exchange further proposes to modify the Order Imbalance data 
feed prior to closing transaction to commence at 3:45 p.m., the same 
time as the Mandatory MOC/LOC Imbalance. Pursuant to proposed NYSE Amex 
Equities Rule 123C(6)(a)(iii), the Order Imbalance data feed will be 
disseminated approximately every five

[[Page 59315]]

seconds between 3:45 p.m. and 4:00 p.m.
    Moreover, to increase transparency of order information prior to 
the execution of the closing transaction, the Exchange proposes to 
expand the order information included in the Order Imbalance 
Information data feed. Currently the pre-closing Order Imbalance 
Information data feed includes the: (i) Reference price; (ii) MOC/LOC 
imbalance and the side of the market; (iii) d-Quotes and all other e-
Quotes containing pegging instructions eligible to participate in the 
closing transaction; and (iv) MOC/LOC paired quantity at reference 
price. The proposed new data feed will continue to provide that 
information but also additionally include (i) CO orders on the opposite 
side \60\ of the imbalance and (ii) at-priced LOC interest eligible to 
offset the imbalance.
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    \60\ In the case of a buy imbalance, CO orders to sell at a 
price equal to or lower than the reference price are to be included 
in the imbalance. In the case of a sell imbalance, CO orders to buy 
at a price equal to or higher than the reference price are to be 
included in the imbalance.
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    The proposed Order Imbalance Information data feed prior to the 
closing transaction will also make available two new data fields. The 
proposed new data fields will provide subscribers with a snap shot of 
the prices at which interest eligible to participate in the closing 
transaction would be executed in full against each other at the time 
data feed is disseminated. It will also provide subscribers with the 
price at which closing-only interest (i.e., MOC orders, marketable LOC 
orders, and CO orders on the opposite side of the imbalance) may be 
executed in full and the price at which orders in the Display Book 
(e.g., Minimum Display Reserve Orders, Floor broker reserve e-Quotes 
not designated to be excluded from the aggregated agency interest 
information available to the DMM (``do not display''), d-Quotes pegged 
e-Quotes, \61\ and Stop orders) will be executed in full.
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    \61\ d-Quotes and pegged e-Quotes included in this new data 
field of the Order Imbalance Information data feed are included at 
the price indicated on the order as the base price to be used to 
calculate the range of discretion and not at prices within their 
discretionary pricing instructions.
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    Only those CO orders on the opposite side of the imbalance will be 
included in the calculation of the new data fields. In order to avoid 
compromising the reserve interest at price points between the quote, if 
the price at which all closing orders in the Display Book may be 
executed in full is at or between the quote, then both data fields 
indicating imbalance information will publish the price at which the 
closing-only interest (i.e., MOC orders, marketable LOC orders, and CO 
orders) may be executed in full.
    Similarly the Exchange proposes to conform the pre-opening Order 
Imbalance Information data feed to provide its market participants with 
more information prior to the opening transaction. As such, the pre-
opening Order Imbalance Information data feed will include the price at 
which all the interest eligible to participate in the opening 
transaction may be executed in full.\62\ The Exchange does not propose 
to modify the time periods pursuant to NYSE Amex Equities Rule 15 when 
the pre-opening Order Imbalance data feed is disseminated. Moreover, 
the calculation of the reference price will also remain the same.
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    \62\ See Proposed NYSE Amex Equities Rule 15.
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Execution of the Closing Transaction
    The Exchange proposes to maintain its current execution logic and 
codify the hierarchy of allocation logic applied to interest 
participating in the closing transaction. Proposed NYSE Amex Equities 
Rule 123C(7) will list all the interest that must be executed or 
cancelled as part of the closing transaction and the hierarchy of the 
interest that may be used to offset the closing imbalance. Moreover, 
proposed NYSE Amex Equities Rule 123C(7) will add the CO order as the 
last interest eligible to participate in the closing transaction to 
offset an imbalance.
    The codification of hierarchy of allocation logic applied to 
interest participating in the closing transaction pursuant to proposed 
NYSE Amex Equities Rule 123C(7) will only slightly modify the execution 
of a closing transaction on the Exchange because it will now 
incorporate the new proposed CO order type into the closing transaction 
where it is eligible to participate.
Example of a Close Including the Imbalance Publications Pursuant to 
Proposed NYSE Amex Equities Rule 123C \63\
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    \63\ Example numbers 4-6 mirror example numbers 1-3 above in 
that all the examples illustrate the execution of the closing 
transaction based on the principles explained above; however, 
example numbers 4-6 also incorporate the proposed new CO order type.
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Example 4
    XYZ security has an average daily trading volume of approximately 
250,000 shares. At 3:10 p.m. XYZ receives a buy MOC order for 20,000 
shares. Shortly thereafter, in consultation with a Floor Official, the 
DMM publishes an Informational Imbalance. By 3:45 p.m. the buy 
imbalance has increased to 100,000 shares and the DMM disseminates a 
mandatory imbalance publication showing the updated amount. Also at 
3:45 the Order Imbalance Information data feed commences and is 
disseminated every 5 seconds thereafter.
    Beginning at 3:55 p.m. the Order Imbalance data feed includes d-
Quotes and all other e-Quotes containing pegging instructions that are 
eligible to participate in the closing transaction based on current 
execution prices.
    The DMM received offsetting interest between 3:50 and 4 p.m. 
(official closing time) reducing the buy imbalance to 50,000 shares.
    The last bid in XYZ security prior to the closing transaction was 
$19.85 and the offer was $20.00. The last sale prior to 4 p.m. 
(official closing time) was at $19.85.
    The sell interest on the Display Book leading into the closing 
transaction consists of:
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price better than the last sale;
    2. 5,000 shares of Crowd market interest;
    3. 10,000 shares of public limit orders at $20.24;
    4. 5,000 shares of tick sensitive LOC interest at $20.24;
    5. 5,000 shares of d-Quote interest at its maximum discretion of 
$20.24;
    6. 5, 000 shares LOC interest at $20.25;
    7. 5,000 shares of non-MOC ``G'' market orders; and
    8. 5,000 shares of CO orders.
    Given this interest available in Display Book on both sides of the 
market, the DMM determines to close trading in XYZ security at a price 
of $20.25 and to sell 10,000 shares for the dealer account. The DMM 
interest is entered into the Display Book while the DMM is arranging 
the closing transaction which may be after after 4 p.m. The DMM then 
executes the closing transaction in XYZ security at the price of 
$20.25.
    The closing execution logic is as follows:
    The offsetting 50,000 shares of sell MOC interest is netted against 
50,000 shares of the 150,000 shares of the buy imbalance at a price of 
$20.25, leaving a buy imbalance of 50,000 shares.
    The remaining imbalance of 50,000 shares is offset by allocating it 
to the interest listed below, at the closing price of $20.25. As 
interest priced better than the closing price, numbers 1-5 above are 
required to be included in the closing transaction.
    1. 5,000 shares of tick sensitive MOC orders eligible to execute at 
a price

[[Page 59316]]

better than the last sale, which leaves a 45,000 share buy imbalance;
    2. 5,000 shares of Crowd market interest which leaves a 40,000 
share buy imbalance;
    3. 10,000 shares of public limit orders at $20.24, which leaves a 
30,000 share buy imbalance; and [sic]
    4. 5,000 shares of tick sensitive LOC interest at $20.24 which 
leaves a 25,000 share buy imbalance;
    5. 5,000 shares of d-Quote interest that at its maximum discretion 
is $20.24; which leaves a 20,000 share buy imbalance; \64\
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    \64\ See supra text accompanying note 44.
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