Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by New York Stock Exchange LLC Amending NYSE Rule 123C to Modify the Procedures for Its Closing Process and Making Conforming Changes to NYSE Rules 13 and 15, 59299-59308 [E9-27503]
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Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60974; File No. SR–NYSE–
2009–111]
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change by
New York Stock Exchange LLC
Amending NYSE Rule 123C to Modify
the Procedures for Its Closing Process
and Making Conforming Changes to
NYSE Rules 13 and 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, the New York Stock Exchange
LLC (‘‘NYSE’’ 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes amendments
to NYSE Rule 123C (Market On The
Close Policy And Expiration
Procedures) to modify the procedures
for its closing process; and make
conforming changes to NYSE Rules 13
(‘‘Definitions of Orders’’) and Rule 15.
(‘‘Pre-Opening Indications’’). The text of
the proposed rule change is available at
the Exchange, the Commission’s Public
Reference Room, and https://
www.nyse.com.
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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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In October 2008, the NYSE
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, the NYSE
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. The
NYSE 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. The
NYSE also responded to customer
demand and created new order types to
represent additional undisplayed
reserve interest.
The NYSE 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 Order Imbalance
Information datafeed.6 In continuing the
enhancements to the Exchange’s market
model, the Exchange seeks to amend
NYSE 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
Rule 123C to: (i) Extend the time for the
entry of MOC and LOC orders 8 from
3 See Securities Exchange [sic] Release No. 59345
(February 3, 2009), 74 FR 6444 (February 9, 2009)
(SR–NYSE–2009–10).
4 See NYSE Rule 70, Supplementary Material .25.
5 See NYSE Rule 70(a).
6 See Securities Exchange [sic] Release No. 60153
(June 19, 2009), 74 FR 30656 (June 26, 2009) (SR–
NYSE–2009–49).
7 Conforming changes related to the information
disseminated prior to the opening transaction are
also proposed in this filing.
8 In the NYSE Rules and for the purposes of this
discussion, the terms ‘‘market-on-close’’ and ‘‘limit-
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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 to 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 conditionalinstruction 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, NYSE Amex LLC.9
Current Closing Procedures
NYSE 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 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 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
on-close’’ are used interchangeably with ‘‘market-atthe-close’’ and ‘‘limit-at-the-close’’.
9 See SR–NYSEAmex–2009–81.
10 See NYSE Rule 123C(1).
11 See Id.
12 See NYSE Rule 123C(2).
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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 NYSE 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 Rule 123C(1) and (2) require
that all MOC and 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 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 Rule 123C(8)(a)(2). Currently,
NYSE 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
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 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–NYSE–2009–18) (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 Rule
123(C)(8)(a)(1) operating as a pilot scheduled to end
on October 12, 2009); See also Securities Exchange
[sic] Release No. 60809. (October 9, 2009), 74 FR
53532 (October 19, 2009) (SR–NYSE–2009–104)
(extending the Exchange ability to temporarily
suspend certain requirements related to the closing
of securities on the Exchange with the provisions
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a security pursuant to NYSE 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 3:00 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
Balance’’). If the DMM publishes an
Informational Imbalance and at 3:40
p.m. there exists an imbalance of 50,000
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 50,000 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
50,000 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 50,000 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
of NYSE Amex Equities [sic] 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 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 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
Rule 46(b)(v), and supervised by a qualified
Exchange Officer, as defined in NYSE Rule 48(d).
19 Pursuant to NYSE 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) (ii) [sic] Execution of such an MOC or LOC
order would cause significant price dislocation at
the close.
20 See NYSE Rules 116.40(B) and 123C(3)(A).
21 See NYSE Rule 123C(1), (2) and (5). Imbalance
publications pursuant to these provisions of the
rule are interpreted as the mandatory publications.
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must be updated again at 3:50 p.m. with
the current numerical imbalance or a no
imbalance message.22
NYSE 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 eQuotes 27 containing pegging
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.
57862 (May 23, 2008), 73 FR 31174 (May 30, 2008)
(SR–NYSE–2008–41) and 57861 (May 23, 2008), 73
FR 31905 (June 4, 2008) (SR–NYSE–2008–42). The
text of NYSE Rule 123C(6) (to be entitled proposed
NYSE Rule 123C paragraphs (1)(g) (Definition:
Order Imbalance Information) and (6) (Publication
of Order Imbalance Information) was not changed
in this rule filing.
24 See NYSE Rule 123C(6). Pursuant to NYSE
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 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 Rule 70
Supplementary Material .25.
27 Floor brokers are permitted to represent orders
electronically through the use of e-Quotes. See
NYSE Rule 70(a)(i).
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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
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
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 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 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 (‘‘MTS’’)
requirement is met, and to amend NYSE 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. 60888 (October 27,
2009), 74 FR 56902 (November 3, 2009) (SR–NYSE–
2009–106).
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 Rule 15 or NYSE
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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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
$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
$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 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
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
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 Rules 116.40(C) and 123C(3)(B).
35 See Id.
36 See NYSE Rules 116.40(A) and 123C(3)(A).
32 See
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59301
NYSE 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.
37 See New York Stock Exchange Inc., Floor
Official Manual, 214–215 (June 2004 Edition). The
Exchange 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.
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
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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
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XYZ security has an average daily
trading volume of approximately
450,000 shares. At 3:10 p.m. XYZ
receives a buy MOC order for 45,000
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 150,000
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.
At 3:50 p.m. the DMM disseminates
another mandatory imbalance
publication updating the imbalance to a
100,000 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.
orders on NYSE 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 Rule 104 and other NYSE 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.
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The DMM did not receive any
additional offsetting interest between
3:50 and 4 p.m. (official closing time) so
the imbalance remained at 100,000
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. 10,000 shares of tick sensitive LOC
interest at $20.24;
5. 10,000 shares of d-Quote interest
that at its maximum discretion is
$20.24;
6. 40,000 shares LOC interest at
$20.25;
7. 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 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 4:00
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 150,000 shares of the buy
imbalance at a price of $20.25, leaving
a buy imbalance of 100,000 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
95,000 share buy imbalance;
2. 5,000 shares of Crowd market
interest which leaves a 90,000 share buy
imbalance;
3. 10,000 shares of public limit orders
at $20.24, which leaves an 80,000 share
buy imbalance; and [sic]
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.
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4. 10,000 shares of tick sensitive LOC
interest at $20.24 which leaves a 70,000
share buy imbalance;
5. 10,000 shares of d-Quote interest
that at its maximum discretion is
$20.24, which leaves a 60,000 share buy
imbalance; 44
The remaining 60,000 share buy
imbalance will be offset at the price of
$20.25 as follows:
6. 10,000 shares of DMM interest,
which leaves a 50,000 share buy
imbalance;
7. 40,000 shares LOC interest at
$20.25, which leaves a 10,000 share buy
imbalance; and
8. 10,000 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 150,000
shares of the buy imbalance at a price
of $20.25, leaving a buy imbalance of
100,000 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 d-Quote interest
that at its maximum discretion is
$20.24;
5. 20,000 shares e-Quote interest from
a single Floor broker at $20.25;
6. 50,000 shares of public limit orders
at $20.25;
7. 40,000 shares LOC interest at
$20.25;
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.
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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 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 4:00
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 100,000 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 1–4 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
95,000 share buy imbalance;
2. 5,000 shares of Crowd market
interest, which leaves a 90,000 share
buy imbalance;
3. 10,000 shares of tick sensitive LOC
interest at $20.24, which leaves an
80,000 share buy imbalance;
4. 10,000 shares of d-Quote interest
that at its maximum discretion is
$20.24, which leaves a 70,000 shares
buy imbalance;
The remaining 70,000 shares of the
buy imbalance will be offset at the price
of $20.25 as follows:
5. 20,000 shares of e-Quote interest at
$20.25, which leaves a 50,000 share buy
imbalance;
6. 25,000 shares of at-priced DMM
interest, which leaves a 25,000 shares
buy imbalance;
7. 25,000 shares of public limit orders
at $20.25, which fills the remaining
25,000 shares of the imbalance.
The remaining 25,000 shares of atpriced DMM interest and the 25,000
shares of public limit orders at $20.25
will not be executed.45 Additionally, the
40,000 shares LOC interest priced at
$20.25 and 10,000 shares of ‘‘G’’ orders
45 Interest represented in numbers 5–7 received
an allocation of shares that is less than their full
quantity consistent with NYSE 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.
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will also remain unexecuted and receive
reports of ‘‘nothing done.’’ 46
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 150,000 shares of the buy imbalance
at a price of $20.25, leaving a buy
imbalance of 100,000 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. 50,000 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. 20,000 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:
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.
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 Rule 104 and
other NYSE and SEC rules particularly in this
example where the DMM is participating on the
same side of the imbalance.
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59303
The offsetting 50,000 shares of sell
MOC interest is netted against 50,000
shares of the current 170,000 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 Rule 123C
In addition to current Market on the
Close procedures, NYSE 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
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 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 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 50
The Exchange seeks to build on the
changes the NYSE 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.
mstockstill on DSKH9S0YB1PROD with NOTICES
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
Rule 123C to require electronic entry of
all MOC and LOC orders, including
those entered to offset imbalances.51
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
50 On May 19, 2004, the Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’) approved
amendments to NYSE Rule 123C, subject to
technology upgrades to the electronic entry systems
for MOC and LOC orders (the ‘‘2004
Amendments’’). The 2004 Amendments included,
among other things, changes to the time of
imbalance publications and the mechanism by
which MOC and LOC orders could be entered. See
Securities Exchange Act Release No. 49682 (May
11, 2004), 69 FR 28969 (May 19, 2004) (SR–NYSE–
2004–09).
The Exchange continually reviewed the approved
amendments in keeping with the evolution of its
market and the technological upgrades required. As
a result of its review the Exchange did not
implement the approved changes; rather, in May
2008, the Exchange informed the Commission that
it intended to formally submit the instant revised
proposal to modify its closing procedures. See
Securities Exchange Act Release No. 57862 (May
23, 2008), 73 FR 31174 (May 30, 2008) (SR–NYSE–
2008–41).
51 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).
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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
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’’ 52 (i.e.,
significant in relation to the average
daily volume of the security).53 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 Euronext
employee as defined in Supplementary
Material .10 of NYSE Rule 46 deems
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.54
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.
52 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.
53 See proposed NYSE Rule 123C paragraphs
(1)(d) (Definition: Mandatory MOC/LOC Imbalance)
and (4) Calculation of MOC Imbalances.
54 See proposed NYSE 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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may be entered only to offset the
published imbalance.55 In the case of a
‘‘no imbalance’’ notification, no
offsetting MOC/LOC interest may be
entered at all after 3:45 p.m.56
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 57 between 3:45 p.m. and 3:58
p.m.58 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.59
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.60
CO orders will not be included in the
55 See proposed NYSE Rule 123C paragraphs
(2)(b)(i) (Order entry).
56 See proposed NYSE Rule 123C paragraphs
(2)(b)(ii) (Order entry).
57 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.
58 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.
59 Current NYSE 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 Rule 123C(9).
60 See proposed NYSE Rule 123C(2)(b)(iv).
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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 Rule 123(C)(3)
will provide that up to 3:45 p.m., a CO
order may be cancelled or reduced for
any reason. Between 3:45 p.m. and 3:58
p.m., a CO order may be cancelled or
reduced only in the case of a legitimate
error as that term is defined by proposed
NYSE 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 Rule
123C(6)(a)(iii), the Order Imbalance data
feed will be disseminated
approximately every five seconds
between 3:45 p.m. and 4:00 p.m.
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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 61 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,62 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
(i.e., MOC orders, marketable LOC
61 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.
62 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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59305
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.63 The Exchange does not propose
to modify the time periods pursuant to
NYSE 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 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 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 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 Rule 123C 64
Example #4
XYZ security has an average daily
trading volume of approximately
450,000 shares. At 3:10 p.m. XYZ
receives a buy MOC order for 45,000
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 150,000
shares and the DMM disseminates a
mandatory imbalance publication
showing the updated amount. Also at
63 See
Proposed NYSE 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.
64 Example
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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
100,000 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. 10,000 shares of tick sensitive LOC
interest at $20.24;
5. 10,000 shares of d-Quote interest
that at its maximum discretion is
$20.24;
6. 40,000 shares of 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 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 100,000 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 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
better than the last sale, which leaves a
95,000 share buy imbalance;
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2. 5,000 shares of Crowd market
interest which leaves a 90,000 share buy
imbalance;
3. 10,000 shares of public limit orders
at $20.24, which leaves an 80,000 share
buy imbalance; and [sic]
4. 10,000 shares of tick sensitive LOC
interest at $20.24 which leaves a 70,000
share buy imbalance;
5. 10,000 shares of d-Quote interest
that at its maximum discretion is
$20.24, which leaves a 60,000 share buy
imbalance; 65
The remaining 60,000 share buy
imbalance will be offset at the price of
$20.25 as follows:
6. 10,000 shares of DMM interest,
which leaves a 50,000 share buy
imbalance;
7. 40,000 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 share 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.’’
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 is of 50,000 shares 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
100,000 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 d-Quote interest
that at its maximum discretion is
$20.24;
5. 20,000 shares of e-Quote interest
from a single Floor broker at $20.25;
6. 50,000 shares of public limit orders
at $20.25;
7. 40,000 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 4:00
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 100,000 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 1–4 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
95,000 share buy imbalance;
2. 5,000 shares of Crowd market
interest, which leaves a 90,000 share
buy imbalance;
3. 10,000 shares of tick sensitive LOC
interest at $20.24, which leaves an
80,000 share buy imbalance;
4. 10,000 shares of d-Quote interest
that at its maximum discretion is
$20.24, which leaves a 70,000 shares
buy imbalance;
The remaining 70,000 shares of the
buy imbalance will be offset at the price
of $20.25 as follows:
5. 20,000 shares of e-Quote interest at
$20.25, which leaves a 50,000 share buy
imbalance;
6. 25,000 shares of at-priced DMM
interest, which leaves a 25,000 shares
buy imbalance;
7. 25,000 shares of public limit orders
at $20.25, which fills the remaining
25,000 shares of the imbalance.
The remaining 25,000 shares of atpriced DMM interest and the 25,000
shares of public limit orders at $20.25
will not be executed.66 Additionally, the
40,000 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.’’ 67
Example #6
Assuming the same imbalance
publication information and receipt of
66 See
65 See
PO 00000
supra text accompanying note 44.
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supra text accompanying note 45.
supra text accompanying note 46.
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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 150,000 shares of the buy imbalance
at a price of $20.25, leaving a buy
imbalance of 100,000 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. 50,000 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;
7. 10,000 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.68 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 170,000 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. 10,000 shares LOC interest at
$20.25, which leaves a 30,000 share buy
imbalance;
7. 10,000 shares of public limit orders
at $20.26, which leaves a 20,000 share
buy imbalance;
8. 10,000 shares of public limit orders
at $20.27 which leaves a 10,000 share
buy imbalance; and
9. 10,000 shares of CO orders fill the
remaining 10,000 shares of the buy
imbalance.
Trading Halts
The Exchange further proposes to
amend NYSE 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 Rule 123D
(‘‘Trading Halt’’).69 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.70
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.71
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.
Rescission of Expiration Friday
Auxiliary Procedures for the Opening
and Due Diligence Requirements
The Exchange further proposes to
amend NYSE Rule 123C to rescind the
provisions governing ‘‘Expiration Friday
Auxiliary Procedures for the Opening’’.
The provisions governing Expiration
69 See
proposed NYSE Rule 123C(1)(f).
proposed NYSE Rule 123C(2)(c)(i).
71 See proposed NYSE Rule 123C(2)(c)(iii).
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
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 Rule 405
(‘‘Diligence as to Accounts’’).
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
allowing them to make better informed
trading decisions.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’),72 in general, and furthers
70 See
68 See
supra text accompanying note 47.
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U.S.C. 78f(b).
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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).
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2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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]]>Agencies
[Federal Register Volume 74, Number 220 (Tuesday, November 17, 2009)]
[Notices]
[Pages 59299-59308]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-27503]
[[Page 59299]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60974; File No. SR-NYSE-2009-111]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by New York Stock Exchange LLC Amending NYSE Rule 123C to Modify
the Procedures for Its Closing Process and Making Conforming Changes to
NYSE Rules 13 and 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, the New York Stock Exchange LLC (``NYSE'' 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes amendments to NYSE Rule 123C (Market On The
Close Policy And Expiration Procedures) to modify the procedures for
its closing process; and make conforming changes to NYSE Rules 13
(``Definitions of Orders'') and Rule 15. (``Pre-Opening Indications'').
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In October 2008, the NYSE 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, the NYSE 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. The NYSE 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. The NYSE
also responded to customer demand and created new order types to
represent additional undisplayed reserve interest.
The NYSE 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 Order
Imbalance Information datafeed.\6\ In continuing the enhancements to
the Exchange's market model, the Exchange seeks to amend NYSE 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 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 to
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).
---------------------------------------------------------------------------
\3\ See Securities Exchange [sic] Release No. 59345 (February 3,
2009), 74 FR 6444 (February 9, 2009) (SR-NYSE-2009-10).
\4\ See NYSE Rule 70, Supplementary Material .25.
\5\ See NYSE Rule 70(a).
\6\ See Securities Exchange [sic] Release No. 60153 (June 19,
2009), 74 FR 30656 (June 26, 2009) (SR-NYSE-2009-49).
\7\ Conforming changes related to the information disseminated
prior to the opening transaction are also proposed in this filing.
\8\ In the NYSE 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''.
---------------------------------------------------------------------------
The Exchange notes that similar changes are proposed to the rules
of its affiliate, NYSE Amex LLC.\9\
---------------------------------------------------------------------------
\9\ See SR-NYSEAmex-2009-81.
---------------------------------------------------------------------------
Current Closing Procedures
NYSE 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 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 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 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
[[Page 59300]]
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 NYSE Display Book[reg] \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 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 Rule 123C(2).
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NYSE Rule 123C(1) and (2) require that all MOC and 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 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 Rule
123C(8)(a)(2). Currently, NYSE 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 a security pursuant to NYSE 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-NYSE-2009-18) (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 Rule 123(C)(8)(a)(1) operating as a pilot
scheduled to end on October 12, 2009); See also Securities Exchange
[sic] Release No. 60809. (October 9, 2009), 74 FR 53532 (October 19,
2009) (SR-NYSE-2009-104) (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
[sic] 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 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
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 Rule 46(b)(v), and supervised by a qualified
Exchange Officer, as defined in NYSE Rule 48(d).
\19\ Pursuant to NYSE 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) (ii) [sic] Execution of such an MOC or LOC order would
cause significant price dislocation at the close.
---------------------------------------------------------------------------
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 Rules 116.40(B) and 123C(3)(A).
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Between 3:00 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 Balance''). If the DMM
publishes an Informational Imbalance and at 3:40 p.m. there exists an
imbalance of 50,000 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 50,000 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 50,000 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 50,000 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 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.
---------------------------------------------------------------------------
NYSE 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. 57862 (May 23,
2008), 73 FR 31174 (May 30, 2008) (SR-NYSE-2008-41) and 57861 (May
23, 2008), 73 FR 31905 (June 4, 2008) (SR-NYSE-2008-42). The text of
NYSE Rule 123C(6) (to be entitled proposed NYSE Rule 123C paragraphs
(1)(g) (Definition: Order Imbalance Information) and (6)
(Publication of Order Imbalance Information) was not changed in this
rule filing.
\24\ See NYSE Rule 123C(6). Pursuant to NYSE 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 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.
---------------------------------------------------------------------------
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
[[Page 59301]]
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 Rule 70 Supplementary Material .25.
\27\ Floor brokers are permitted to represent orders
electronically through the use of e-Quotes. See NYSE 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 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 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 (``MTS'') requirement is met, and to amend NYSE 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. 60888
(October 27, 2009), 74 FR 56902 (November 3, 2009) (SR-NYSE-2009-
106).
\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.
---------------------------------------------------------------------------
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 Rule 15 or NYSE 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.
---------------------------------------------------------------------------
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 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 $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 $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 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 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\
---------------------------------------------------------------------------
\36\ See NYSE Rules 116.40(A) and 123C(3)(A).
---------------------------------------------------------------------------
Interest executed in the closing transaction is allocated pursuant
to NYSE 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.
---------------------------------------------------------------------------
\37\ See New York Stock Exchange Inc., Floor Official Manual,
214-215 (June 2004 Edition). The Exchange 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.
\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 yield priority, and parity to
all other non-G orders.
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[[Page 59302]]
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.
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\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 Rule 104 and other NYSE 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.
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Example of a Current Close Including the Imbalance Publications
Example 1
XYZ security has an average daily trading volume of approximately
450,000 shares. At 3:10 p.m. XYZ receives a buy MOC order for 45,000
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 150,000 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. At 3:50 p.m. the
DMM disseminates another mandatory imbalance publication updating the
imbalance to a 100,000 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
100,000 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. 10,000 shares of tick sensitive LOC interest at $20.24;
5. 10,000 shares of d-Quote interest that at its maximum discretion
is $20.24;
6. 40,000 shares LOC interest at $20.25;
7. 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
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 4:00 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 150,000 shares of the buy imbalance at a price of
$20.25, leaving a buy imbalance of 100,000 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 95,000 share buy
imbalance;
2. 5,000 shares of Crowd market interest which leaves a 90,000
share buy imbalance;
3. 10,000 shares of public limit orders at $20.24, which leaves an
80,000 share buy imbalance; and [sic]
4. 10,000 shares of tick sensitive LOC interest at $20.24 which
leaves a 70,000 share buy imbalance;
5. 10,000 shares of d-Quote interest that at its maximum discretion
is $20.24, which leaves a 60,000 share buy imbalance; \44\
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\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 60,000 share buy imbalance will be offset at the
price of $20.25 as follows:
6. 10,000 shares of DMM interest, which leaves a 50,000 share buy
imbalance;
7. 40,000 shares LOC interest at $20.25, which leaves a 10,000
share buy imbalance; and
8. 10,000 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
150,000 shares of the buy imbalance at a price of $20.25, leaving a buy
imbalance of 100,000 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 d-Quote interest that at its maximum discretion
is $20.24;
5. 20,000 shares e-Quote interest from a single Floor broker at
$20.25;
6. 50,000 shares of public limit orders at $20.25;
7. 40,000 shares LOC interest at $20.25;
[[Page 59303]]
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
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 4:00 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 100,000 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 1-4 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 95,000 share buy
imbalance;
2. 5,000 shares of Crowd market interest, which leaves a 90,000
share buy imbalance;
3. 10,000 shares of tick sensitive LOC interest at $20.24, which
leaves an 80,000 share buy imbalance;
4. 10,000 shares of d-Quote interest that at its maximum discretion
is $20.24, which leaves a 70,000 shares buy imbalance;
The remaining 70,000 shares of the buy imbalance will be offset at
the price of $20.25 as follows:
5. 20,000 shares of e-Quote interest at $20.25, which leaves a
50,000 share buy imbalance;
6. 25,000 shares of at-priced DMM interest, which leaves a 25,000
shares buy imbalance;
7. 25,000 shares of public limit orders at $20.25, which fills the
remaining 25,000 shares of the imbalance.
The remaining 25,000 shares of at-priced DMM interest and the
25,000 shares of public limit orders at $20.25 will not be
executed.\45\ Additionally, the 40,000 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
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 150,000 shares of the buy imbalance at a price of
$20.25, leaving a buy imbalance of 100,000 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. 50,000 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. 20,000 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 Rule
104 and other NYSE and SEC rules particularly in this example where
the DMM is participating on the same side of the imbalance.
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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 170,000 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 Rule 123C
In addition to current Market on the Close procedures, NYSE 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 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 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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[[Page 59304]]
Proposed New Closing Procedures 50
The Exchange seeks to build on the changes the NYSE 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.
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\50\ On May 19, 2004, the Securities and Exchange Commission
(``Commission'' or ``SEC'') approved amendments to NYSE Rule 123C,
subject to technology upgrades to the electronic entry systems for
MOC and LOC orders (the ``2004 Amendments''). The 2004 Amendments
included, among other things, changes to the time of imbalance
publications and the mechanism by which MOC and LOC orders could be
entered. See Securities Exchange Act Release No. 49682 (May 11,
2004), 69 FR 28969 (May 19, 2004) (SR-NYSE-2004-09).
The Exchange continually reviewed the approved amendments in
keeping with the evolution of its market and the technological
upgrades required. As a result of its review the Exchange did not
implement the approved changes; rather, in May 2008, the Exchange
informed the Commission that it intended to formally submit the
instant revised proposal to modify its closing procedures. See
Securities Exchange Act Release No. 57862 (May 23, 2008), 73 FR
31174 (May 30, 2008) (SR-NYSE-2008-41).
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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 Rule 123C to require
electronic entry of all MOC and LOC orders, including those entered to
offset imbalances.\51\ 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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\51\ 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).
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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 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'' \52\ (i.e., significant in relation to
the average daily volume of the security).\53\ The last sale price at
3:45 p.m. will serve as the basis for the Mandatory MOC/LOC Imbalance.
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\52\ 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.
\53\ 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 Euronext employee as defined in
Supplementary Material .10 of NYSE Rule 46 deems 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.\54\
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\54\ See proposed NYSE 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.\55\ In
the case of a ``no imbalance'' notification, no offsetting MOC/LOC
interest may be entered at all after 3:45 p.m.\56\
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\55\ See proposed NYSE Rule 123C paragraphs (2)(b)(i) (Order
entry).
\56\ See proposed NYSE 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 \57\ between 3:45 p.m. and 3:58 p.m.\58\ 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.\59\
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\57\ 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.
\58\ 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.
\59\ Current NYSE 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 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.\60\ CO orders will not be
included in the
[[Page 59305]]
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 Rule 123(C)(3) will provide that up to
3:45 p.m., a CO order may be cancelled or reduced for any reason.
Between 3:45 p.m. and 3:58 p.m., a CO order may be cancelled or reduced
only in the case of a legitimate error as that term is defined by
proposed NYSE 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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\60\ See proposed NYSE 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 Rule
123C(6)(a)(iii), the Order Imbalance data feed will be disseminated
approximately every five 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 \61\ of the imbalance and (ii) at-priced LOC interest eligible to
offset the imbalance.
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\61\ 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,\62\ and Stop orders) will be executed in full.
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\62\ 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.\63\ The Exchange does not propose
to modify the time periods pursuant to NYSE 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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\63\ See Proposed NYSE 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 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 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 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 Rule 123C \64\
Example 4
XYZ security has an average daily trading volume of approximately
450,000 shares. At 3:10 p.m. XYZ receives a buy MOC order for 45,000
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 150,000 shares and the DMM disseminates a
mandatory imbalance publication showing the updated amount. Also at
[[Page 59306]]
3:45 the Order Imbalance Information data feed commences and is
disseminated every 5 seconds thereafter.
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\64\ 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.
---------------------------------------------------------------------------
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 100,000 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. 10,000 shares of tick sensitive LOC interest at $20.24;
5. 10,000 shares of d-Quote interest that at its maximum discretion
is $20.24;
6. 40,000 shares of 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 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 100,000 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 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 better than the last sale, which leaves a 95,000 share buy
imbalance;
2. 5,000 shares of Crowd market interest which leaves a 90,000
share buy imbalance;
3. 10,000 shares of public limit orders at $20.24, which leaves an
80,000 share buy imbalance; and [sic]
4. 10,000 shares of tick sensitive LOC interest at $20.24 which
leaves a 70,000 share buy imbalance;
5. 10,000 shares of d-Quote interest that at its maximum discretion
is $20.24, which leaves a 60,000 share buy imbalance; \65\
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\65\ See supra text accompanying note 44.
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The remaining 60,000 share buy imbalance will be offset at the
price of $20.25 as follows:
6. 10,000 shares of DMM interest, which leaves a 50,000 share buy
imbalance;
7. 40,000 shares LOC interest at $20.25, which leaves a 1
